international analysis and commentary

A new direction for the US energy sector

in cooperation with CESI - by Matteo Codazzi

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Since the very first day of his term, President Biden made it clear that fighting climate change represents a priority for the new administration. The announcement that the US will rejoin the Paris Climate Agreement finally brings the global energy transition back on track. The international treaty signed in December 2015 during the 21st United Nations Conference of the Parties (COP21) was adopted by 191 countries, each called to formulate “nationally determined contributions to the global response to climate change.”

This first move by the US President to be part of this accord is fully aligned with the vision he outlined during his electoral campaign. In his race for the White House, Biden set two main targets for the US to ensure a more sustainable future for its citizens: reaching net-zero emissions by 2050 and achieving a carbon-free electricity sector by 2035. These targets join a stream of similar decarbonization pledges at the global level over the past few years, including net-zero emissions in the EU by 2050 and China by 2060, and add a significant and decisive contribution for the US in tackling climate change.

Wind and solar make up a small share of U.S. electricity production today, but they will supply 70% of new power plant capacity built in 2021

 

The new administration’s statements have been followed by specific actions: At the end of March, Biden presented the American Jobs Plan, a $2.3 trillion package for employment and infrastructure to enable the country’s economic recovery after the COVID-19 crisis. It can be compared to the EU stimulus package, in which €1.8 trillion has been allocated to boost the recovery, with 30% dedicated to fighting climate change. It is noteworthy that this is the second massive economic stimulus bill in the US, following the $1.9 trillion American Rescue Plan signed in March – which mainly provides economic support to US citizens. The American Jobs Plan, which needs to be approved by Congress, will invest about 1% of US GDP per year over eight years and has been symbolically presented in Pittsburgh, Pennsylvania, with its rich industrial heritage.

The bill proposes to invest $100 billion in the power sector, with the purpose of creating a more resilient grid, lowering energy bills for the middle class, improving air quality and public health whilst creating jobs in the clean energy sector. Specifically, the electricity transmission system will be the main target of several initiatives, including the deployment of at least 20 GW of high-voltage power lines, and the creation of a new Grid Deployment Authority at the Department of Energy. This office will oversee the transmission line routing and support innovative financing tools for the implementation of the nation’s infrastructure. This is considered a crucial initiative to facilitate the integration of renewables in the power system.

However, it still lags behind the European efforts, where 35 GW of new cross-border transmission lines will be commissioned by 2025. Furthermore, in the last Ten Year Network Development Plan, the European Network of Transmission System Operators identified 50 GW of additional cross-border interconnections to be commissioned in 2025-2030 to support decarbonization.

Carbon free electricity represents a substantial chapter in the US economic bill. First of all, clean energy generation and storage will benefit from expanded tax credits. Biden’s plan also calls for a $27 billion Clean Energy and Sustainability Accelerator to mobilize private investments in distributed energy resources, energy efficiency for residential, commercial and municipal buildings and clean transportation. Moreover, R&D will cover a pivotal role in achieving technology breakthroughs in decarbonization: The plan indicates an investment of $35 billion in innovations related to emissions reduction and demonstration projects, which include utility-scale energy storage, carbon capture and storage, hydrogen, advanced nuclear and electric vehicles. E-mobility will indeed represent one of the greatest areas of investment cited in the American Jobs Plan, with a dedicated budget of $174 billion, aiming to narrow the gap with China, where the e-mobility market penetration is at least three times the US figure. In this context, a specific focus is given to domestic manufacturing, in order to avoid the loss of jobs that transitioning from the traditional automotive industry to electric cars could imply. The plan is centered on leveraging domestic supply chains for components and batteries and providing consumers with subsidies to buy American electric vehicles. The bill will also provide grants and incentive programs for the deployment of 500,000 electric vehicle charging stations countrywide by 2030. Finally, several environmental measures are included in order to preserve the ecosystem while providing remediations for idle industrial and energy sites – such as orphan oil and gas wells and abandoned mines.

The investment package proposed by Biden is surely an ambitious plan. Congress does not need Republican votes to pass the bill; however, securing support from the GOP would represent a clear political victory for Biden. On the one hand, infrastructure investments generally collect widespread bipartisan support, while on the other hand, funding such spending through tax increases could compromise Republican votes.

Improvements to the infrastructure and leveraging the full potential of distributed energy resources will contribute to the decarbonization goals, and may significantly lead to greater grid resiliency and grid reliability expectations. This was brought to light during the power outage that hit Texas last February.

The serious and unprecedented disruptions that occurred in Texas has sent a clear signal urging for an increase in grid modernization investments. In 2020 alone, the United States experienced 22 extreme weather and climate-related disasters, with a total cost of $95 billion in damages to homes, businesses and public infrastructure. A Department of Energy study estimated that power outages cost the US economy up to $70 billion annually.

Extreme weather was the trigger of escalating events that led to blackouts in Texas, leaving millions of people without power: A winter storm in mid-February sent temperatures plummeting, reaching an average perceived temperature in Texas of -17°C on February 15th. The freezing weather caused an unforeseen peak in energy demand, with a large contribution being driven by electric heaters that were called upon to supplement many of the heat pumps generally used in this area. This situation was further compounded with simultaneous power plant outages that were also impacted by the extreme weather, which effectively resulted in supply shortages. Since the grid operator, the Energy Reliability Council of Texas (ERCOT), is not fully interconnected with other regional grids within the US, the only viable and immediate option that was left to balance the supply and demand requirements was the implementation of a series of blackouts that were essential to preserve the stability of the power system and to avoid longer-term damages. While studies on these Texas blackouts are ongoing, the more frequent nature of extreme events surely requires dedicated initiatives and investments for improving resilience along the entire power sector value chain.

The US is already showing a faster recovery than the EU. The US plan will further boost the economy, whilst maintaining the fight against climate change as a worldwide priority. The speed by which the US can implement the energy and infrastructure bill will represent a key and bright example for other countries. The resulting “carry-over” effect on emerging economies might encourage poorer countries to fully embrace investments in favor of the energy transition and finally apply the principle of “common but differentiated responsibilities and respective capabilities”, as stated at the COP21 in December 2015.

 

 


in cooperation with CESI – by Matteo Codazzi