Buying clean energy in an age of growing electricity demand

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Taylor Kuykendall:

Hello and welcome to the Energy Evolution Podcast, where we delve into the ever-changing realm of energy and sustainability alongside some of the influential thinkers and pioneers in the energy transition space.

I'm your co-host, Taylor Kuykendall. And today, we have the privilege of speaking with Rich Powell. He is the CEO of both the Clean Energy Buyers Association and the Clean Energy Buyers Institute. CEBA boasts a membership of 400 companies that collectively represent over 15 trillion in market cap. As of the second quarter of 2024, the members has secured contracts for 84 gigawatts of new clean energy, so major customers of clean energy. See, Rich is at the forefront of this mission to foster a global community of energy consumers that are committed to advancing a sustainable energy future and while trying to tackle some of the challenging market and policy obstacles that come along with trying to achieve a carbon-free energy system.

See, as we navigate the current political climate, we wanted Rich to share some of the perspectives on challenges that clean energy buyers are facing over the next four years, particularly in light of this big recent shift in federal government that we've seen in the U.S. He's also going to highlight some potential opportunities that could emerge during this period. We're also going to discuss how the demand for clean energy is evolving under the current administration compared to previous years and whether CEBA members are starting to adjust their strategies for clean energy procurement.

Rich is also going to elaborate on maybe the relationship between economic growth and this increasing demand for carbon emissions-free electricity, and explore how those two factors interconnected. We're also going to dive into the critical issue of permitting reform and its significance on facilitating some of these clean energy projects. Finally, we're also going to be talking about the federal technology-neutral energy tax credits, discussing some of their relevance to clean energy procurement, and also some of the potential ramifications of this repeal that we're looking at in the U.S. Congress right now and what that might mean for energy prices and job creation.

Without further ado, let's hear from our talk with Rich. Now, a lot of things are moving on the federal government level. We just want to remind you that this interview took place in the last week of May.

Hello. Thank you, Rich. Thank you very much for coming on Energy Evolution.

Rich Powell:

So happy to be here. Thanks so much for having me.

Taylor Kuykendall:

Absolutely. Rich, to start off, for our listeners that are not familiar with the Clean Energy Buyers Association, can you just tell us a little bit about your group, about what you do, who your members are?

Rich Powell:

Sure. So, Clean Energy Buyers Association, we call it CEBA, is the largest group [inaudible 00:02:18] corporate buyers of electricity in the world, and everyone's united with a common quest to find low-cost, reliable carbon emissions-free electricity systems. We've got 400 members, 200 of those are buyers. They range hugely across all areas of the economy. So we've got folks from big technology. We have manufacturers of everything from automobiles to consumer devices. We have metals and minerals, and retailers, and food and ag. If you buy a lot of American electricity, you're probably a member of CEBA.

Taylor Kuykendall:

Excellent. Now, and we've seen a really big shift in the federal government in the last couple of months, especially at the top. There seems to be a lot less interest in things like the Inflation Reduction Act that supported some of these technologies. I'm wondering, given this shift that we've seen in government, what are some of the challenges you foresee for some of your Clean Energy Buyer members? And on the other hand, what are maybe some opportunities that might exist now that didn't a couple of months ago?

Rich Powell:

Yeah. Well, to take a big step back, the biggest thing that's happened in energy in the last year or so is it has nothing to do with the election or anything else, it's returning America, at the very least, to growth mode in electricity. So, we had pretty flat electricity demand in the last two decades. There were a lot of changes in the margins. We built a lot of renewables in the U.S. We built a lot of gas in the U.S. We retired a lot of legacy assets that changed the electricity mix, but the overall size of the grid stayed about the same through that period. It was actually pretty extraordinary, totally unprecedented historically in the U.S. to have flat, low growth, and that's now changed. So, 2024 was the first year where we saw significant low growth again since the 1990s, and that appears now set to continue at least through 2030, and maybe beyond. Maybe this is just, again, the new normal that'll take us all the way through 2050.

Now, we are out of practice in rapidly expanding the size of our grid, and I mean that on all fronts. We're out of practice on building huge amounts of new generation, we're out of practice on upgrading the grid we have, and we're out of practice on expanding the grid, meaning building new, large wires and expanding the grid around the country, and so we need to get back into growth mode on all of those fronts. And so, the new political situation, there are absolutely opportunities and all that. There are also some challenges we're working through right now. The opportunities in this are huge. We have an administration coming in, and we have increasing bipartisan support in Congress to do the kinds of fundamental reforms to our permitting processes and our transmission processes that I think people have talked about for a long time, but not taken a lot of action on. I think we now have an administration and, I think, a congress that is excited about taking deep action on those things. So that is a really exciting opportunity, and we're engaging deeply with policymakers on that.

Some of the challenges have been around things like the tax incentives, and so we've been very engaged with folks in Congress around making sure that there's a very clear policy ahead on those tax incentives in order to keep electricity systems low-cost and reliable as we get back here into growth mode. And we've done a lot of analysis, which I'm happy to talk about, which shows that, if you hastily take those incentives away, you could see significant increases in electricity prices, you could see significant problems with reliability, and you could see wider economic impacts as those electricity prices then translate into a hit for the broader economy, not just for our great, big businesses, but for all of our customers across the U.S. as well.

Taylor Kuykendall:

Can you maybe elaborate on it a little bit? What does your research say the impacts are going to be, just to maybe put a little bit of color and scale around that?

Rich Powell:

Sure. So we've worked with an economic modeling firm called NERA Consulting, and we've taken a look at what would happen if you took the tax credits away. To get technical for a minute, I'm going to say these are very specific tax credits. They're often called the technology-neutral tax credits, and they're production tax credits and investment tax credits for all new carbon emissions-free technology. So this would be for wind, and solar, and nuclear, geothermal, and hydro, and thermal resources, like gas and biomass, if you put carbon capture on those things. So those things are all now on a level playing field on the tax code. They all receive production tax credits and investment tax credits when you build new stuff. And so we looked at what would happen if those were rapidly taken away, and what our research at a national level found was a pretty immediate and pretty significant price impact.

So, nationwide, electricity bills go up about 8%. It's a little lower, thankfully, for residential payers. For our customers, we think of them something like 7%. And then for our businesses, and this is big corporations and this is medium-sized, and even small businesses, the folks who pay commercial and industrial rates, their rates would go up something more like 10%, and this would happen immediately. And then we've double clicked on that and we've looked at a lot of individual states. And unfortunately, we see that there are really acute price increases in a number of states. And so places like the Carolinas and Illinois, and a few other places, they see much more significant double-digit increases. Some states even looking in the 20%. Maine, for a couple of reasons, is more in the 20% having to go through that in greater depth. But I think it's just important to know, when you rapidly increase electricity prices, that also has other follow-on effects.

Electricity is something that everybody buys. It's just a fundamental input for our economy. So, if you make a retailer's electricity prices go up, that means grocery prices are going to go up there. Also, if you rely less on these new resources that are going to come out of grid because they've become more expensive, because the incentives go away, you're going to have to rely more on continuing to run the old resources that are, by definition, more expensive because they're about to be replaced. And so, when you do that, for example, when you increase the run rates of a lot of older natural gas-fired power plants, for example, not only is that pretty expensive to do, but that also increases the cost of natural gas across the whole economy. So, home heating becomes more expensive, and natural gas as an input to manufacturing processes becomes more expensive, too.

So, suddenly, you have this compounding economic effect across the whole energy-dependent part of the economy, which is basically the whole economy. And suddenly, you see really significant hits to GDP. In a number of states, you see really significant employment effects, often in the thousands, even tens of thousands of jobs in key states across the country, and deeper impacts to just residential pocketbooks. If you look at just the electricity prices themselves, you're probably talking between $100 and $200 a year across the country in electricity, price increases. But then when you layer onto that the increased costs of all goods, and you layer onto that the increased costs in natural gas for home heating for so much of our country that heats their homes that way, you start to talk about pretty significant price impacts on a lot of folks around the country.

Taylor Kuykendall:

Yeah, and I think a good point to remember here, too, is a lot of people talked about these tax credits being relatively safe because of the spread across red and blue states, and you just detailed a whole lot of potential impacts if they repealed. But I'm just wondering, what's that conversation sounding like in D.C. right now? Are you hearing people receptive to this message of these things are important, we need to keep them in place, or is it still a fight on the hill?

Rich Powell:

Well, for those that are not D.C. policy nerds, that were not following the votes that happened last week here in D.C., we had a setback on this issue, and so the bill that came out of the U.S. House of Representatives. So this isn't done, this is the beginning of the negotiation here, but the bill that was finalized, I get my dates messed up, either very late Wednesday night or very early Thursday morning. I think the final vote was really early Thursday morning, and then everybody collapsed and went to sleep for the rest of the day, and the members did something heroic in getting this thing across the finish line.

This is the massive bill that's going through the reconciliation process right now. It's fundamentally a tax bill, so this is the bill that would extend the TCJA, the Tax Cuts and Jobs Act. That was the great, big tax bill that President Trump, in his first term working with Speaker Paul Ryan, got across the finish line back in 2018 and made really significant adjustments to the whole tax regime for the country. Net was a very good thing for the country, greatly increased economic growth. Everyone's 401(k) certainly benefited from this because we made a big, long overdue adjustment to corporate income tax rates. It was a very important bill. That was set to expire at the end of this year, so all of those tax rates were going to snap back to their previous levels.

And so, right now, Congress has the unenviable job of figuring out how to extend that whole tax regime, which is a big, complex, very expensive thing to do. And so they were looking at that extension and then how to pay for that extension. And unfortunately, these technology-neutral tax incentives and some related ones for clean manufacturing have gotten caught up in that conversation. Portions of those are being used to pay for that broader tax extension. So, what we saw last week was the tech-neutral credits and the clean investment credits significantly pared back, meaning that they ended a lot earlier than they would have otherwise, and the terms of the credits significantly changed. So, rather than being able to collect the credit, if you just started a project, the project has to be completed by 2028, so the date when they're turned off. That's a really big hurdle in energy. Energy projects take a long time to build and put into service. So it basically means that, if a project isn't under construction today, or maybe several years into construction today, they wouldn't be able to take this credit by 2028.

They also added in the legislation some new language, I think well-intentioned language, that is trying to get it making sure that U.S. taxpayer dollars don't enrich state-owned companies from countries that we see as foreign adversaries. So, this is called foreign entity of concern language, that's the term of art, FEOC. And they added some really significant new restrictions to these tax credits to go through this FEOC process, again, with good intentions, but the new process they've created is so onerous that I think it could be described as a poison pill for all of the credit. So it's not just that they end now in 2028, as opposed to ending in 2033, it's that the ones that can still go through have to go through a process that might be impossible for really almost any project to go through.

So, that's what happened last week, and we did see though that there was significant Republican support in the House for continuing these credits in some way, shape, or form, and dozens of members were very active on that, very public about that. And folks in the Senate on the Republican side, a number of folks have seen what came out of the House and said, "Well, we'll need to make really significant adjustments to that in the Senate if we're going to preserve American competitiveness, and electricity affordability, and jobs in our states." And so that process has now gone over to the Senate, where they'll have to take the House's bill, make their modifications, pass that. And then to finalize the whole process, it's got to go back. Both chambers have got to vote on the same bill. So, eventually, it would have to go back to the House, and they'd have to pass it as well before this whole thing is done.

Taylor Kuykendall:

You mentioned earlier that we're not really used to this growth mode that we're going back into in terms of how much electricity demand we need, and one of the big things that people talk about a lot in the energy space and how hard it is to build things, as you just mentioned though, permitting reform needs to be done to make that happen. I wonder, can you tell me a little bit about what you've seen as the appetite for maybe getting in there and making it easier to permit and build projects in the U.S., and what the appetite is for maybe tackling that this year in D.C.?

Rich Powell:

Sure. So, we need to do a couple of things on the permitting side. So, we need to make it more straightforward. If you've got a new generating project, whether that's a new, small modular nuclear plant, or a new solar farm, or a battery facility, we need to make it more straightforward to cite and permit that thing. We need to limit the length of the lawsuits around those things, because our current permitting process invites the public to come in and participate in the process and then gives the public a chance to sue over the results of that process, and that can often stretch on for years, sometimes even decades or more. So we've got to limit that. And then we also have to improve the process and give more certainty to expanding our grid, so both upgrading the grid we have and then building new long-haul transmission lines. So those are the major pieces that we need to do.

The good news is that almost all of those pieces were included in a big legislative package that folks in D.C. called the Manchin-Barrasso bill, because it was sponsored by former chair, Joe Manchin, now retired, from West Virginia, and then his equivalent in the Senate, Senator John Barrasso, who drove that forward, both on the energy and natural resources committee. That legislation moved really significantly last year, and there was actually an attempt to get it fully passed in the "lame duck", so the period after the election and before the end of the year. Last year in D.C., we didn't quite get it across the finish line, but along the way, a lot of people voted for that bill and very bipartisan. So this was traditionally an issue where there were really deep partisan divides.

You saw a lot of Democrats that were really concerned about changing the permitting regime. Because often, environmental activism has been more about stopping stuff than promoting stuff, and so they're concerned about changes to that. And then you traditionally had a lot of conservatives who were skeptical about building a lot of transmission across the country because they were concerned about states' rights and who paid for that. And this was really a coming together of all the camps, just recognizing we've got to get back into build mode and we've got this huge, new electricity demand coming. And so we're really optimistic that, in this Congress, especially once we're through this other bill, this reconciliation bill, we can get back to a robust bipartisan conversation about getting this done.

I think the crucial thing for folks to remember is that this is real energy policy, and energy policy can't move through the U.S. Congress through this reconciliation procedure. It's got to be something that just moves in normal, regular order, particularly through the Senate, and that means 60 votes are required in the Senate, and that means it's got to be bipartisan. So, regardless of what it is, it's going to have to be a big compromise where all sides give a little to get a lot, and we do think that there's a solution there that, at the very least, can make a lot of positive motion forward in this Congress, but maybe even get completed in this Congress. And I think you'd have an administration that would want to sign a big piece of legislation like that because it knows how urgent it is that we fix this permitting regime and get us building fast.

Taylor Kuykendall:

And when we talk about these zero-carbon energy resources, I know we mentioned solar, wind, nuclear, those jumped to mind really quickly, but we also have an administration that, for the first time in a while, was talking about things like coal plants again. I'm wondering, does carbon capture and some of those technologies fit into this as far as CEBA is concerned, or do you guys have a position on whether that's a viable technology for meeting some of these needs?

Rich Powell:

So, our position is that we are for carbon emissions-free technologies, and then our various members decide which one of those work for themselves, and their approaches, and their philosophies. And so we've got folks that have a variety of perspectives on this. Some have come out very publicly and said that things like natural gas with carbon capture would work within their framework in certain circumstances. And so, just notably, both Meta and Google, for example, have come out and said that it would work to advance their approach, and they've got different projects going in different places on that.

And I think the key questions in folks' minds are, "What about the methane that goes into the machine? Is that responsible methane?" So we're making sure that there aren't a lot of leaks along the way. "How much of the CO₂ are you capturing when you burn the gas and turn it into electricity? Are you doing something with the CO₂ you didn't capture?" So you pulling that back out of the air, for example, with carbon dioxide removal or something else. "And then what's being done with the CO₂ once you capture it? Is it being permanently stored?" And so I think those are the big questions that people are grappling with as they think about this.

In terms of economic viability, that does remain to be seen, and so I'm very hopeful. I'm a longtime advocate for more research and innovation in those technologies. The trouble is that, right now, we don't have an operating gas plant up and running anywhere in the U.S. with carbon capture. We've got lots of gas plants running, so we know that technology works really well. And we've got lots of carbon capture running, so we know that works really well. We do tens of millions of tons a year over time, about 10 million tons a year in the U.S. of capture. We know that works well. It can be permanently sequestered. It is safe and effective.

We haven't put those two things together in the U.S. in a while. We had one back in the 1990s, believe it or not, a small gas plant that was carbon capture running in the northeast. It operated just fine. So we know it could be done, but people get a lot more confident when there's something out there for them to go and to look at, and then ideally when there's a couple of different people with a product offering around it. So, there are a number of companies that have live offerings now, and a number of our buyers of electricity are evaluating those offerings. And I think it remains to be seen.

Last year was a breakthrough year for nuclear amongst our members, and so we had multiple different members sign some version of power purchase agreements, or bring old plants back online, or make investments in advanced nuclear companies. So, a company's got to conviction on advanced nuclear last year. We'll see if folks come out publicly and get to conviction on gas with CCS in particular this year.

Taylor Kuykendall:

You mentioned growth again. For the longest time, any economic growth or demand growth necessarily meant that we were going to have increased emissions, and that story is definitely changing. But I'm wondering, technologically, are we there? Are we at the point where we can realistically say, "Hey, we can go out here and grow the economy, but also grow electricity demand without increasing emissions," or are we a little ways off from that still?

Rich Powell:

So, when you think about the kind of growth we have today, we're experiencing right now, we actually need grids to grow with more capacity through a whole year. So that means that new capacity needs to be added to grids that runs with high-reliability 24/7, 365. And so we're getting very close to the point where all of that growth could be met with new low-carbon electricity, but there are portions of a year when we still struggle. So we've got terrific tools in solar, and in wind, and in battery storage. And so, all of those things, there are huge amounts of those that are commercially viable today. They're sitting and waiting and interconnect queues around the country. This gets into a nerdy topic, but there's just an enormous amount of this that is already applied to get itself connected to the big regional transmission organizations that run our grids around the country.

Our whole grid today is about 1,100 gigawatt hours, or 1.1 terawatts. Waiting in those lines around the country, there's 1.5 terawatts, or 1,500 gigawatts, of new projects that want to get connected. So, we've got a lot with those. But when you put together those solar projects, and those wind projects, and those battery projects, they typically don't fully cover all 24/7, 365's hours in the year. And so we are still needing what folks often call clean firm technologies that can actually run all of those times, or that could be dispatched in the particular times when the sun isn't shining and the wind isn't blowing, and it's too many hours away from when they last did so our existing batteries can work.

And so, those clean firm technologies, we know what the candidates are. We know it's small modular reactors or advanced nuclear. We know it's enhanced geothermal technologies. We know it's really advanced batteries. People call this long duration energy storage, so things that could store electricity not just for a couple of hours, but often for weeks. And we know it's some form of carbon capture, right? So gas plants with carbon capture, for example, best candidate. Oh, and maybe commercial fusion, which fascinatingly is closer in on the horizon than a lot of people probably realize. So those are the candidate technologies out there.

None of them today are running at big commercial scale, so none of them today are quite where solar, and wind, and short duration battery storage are. And we need to get at least one of those, and, ideally, a couple of those, up to full commercial readiness very soon if we're actually going to meet all of that low growth clean. But the good news is that we can meet the vast majority of that low growth in a very clean way. So, regardless of how you look at it, the carbon intensity of our economy will continue to go down through this period of growth. But obviously, the carbon intensity going down is only good for so long. We actually do need to completely reduce CO₂ in our economy, and so we need some of those clean firm technologies to fully meet that gap.

Taylor Kuykendall:

Excellent, Rich. Thank you so much for joining us on the show today.

Rich Powell:

Thank you so much for having me, really enjoyed the conversation.

Taylor Kuykendall:

All right, listeners, thank you so much for listening to the latest episode of Energy Evolution. I want to give a special shout-out to our incredible podcast team members. I am, once again, Taylor Kuykendall, but some of the other people that work for this podcast include my co-host, Eklavya Gupte, Camilla Naschert, Christopher Coats, Dan Testa, Karen Willenbrecht, and our wonderful agency partner, the One Nine Nine. To stay up to date with our upcoming episodes, be sure to subscribe to Energy Evolution on your favorite platform. If you have any ideas for future themes or guests, we'd love to hear from you. All you have to do is shoot us an email at energyevolution@spglobal.com. And look, if you liked what you heard today, do consider sharing the podcast with others, or leaving a review on your preferred podcast platform. We can't wait to bring you more fascinating discussions in the future. Until next time, take care and stay tuned for more from Energy Evolution.