How will the energy industry change in the aftermath of the 2018 midterm elections? Will a set of new faces enact substantial change in D.C. and state capitols?
Our energy team highlights the potential outcomes that may occur in the immediate aftermath of the election in our latest podcast. We cover federal and local trends to unearth potential changes for utilities, regulators, developers and investors.
New state goals, different influences in the federal sausage making process, and even outcomes for new significant ballot initiatives -- we provide the most comprehensive look at America’s new energy horizon in less time than your lunch break.
Podcast Show Notes
See the full transcript below:
Emily: Hi, everyone. Welcome to this episode of "The Spark" Podcast. We're glad to have you here. I am Emily Kleiman, your host for the day, and I'm really glad to be here with two of our energy experts at ICF.
So let's talk about energy. As we all know, the energy industry is one of the most highly regulated sectors of our economy, and it's one where government policy has an enormous and direct impact. So that being said, we all know elections can have profound consequences for all of the businesses, advocacy organizations, and rent regulators across the energy spectrum.
The questions that we'll be asking today really focus on what should energy professionals take away from the election results? What should they watch out for? And what changes might be coming?
We have some really great guests today: Chris McCracken, who leads our Power Practice, and Matt Robison from our Distributed Energy Practice, who's also a former Capitol Hill staffer. Lots of really great and diverse perspectives and insights that I know they'll be sharing today. Welcome.
Chris: Thanks very much, Emily, good to be here.
Matt: Thanks, Emily.
Emily: We want to talk about some big takeaways here. And to start off, Chris, what's your take on what the election might mean for renewables?
Chris: I think if you look at just the ballot initiatives that happened around the country there was clearly some resistance to expanding renewable generation through direct standards, or even indirectly through pricing on carbon emissions. And while you had one preliminary win, I guess I'd call it in Nevada, with the first pass of two required passes of the Nevada RPS, 50 percent RPS, you had two other cases where the renewables did not fare as well. And in Arizona, for example, a 50 percent RPS standard there, renewable portfolio standard by 2030 was not successful. And Washington's second attempt, the state of Washington's second attempt at a carbon pricing scheme, or carbon pricing approach was also not successful. In both of those cases where you had opportunity for direct support by the public for renewable energy (or supporting clean energy through carbon pricing) you didn't see success there.
Emily: So it sounds like there might be a big bust coming here.
Chris: I think that's right. With the changes in the statehouses and the governorships, as well as in the state legislatures in some cases, there's certainly the potential for support of renewable energy in several states. You know, during the campaign there were 11 democratic candidates for governor who supported some version of a goal of 100 percent renewables by 2050. And so that's a long-term goal and certainly an aggressive one, and far beyond what most states are talking about now, say, for California.
And in the election, we actually saw seven governor seats flip from Republican, Democrat. Now the specifics of every state are going to be a little bit different, but with taking New Jersey as an example in the election last year, you had a flip from Republican to Democrat, and there were several results related to clean energy that have fallen out of that.
Emily: Can you tell us a little bit more about what some of those examples were?
Chris: Sure. Governor Murphy (who took over for Governor Christie) since he's been in over the past year, he's made attempts to reinstate the state in the Regional Greenhouse Gas Initiative, which is the Northeast, Mid-Atlantic Carbon Cap and Trade Program. They're working toward that. He signed legislation to mandate that utilities obtain 50 percent of their electricity from renewable sources by 2030, and he's also made an appointment to the Public Utility Commission that's going to have that commission now leaning towards potentially mandating a program to incentivize rooftop solar. If you take that as an example—and we don't wanna paint with too broad of a political brush here—there could certainly be some support in those states in which you had those flips of governorships toward renewable energy.
Emily: Where across the U.S. has that happened, and can you give us some more cases where we could look forward to that?
Chris: In Michigan, there was a Democratic pickup, so a governor like Whitmer is in favor of 100 percent renewables goal and has also stated support for starting a climate change office. And that could certainly show some momentum there in Michigan. Colorado's new governor also supported changing the RPS to 100 percent by 2040. And you've got a similar story with respect to RPSs in New Mexico and Illinois potentially. And then Janet Mills, the governor elected in Maine has said she'd let Governor LePage's Wind Moratorium expire. Wind developers could certainly see some upside there.
Emily: So bottom line, and pardon my pun, but it sounds like there might be a possibility of some tailwind for renewables, and that's really in the form of a number of states potentially getting a lot more ambitious on RPS. Does that sound right?
Chris: Yeah, I think that's right. So even though you saw some challenges to the ballot measures, and so it's not necessarily a hurricane force tailwind you certainly see with the statehouse changes some momentum towards renewables.
Matt: You know, I'd like to throw in another possibility at the federal level to sort of connect that renewables thought.
Emily: Absolutely, go ahead.
Matt: If you look at the federal level, the change in control of the House from Republican to Democrat doesn't look like it's that big of a deal on renewables, just at first blush. And part of that's because legislative gridlock has been so bad in Washington, and split control of the chambers now and with the presidency isn't exactly going to improve things, you know? And on top of that just this morning, New York representative Paul Tonko is expected to be the new chair of the Energy and Commerce Committee's Environmental Panels, said in an interview with POLITICO that his goal would be to ensure that the top priority will be a bold response to climate change.
But you look at some history here and there are a lot of parallels with our current situation and the outcome of the election on Tuesday with what happened the last time Democrats held the House. And you saw a lot of those Democrats that came into the 2006 election coming from rural, more conservative districts, which is what happened this week. And one of the things that occurred was that house decided to make a carbon cap-and-trade bill an early major legislative priority. Did manage to pass it in the House and then it died in the Senate. And there was a lot of concerns from the Democrats in that chamber at the time that they really had to go out on a bit of a political limb in what was ultimately a failed effort. I'd expect to see a lot of hesitancy to go big on any kind of energy of climate legislation this time around. But one issue where you could potentially see some interest is an ITC, PTC extension.
Emily: Matt, just for listeners who might not know, ITC and PTC?
Matt: Sure, the Solar ITC is the Solar Investment Tax Credit. It's a 30 percent tax credit for solar systems on residential and commercial properties. It's one of the factors that analysts credit with all the growth we've seen in solar. It's an annualized about 60 percent a year.
The PTC is the Production Tax Credit. It applies to wind, geothermal, closed loop biomass, and solar systems that are not claiming the ITC. And it's a little different. It's a per kilowatt hour for generation for most sources. And that's one where wind developers really credit that incentive with helping to drive some scale in manufacturing. That's one of the reasons they think that U.S. wind power costs have gone down by about 67 percent in the last seven years.
Emily: That's great. So you think there may be some action on both of these at the federal level?
Matt: I think that the conditions appear to be there. And the thinking here is, look, especially given the experience on that cap-and-trade bill 10 years ago, 9, 10 years ago, and the current political realities in the Senate, I think it's unlikely that we're ultimately going to see any kind of a major run at a big climate bill, you know, a big carbon-driven bill. At the same time, environmental groups just spent totally unprecedented sums on this election. They're going to be pushing hard for some real legislative wins.
And one area where I could see people's eyes turning is that ITC, PTC, and extending those tax credits. Those are both currently in the process of being stepped down under current law. They're set to expire in the next three years. This is the kind of thing that could be relatively more palatable to some of those more conservative Democrats that have just come in. It's a tax incentive, and it's really good for Midwest members from both parties in states with a lot of wins.
Emily: Matt, is there a lot of support here? What’s the status, both historically and moving forward?
Matt: It's a mixed bag. I mean, there was not a lot of support for those tax credits in last year's big tax bill, although they both survived. But with this new congress, with a president gearing up to run for re-election and looking for some tangible accomplishments, and there's going to be an awful lot of Democratic senators who, for some reason or another, can't think of why, may be visiting Iowa in the next 18 months. Iowa has a lot of wind, you could begin to connect those dots and see a constructive atmosphere for ITC, PTC extension.
Emily: Definitely, that makes a lot of sense. Let's look at the rest of the generation picture. What about some of the more traditional fuels and the plants that run on those fuels?
Chris: I think the story with traditional fuels—and here we're talking about non-renewable or fossil fuels, oil, gas, coal—I think it's a bit more mixed after the election. In addition to the Washington state referendum I mentioned earlier on carbon pricing, Colorado actually didn't pass two initiatives that would've restricted oil and gas drilling. The first would've been a limitation on drilling on state-owned land, so that didn't pass. The second would've required new wells to be at least 2,500 feet from occupied buildings and other vulnerable areas. So that also didn't pass.
Then on top of that at the federal level you've got the Republicans picking up seats in the U.S. Senate and being generally supportive of the administration's push to be more flexible with respect to fossil fuel generation and where you might have that mining, and drilling, and those production needs.
However, on the other side you've got the Democrats now in control of the House, and that could mean a couple things. One is that we would definitely expect a different view with respect to oversight of energy and environmental policy at the agencies. We've already heard incoming committee chairs say as much, and that could put pressure on further moves at the departments to ease restrictions on coal mining or to expand drilling access in areas.
The other thing that Congress obviously does is controls budgets. With a Democratic House, you've now got them in negotiations with the Republican Senate with respect to budgeting. Congress in the past has been able to sneak directions into government spending before. Now, to the extent that you have democrats and republicans working together on those negotiations, there may be things that are more controversial that really result, you know, leave us more with the status quo rather than an expansion in production. So I think the bottom line here is that while traditional fuels avoided some of the negatives in terms of ballot initiatives, the federal outlook has gone from constructive for those sectors to a bit more neutral and with a bit more uncertainty than there was before.
Emily: So aside from generation sources, what about other energy infrastructure, other energy investment? Do we have any indications about the outlook there?
Matt: Sure, I'll jump in on that one. We've been hearing some early rumblings that one area where the democratic House and the republican administration has said it could work together is on infrastructure. Both President Trump and the Democratic leader, Nancy Pelosi, brought up infrastructure as a key focus in their press conferences earlier this week. And of course, the last time there was a big federal initiative on infrastructure was the stimulus bill ARRA, which is coming up on 10 years ago. And that provided a significant amount of money on energy.
It included $10 million for modernizing the grid, $3 billion for R&D, and to carbon capture from coal plants. So look, the recent history of Washington isn't exactly reassuring when it comes to the prospects for any legislation. But if you had to take an early candidate for something that could be done, infrastructure would be one of your best. The other thing that tends to happen in Washington is when there's momentum to do something, the people whose job it is to write up the details go looking for what's available off the shelf.
One guide they'll look at was what was done last time with ARRA. That's one indication that an infrastructure push could well include some significant support for the grid. Another source is: what plans, blueprints are available from the agencies? And the Department of Energy has a grid modernization initiative.
It's actually something ICF supports, and that gives a pretty good guide to what's needed in grid mod, and when. We know that Trump administration has been interested in reliability, and so there's a crossover of interests there.
And just a final data point that I'd throw in there is the interview I mentioned earlier with that likely incoming Chairman of the House sub-committee where he said they're going to be looking into an agenda that would advance efficiency and grid modernization—and maybe rolling it all into a larger infrastructure bill.
So all things being equal, one takeaway from this week in my mind is that it could well be supportive of infrastructure generally, especially more funds for grid modernization.
Emily: I think we've got time for one more question, and I'll just open it up to both of you. Are there any other really big takeaways from the election you'd like to point to in terms of how it affects the energy industry and energy professionals?
Chris: I think voters are showing that there is a focus in their minds on energy costs and reliability in the traditional things you'd expect from an electricity system, even when it comes in the face potentially of some of these environmental measures, or renewable energy measures that they might be in favor of. Another data point are two separate ballot initiatives in Florida and California that fell out in a different way than those.
Florida amended its state's constitution to ban offshore, and gas, and oil drilling in state waters. However, that was paired with a prohibition on indoor vaping, so that was sort of an interesting pairing.
California rejected an initiative to roll back its gas tax. However, it was widely known that the revenues from that went toward infrastructure development for roads and bridges. In both of those cases, while it sort of ran counter to the trend we'd seen in Colorado and Arizona in ballot measures, the measure itself wasn't flying solo. It had some sort of corresponding policy or impact associated with it that was attractive to the voters potentially. If you connect those dots, it seems like voters are sending kind of a mixed message here on carbon climate and the environment.
While they may have an interest in advancing decarbonization or the renewable energy goals, which are the types of bigger policy goals that were expressed by some of the new governors that got elected, they still really value reliability, price, jobs, economic development, etc., which really came into focus more on those specific ballot initiatives. So that sets up a really interesting situation where policy makers, regulators, utilities, as they try and advance these types of goals for renewable energy development for carbon control, are really going to have to be attuned to how those fit with those traditional values of low electricity prices and reliability. And so the bottom line is that as we look ahead policy makers are really going to have to thread that needle when it comes to integrating renewables and mitigating costs at the state level.
Emily: Matt, what do you think?
Matt: Yeah, I totally agree, and I guess I would just add a distributed energy perspective. You could see the kind of dynamic that Chris just talked about sort of being a mixed bag for distributed energy resources, DER. You know, one of the things that states with relatively high DER penetrations have been grappling with, and federal agencies as well, is what kind of grid modernization investments do you need to safely and reliably operate in a higher DER environment? With DER I'm talking about distributed generation, solar, storage, also included, you know, electric vehicles, also demand-side management measures, demand response, energy efficiency, you know?
And those put pressures on the kinds of IT systems you need, what kinds of inverters you need, what kinds of visibility into your distribution system that you need for that safe and reliable operation. So if you look at the two messages that voters seem to simultaneously be sending here that Chris was alluding to, "We like renewables. We wanna fight climate change, but we also care about the bills we pay and reliability, not to mention local jobs in places that have more oil and gas development." It probably does set up an interesting conundrum for policy makers about how to strike that right balance in enabling more distributed generation, and hitting carbon goals, and investing in the infrastructure we need for a modern grid but also keeping a lid on prices and maintaining that safe and reliable service.
So, you know, if you played that out, that kind of dynamic could be relatively supportive for things like energy efficiency programs, demand response programs, building deficiency. The kinds of approaches that are relatively low-cost carbon cutting measures and that can help you hit climate targets at a relatively lower price point. You could also see some momentum for things like distribution non-wireless alternatives, which about half the states in the country are currently somewhere in the stages of piloting or deploying. And those are alternatives to traditional infrastructure investments that use DER instead of poles and wires. And in some circumstances, they can be cost savings.
Finally, you could see a greater need for states and utilities to try and get a handle on their pathway for grid modernization, and really trying to figure out what investments they are going to going to need, in what sequence, in order to integrate renewables and get value out of them and maintain reliability—all without breaking the bank.
Emily: Yeah, I think that's a great place to end on that note. So thank you, Matt and Chris, for joining us today and for your insights. Definitely a lot to think about as it relates to the election and the implications for the energy industry.
And thank you to our listeners for tuning into this episode of "The Spark." If you're interested in learning more or you have your own thoughts and comments about what the election has meant for the energy industry just reach out and tag us @ICFEnergy on Twitter, or @ICF on LinkedIn and Facebook. Thanks so much.