Powering the Mitten: Where will Michigan's energy come from in 20 years?
Natural gas or nuclear? Solar or wind? Insulation or smart apps? Big utilities or community solar gardens?
The options are as many and as varied as the viewpoints across Michigan's leadership. But one thing is clear: how we keep the lights on and the motors running in Michigan is going to change dramatically over the next decade or two.
That's because policies written in the next 18 months in Lansing will determine our energy course for years to come. Michigan's energy policy, Public Act 295 of 2008, is about to expire in 2015, just as new USEPA regulations requiring states to reduce carbon emissions from power plants are set to come online. This fall, legislators will debate where we go from here in terms of power generation, reliability, affordability, renewables, efficiency, and market regulation.
To help you get a handle on these issues, we are launching a new "Powering the Mitten" series by asking seven experts in advocacy, utilities, politics, and the private sector the same question:
"What will Michigan's energy landscape look like in 20 years, and how will we get there?"
Here are their responses, edited for clarity and brevity.
Jacob Corvidae, Interim Executive Director at EcoWorks
Jacob Corvidae/ Photo by Doug CoombeThe one major thing I think is likely to be true is that energy sources will be much more decentralized than they are now. We will still have large-scale major utilities, but there's no question that the business model is changing. There will be more players working at smaller scales, at the building or household scale, district, municipal or regional scale, and even at the device level.
There are couple things this implies. One is that the economic field around energy is going to be chaotic. And like most kinds of chaos, it's going to provide some great opportunities and some turmoil and probably mistakes along the way. And I think we can just expect that. The other implication is that not only will there be great entrepreneurial opportunities, but amazing opportunities for utilities themselves. I think the degree to which utilities can transition into this new model, they will have a strong role and will be able to provide a great service. And the degree to which they fight it, they are likely to find themselves left in the dust.
The price of solar has more than halved in the past five years. Utilities in other parts of the country are terrified right now because the more competitive individual solar installations become, the more their top
customers who can afford it will start leaving. The more that happens, the more expensive it becomes to provide baseload, And the more expensive utility power becomes, the more people leave for solar, and it becomes a systemic feedback loop that is going to continue to cause problems for utilities. Solar is one of the places that's going to happen. Wind is not as easy to decentralize in Michigan. But smaller-scale biomass and other energy innovations that come online, as well as increases in energy efficiency, will continue to push things in a big way.
Some advocates of renewable energy may say, "Great, let the utilities die. We would rather produce our own power." But the truth is that we as a society benefit greatly from having large energy utilities. So I think it will turn into sort of a hybrid model. A large centralized system is not the answer to reliability. And at the same time, a scattered, decentralized system is not the answer. Both of those models fail with respect to reliability. The healthiest ecosystems are ones in which there is a redundancy of function, so a hybrid model would allow for some redundancy. If you look at a large system, it is inherently vulnerable to major collapse. It won't collapse often, but when it does, it will collapse spectacularly. And smaller systems will tend to fail more frequently so they're not reliable either. And so that is where I think the hybrid model will come in.
Nick Khouri, Senior Vice President for Corporate Affairs, DTE Energy
Nick Khouri/Photo courtesy of DTE Energy
" the economic field around energy is going to be chaotic. And like most kinds of chaos, it's going to provide some great opportunities and some turmoil..."
We have the opportunity and challenge to completely modernize the way energy is produced in Michigan in the next decade that could lead to $15 billion in investment in Michigan, thousands of jobs, and a cleaner environment. But to be able to accomplish this transformation, while keeping electricity affordable for customers, we need to write public policies in Washington and in Lansing.
Times are changing for a couple of reasons. In Michigan, we generate a majority of our electricity from coal, and we think that at least half of that generation fleet will be retired over the next decade, both because of EPA policy and just because of the aging of the fleet. What that means is that as soon as 2016, many organizations including MISO
(the Midcontinent Independent System Operator that manages the power grid for much of the midwest) are predicting shortages.
So we are moving from an age of excess capacity to one of shortages, and we need to respond to that change. And that is part of the reason for our call for state public policy over the next 18 months.
The main goal is to be able to invest in the infrastructure needed to replace coal plants, while minimizing impact on customers. Our three main policy goals are to have the right regulatory structure to allow for those long-term investments in the system, enough flexibility to be able to respond as market conditions and technologies change, and a priority on affordability for customers to make sure electricity costs do not pose a barrier to economic growth. If we have these three things, I think it can lead to a cleaner environment, billions of dollars in investments, and thousands more jobs in the state.
About a decade ago people started flirting with deregulation of
electricity. They said. "Hey, it worked for airplanes and the trucking industry, so let's try it with a electricity." And what states have found, starting with the disaster in California, is that deregulation really does not work in our industry. Many states are now backing off from deregulation. In Michigan, what we had was a partial regulation where a small group of customers could choose their electricity supplier. As we enter this new world moving from surplus to deficit, we don't think partial deregulation will work. So we need to find a way work with policymakers in Lansing to move to responsible regulation.
In terms of flexibility, we have invested a couple of billion dollars in renewables since 2008 and we we will continue to invest in renewables, just as we will invest in gas plants and potentially somewhere down the road nuclear, although that is not for sure. The theme in our industry has always been diversity. Relying on any one source to generate electricity as markets and regulations change can lead to higher prices for customers. But to be able to support this diversity, we need policy that sets perhaps minimum standards, but allows flexibility to be able to respond as conditions change.
Jean Redfield, President and CEO of NextEnergy
Jean Redfield/Photo courtesy of Jean RedfieldI think in the future we will be much more aware of our energy usage. On the transportation side (about 30 percent of our energy goes to transportation) our willingness to think about transportation planning and trips will be much more a part of everyday behavior. Michigan is one of the handful of places on the planet where the assumption is that everybody owns a car and that everybody needs the flexibility of having their car available for each trip. Miles driven will go down, and the kinds of vehicles we drive and the fuels for those vehicles will be different than it is now.
Mobility apps that combine information with transportation options to help people decide the best way to get from point A to point B, which may involve not moving from point A to point B, are already starting to happen. Every day I check my Google calendar, the traffic report and the weather to make my decision about when I'm leaving and what route I am taking. I have to piece that information together, but in the future mobility apps will allow for integration of that data with decision-making algorithms.
This will happen first in densely populated areas because the value proposition is highest there. So Michigan will be a little behind the curve on using these technologies, but hopefully at the front of the curve in creating them, because otherwise our car-driven economy will become a niche market.
On the building side, right now I think we believe we have to trade off on comfort and energy use, but technology is going to change that. We are already seeing an explosion of energy management systems that are much less clunky; out-of-pocket and learning curve costs are coming down fast. Technologies like daylighting systems, where the
we are moving from an age of excess capacity to one of shortages and we need to respond to that change
lighting can automatically dial back based on the amount of daylight coming in through the window, are being incubated here at NextEnergy.
The challenge is that both transportation and energy are highly regulated markets. So how does the regulatory framework keep up with the pace of innovation so that you don't have old thinking and old business models and old regulations keeping possibilities from happening? The regulations are there for a reason. In transportation, the regulations are predominantly around safety; in electricity and natural gas, the regulations are there for reliability and affordability. But at what point are we willing to test new regulatory paradigms and step into the future that allows these things to happen?
Larry Ward, Executive Director, Michigan Conservative Energy Forum
Larry Ward/Photo courtesy of Michigan Conservative Energy ForumThe Michigan Conservative Energy Forum was officially launched in December 2013 by a group of Republican state legislators, because we wanted to have a seat at the table to debate anything energy-related that comes up. We identify arguments for clean energy that are conservative and right on the political spectrum, albeit one of our goals is to make it more depoliticized.
For years, the discussion taking place around energy has been left-leaning and focused on the environment. So we do it from an approach of national security, jobs and the economy, and utilization and protection of our natural resources. We are believers that we can get to cleaner and more renewable energy here in Michigan, but for conservatives, we need to have reasoning in line with conservative values.
We don't have an exact position we are advocating for specifically, but we are certainly in favor of expanding and looking into more use of renewable and cleaner energy sources. Our overarching goal is to collect information and provide it to our conservatve legislators.
Part of what we found after we created this group was that our legislators in Michigan have in the past shied away from this
"The biggest challenge is that both transportation and energy are highly regulated markets. So how does the regulatory framework keep up with the pace of innovation?"
issue, because they felt like they were leaning towards a more liberal side of the spectrum. What our group has done is give conservatives a support system behind them so they can go out and start looking at our energy optimization programs and the renewable portfolio issues that are coming up.
Our approach is an all-of-the-above energy approach, so we do not exclude anything. We realize that with Michigan getting almost 60 percent of its energy from coal, that will not go away. We are strong proponents of natural gas, in combination with wind. We also look at solar, which I think has a big future in Michigan; it's expanding more rapidly than the initial expansion of wind. Everything across the spectrum we would like to see expanded upon.
Jeff Irwin (D), Michigan State Representative for the 53rd House District
Jeff Irwin/Photo courtesy of Jeff IrwinOne of the most profound changes that is happening in energy worldwide and in Michigan is that energy generation devices are becoming less expensive and more capable. At a certain point the ability of consumers to generate energy is going to reach price parity with utility power, and that will impact the ability of large-scale operators to generate energy in the way they've done in the past. That will be a really important change in the market and one that Michigan ought to be ready for.
As PA 295 reaches its expiration date, one of the big questions is going to be, will Michigan continue the direction we're on in terms of investing in renewables and pushing energy efficiency and conservation, or will we take a step back? Or will we actually do something more and generate a policy in Lansing that rewards consumers and businesses that invest in their facilities?
The pieces around efficiency and conservation are must-haves, those are real no-brainers because the return on investment is so high, and our economy is really in need of that kind of effort to generate jobs and investment.
With respect to renewables, are we going to continue with our current trajectory, and stick with a pretty modest renewable portfolio standard? I remember hearing a lot of dirty energy advocates back in 2008 saying that renewables were so expensive that we needed to put a surcharge
"We are believers that we can get to cleaner and more renewable energy here in Michigan, but for conservatives, it needs to have reasoning in line with conservative values."
on customers' bills to be able to pay for them to meet the renewable portfolio standard. But what we found is that actually renewable investments are coming in much cheaper than anticipated, and wind in particular is coming in at an extremely affordable level; it's cheaper than any other type of energy on the grid. So the surcharges that were authorized as part of that legislation have either been eliminated or reduced to a tiny fraction of their original size, because the Michigan Public Service Commission realized that renewables were not more expensive for consumers.
I have a package of bills that is a really nice complement to the potential energy policy that will be developed next year. It was introduced by a bipartisan group in July, we call it the "Energy Freedom" package. It's all about removing some of the regulatory and legal barriers against generating energy onsite. There are folks across the state who want to be able to take advantage of opportunities that are created by the plummeting price of onsite systems; residential customers, business owners, and farmers. And what they have found out is that Michigan's energy rules heavily restrict what people can do to generate energy onsite and to participate in producing energy for the grid.
We want to change Michigan's net metering standard to eliminate some of the restrictions and barriers by implementing what we're calling "fair value pricing" which basically stipulates how customers are to be paid when they produce excess energy beyond what they use. The way we were able to secure bipartisan support was by designing the bill around the idea that the price should be fair and market-based.
Another bill deals with an idea that a number of other states have already adopted called "community energy gardens" which would create a legal opportunity for people to invest cooperatively in energy generation systems and have it accrue to their bill as if they were doing it net-metering style, to have more opportunities for people to get involved in energy generation activities.
Aric Nesbitt (R), Michigan State Representative for the 66th House District
Aric Nesbitt/Photo courtesy of Aric NesbittThe challenge nationally and in Michigan is really in terms of costs and price, and how we can maintain production, especially as the EPA starts coming down and imposing regulations on our lower-cost, coal-fired plants. As chair of the Energy & Technology committee, we have been looking closely at affordability. We are taking a methodical look through the committee process as we approach 2015 to see over the last seven years what has been effective and what has not, in terms of cost, quality and efficiency.
We did a full series of hearings last spring on Representative Shirkey's market deregulation bill
"The ability of consumers to generate energy is going to reach price parity with utility power, and that will impact the ability of large-scale operators..."
, and there does not appear to be support in committee to go to full deregulation. And so if that is the case, do we stay with status quo or go back to a fully regulated market? I believe we
"...should you be picking certain technologies over other ones or should you really be looking at a clean energy standard instead?"
should go back to a fully regulated electricity market. What we heard during the committee hearing process was that there are issues with the reliability of generation needed for keeping the lights on, and with price stability.
As you look back at 2008, what happened was that we saw a 10 percent drop in terms of baseload while also mandating a 10 percent increase in terms of renewable energy. The question is, did we need new generation capacity at the time? So this is something we are looking at it in terms of the cost factors; what makes sense going into the future, especially with the closure of some of these coal-fired power plants because of EPA regulation. One of the questions we are asking is what makes the most cost-effective sense, and should you be picking certain technologies over other ones or should you really be looking at a clean energy standard instead? What's the goal of a renewable portfolio standard? Is it just for renewables, or is it going after clean energy at the end of the day? Should you have the MPSC do an RFP to determine which technology is the most cost-effective and the cleanest, and allow utilities to examine what strikes the balance of meeting clean energy goals while also having cost-effectiveness? So that is what we will be looking at as more generation is needed down the road.
Sarah Mullkoff, Energy Program Director, Michigan Environmental Council
Sarah Mulkoff/ Photo courtesy of Sarah MulkoffLooking forward to 2034, I am pretty optimistic that we will have adopted some strong state policies and maybe some federal policies to go with it, to encourage the adoption of more efficiency and renewable energy, and will have ultimately moved away from fossil fuels like coal, natural gas and nuclear.
Coal has already started to decline since 2008, from about 66 percent to now about 50 percent of our portfolio. And so what I am hopeful for is in another 20 years we will have had more long-term utility planning on the part of major investor-owned utilities in the state to allow for retiring their oldest and dirtiest coal plants. I am confident that we won't have any more new proposals for new coal and that we will continue to shut down some of the largest and the oldest coal plants.
In June, the EPA released the Clean Power Plan
which requires states to develop a plan to reduce carbon emissions by 30 percent by the year 2030; in Michigan, we believe our reduction will be more like 17 percent. I'm confident that we will not only meet that goal but will have exceeded it. I feel that people are starting to have a better understanding of climate change and the impacts of greenhouse gasses on our population and our wildlife. And over time we should see even more stringent standards that will hopefully encourage the retirement of some of the oldest and
"The big investor-owned utilities have to begin making long-term decisions."
dirtiest baseload plants.
A 2013 MPSC report
shows that Michigan utilities are technically able to reach as high as 30 percent renewable energy by the year 2035. What I think will happen now is that we will be taking a deep dive into how to reform and expand and extend the 2008 law; perhaps another 10-year plan to get us to 2025. I am in favor of long-term, state-level energy planning and long-term utility planning. The big investor-owned utilities have to begin making long-term decisions. We hope to encourage them on a path to retire the oldest coal-fired plants, utilize efficiency measures, and increase renewables as part of their portfolio.