Energy companies are essential to the clean energy transition

A zero-carbon electricity sector is a fundamental part of the clean energy transition, but to decarbonize whole energy system that powers our buildings, transportation, and industrial sectors, we also need utilities to be active facilitators and partners. We have made great progress in lowering the cost of clean energy and increasing the penetration of important clean energy technologies, but we need to accelerate that pace dramatically. Fortunately, we have solutions to meet this challenge reliably and affordably. Utilities will play a key role as major investors, long-term system planners, and resource integrators of our electricity system, but they will need to double down and they will need help.

Great progress…

Carbon dioxide emissions from the power sector have fallen 34 percent since their peak in 2007, thanks in part to advocacy by NRDC and our state partners. Other pollutants that contribute to public health concerns have also fallen significantly. Renewables saw historic growth in 2023, with estimates for 2024 showing that wind, solar, and storage will account for 94 percent of new capacity additions. Coal’s share of the market continued to decline to just 17 percent of power generation, down from 45 percent in 2010. In addition, electric vehicle sales are growing—more than a million last year—with more than 100 different models being produced. This isn’t just good for the environment and public health; it’s also good for the economy. A report by Environmental Entrepreneurs estimates that 74,000 clean energy jobs would be created just from new clean energy and clean vehicle projects announced in 2023.

Most major utilities, serving more than 60 percent of U.S. households, have established net-zero carbon dioxide emissions goals, and many are on a clean energy path—they see clear economic, environmental, and customer demand trends that are driving a shift to solar, wind, and energy efficiency to meet customers’ energy needs. Some examples from the Midwest include Consumers Energy in MI (100% emissions reduction by 2040); DTE in IL, MI, and other states (net-zero carbon dioxide emissions by 2050); Ameren Corporation serving IA, IL, and MO (net-zero carbon dioxide emissions by 2050); and Commonwealth Edison serving IL (net-zero carbon dioxide emissions by 2050).

To support utility commitments and customer demand, the Inflation Reduction Act of 2022 and bipartisan infrastructure legislation passed a year earlier could cause the sector to decline by as much as 87 percent by 2035 (compared to 2005 levels). States are increasingly taking action to reduce harmful carbon pollution (17 states have 80-100% targets by or in 2050, and 24 have set a 100% clean electricity goal by or in 2050), and the U.S. Environmental Protection Agency’s carbon pollution standards are designed to work with IRA incentives and serve as a backstop.

…but definitely more necessary

The U.S. energy sector is still the second-largest emitting sector in the world’s second-largest emitting country, and we are not on track to achieve our collective goals. To achieve our goals:

• the power grid must triple its capacity by expanding the existing system and doubling it;
• by 2030 we need to build around 500 GW of wind, solar and storage;
• We will need to electrify almost everything that moves (cars, trucks, buses, and more), which means, among other things, increasing the number of electric vehicle charging ports almost tenfold – to 30 million.

We must also promote policies that significantly accelerate energy efficiency, demand response, renewable energy, electric vehicles, and that displace direct use of fossil fuels in buildings and industry primarily through electrification (from 100% clean energy), in the most affordable and equitable way possible. This requires supporting policies that modernize and expand the electricity grid in a way that is sensitive to people’s impacts; enable the integration of clean energy into regional markets, support distributed energy planning, catalyze large-scale vehicle charging, and reform the business model of utilities.

National utilities are key to achieving these goals, and as mentioned above, many have made ambitious promises to do so. We need to make sure they keep their word.

Opportunities for cooperation and development

The task ahead is daunting, but the opportunities for progress and common ground are numerous. We share the industry’s goal of safely delivering reliable, clean, and affordable electricity to customers. Here are some of the areas where we can work together, but there are many more:

• Faster permitting and location of renewable energy sources and transmission. The amount of electricity waiting to be connected to the grid is now more than twice the total installed capacity of the existing U.S. power plant fleet—95 percent of it solar, battery storage, and wind. Utilities are already making significant investments in the power grid, and there is still a need for more reforms in siting and permitting, but today’s grid is also inefficient and underutilized, and we should be investing more in grid-enhancing technologies (hardware or software that makes the grid more efficient, effective, or reliable at a lower cost) because they are deployed quickly and can fill the gap while we fix problems with siting new lines. For example, advanced reconstruction is less expensive than new lines but more expensive than simply replacing an old existing line one-for-one. But this less well-understood type of investment raises concerns that it may not be approved because the commission and other stakeholders may see it as gold plating—even though it could provide up to twice the capacity.
• Meeting growing demand to the electricity driven by our electrifying, data-driven economy with the cleanest, most reliable solutions and our carbon reduction commitments. We must meet load growth with efficiency and clean energy, not increased fossil energy production; and ensure that rapidly growing demand from large energy buyers for 24/7 clean energy actually adds new clean resources and does not negatively impact customers.
• Affordability for the customer. In addition to keeping costs low by making the most efficient investments, the electricity rates customers pay must be better aligned with our climate and capital goals. Our ability to electrify our homes, businesses, vehicles and industry depends on it.
• Mitigating the effects of extreme weather events and forest fires pose real and growing risks both to the affordability of energy services because of the rising costs of dealing with the impacts, and to the clean energy investments that are critical to achieving our carbon reduction goals (and ironically intended to mitigate these events). In addition to the impact of the costs of the events themselves, these investments are at risk because the financial community downgrades utilities because of the risk, which raises the cost of capital, reducing the amount of investment funds available. Liability reform is necessary, but so is looking at how we design our communities and insurance systems to reduce both individual and collective exposure.

Why don’t utilities seize these opportunities more quickly?

Over the years, the expectation that utilities will provide safe, reliable, and affordable energy has expanded to include issues such as grid resilience, the urgent need to decarbonize, and the need to address increased climate risks (wildfires, droughts, extreme weather events). These new considerations are essential to addressing the climate crisis with the speed and scale required, but they are no less demanding from a public policy perspective. On the plus side, however, are the rapid and increasingly cost-effective energy efficiency of wind and solar; the proliferation of grid-enhancing technologies; flexible distributed energy resources; and other new technologies that add capacity to the existing grid in an affordable way. If we want utilities to become stronger advocates for our transformation to a clean energy future, we must change the way they are regulated to align their interests and opportunities to decarbonize the energy system in the cleanest, most affordable, and most equitable way possible.

But utilities typically make more money investing in large new capital projects, such as power plans and transmission lines, than they do investing in energy efficiency and renewables. Utilities are expected to invest hundreds of billions of dollars over the next decade. We need regulatory reforms that encourage utilities to invest in the good stuff (renewable energy, battery storage, energy efficiency, demand management, smart transmission and distribution, etc.) rather than what the old business model has led them to invest in (large fossil fuel power plants and pipelines). Regulation should focus on meeting customer service needs and our energy and greenhouse gas reduction goals. Profits should reward performance, and in particular encourage innovation and decarbonization, and utilities should have more flexibility to make decisions related to innovation and performance.

Now is not the time to slow down or take a step back

Despite bold commitments and a host of alternatives, utilities and investors across the country are planning to add 133 new gas-fired power plants to our electric grid in the coming years. There are other signs that some utilities may be considering backtracking on their commitments. For example, Michigan’s DTE agreed in its latest long-term energy planning proceeding to retire its largest coal-fired power plant, the Monroe Power Plant, by 2032, eight years earlier than originally planned. But the utility left open the possibility of building a large gas plant in a future plan, potentially backing away from its climate commitments. Those plans, if implemented, would exceed its carbon budget and could increase costs for customers.

Let’s take up the challenge

As the president of the Edison Electric Institute recently told investors, “This is a very critical moment in our industry…” “What we do in the next few years as an organization and as an industry will ultimately determine the path of our country for decades to come.” He is right.

The time to act urgently is now, and the best way to do this is by working together.