Government offices are abuzz navigating the rules and establishing processes for everyone to participate in this vital chapter, but will they succeed in setting us all up for success? We are skeptical.
If policies are not put in place quickly enough and chaos ensues, the success of many companies in the clean energy sector will be on the line, as big business incumbents will fill the gap, creating real inefficiencies and further driving up energy costs. By far the biggest change we anticipate is the hockey-stick growth of DERs and a policy focus on reliability and distribution-level infrastructure, and with that, we expect that state regulators will make the biggest impact on utilities and System Operators, and ultimately our ability to hit clean energy goals.
And like most markets, the US is currently experiencing a host of factors that are impacting its energy industry, presenting both sizable challenges and even greater incentives to accelerate the energy transition. The war in Ukraine continues to cause great suffering and resource bottlenecks, while supply chain woes delay product deliveries and drive inflation, and colder-than-average weather also wreaks havoc.
For all these ongoing uncertainties, we can quite confidently predict that 2023 will be a hugely significant year for energy, for several reasons.
Even as the weather starts to thaw, the political situation in Washington is likely to remain very frosty and progress could be glacial. With the Senate and presidency still headed by the Democratic Party, there is low likelihood of any significant change to the Inflation Reduction Act (IRA) or the Bipartisan Infrastructure Law (BIL). However, Republicans will make energy and climate part of their key messaging and political agenda with their majority power in the House. It’s tough to say exactly how that will look, but two things are likely to be in their crosshairs - how IRA and BIL funds are paid out, and anything perceived to impact household income or Wall Street at large.
Speaking of politics, particularly in the Northeast and Western US, state governments and agencies will continue pushing the climate agenda. New York State Governor Kathy Hochul, for example, called for a ban on on-site fossil fuel combustion in new construction over the next 5 years, and prohibition of sale of new fossil fuel heating equipment over the next 12 years. Maine, Massachusetts, and California all enacted legislation in 2022 regarding state climate goals for electricity production and delivery. How are these states able to institute such sweeping policies? Among other things, strong regulatory support, stakeholder collaboration and consensus at all levels, and a clear new energy vision help them drive systematic changes more quickly.
The combination of the IRA and greater public scrutiny around natural gas usage (especially gas stoves - who knew they’d cause such an uproar?!) will bend the curve toward increased electrification, particularly among residential consumers. Incentive structures, reporting, and compliance still need further work, such as around data tracking, modelled performance, and who (consumers, utilities, contractors, manufacturers) is in charge of what (M&V, forms and information submission, monetary payouts) to take advantage of the rebates and tax credits. However state energy offices and utilities will be front and center dealing with that in the early part of this year.
Growth of electric vehicles (EVs)
Despite worries of lower disposable income among consumers in a down stock market, recently new models from the likes of Kia, Ford, and General Motors (look out Tesla!) push EVs into the mainstream and may grow the pie to over 1 million new purchases. IRA-provided tax credits will further fuel the growth of electric-medium and heavy-duty trucks and charging infrastructure, making the long-haul trucking industry cleaner in the process. Together, these will shake up the Vehicle-to-X (V2X) ecosystem currently in its very early stages.
DER Proliferation, Digitalization, and the Prosumer
After solar installations dipped in 2022, total distributed energy resource (DER) deployment will make a resurgence. Tax credits from the IRA will allow many more project developers and domestic manufacturers to escalate their plans (as we have seen with Enel and Hanwa Qcells), and more companies diversifying their business plans to take advantage of them. New York, California, and Massachusetts are among states pursuing substantial DER policies and goals - that’s just from the utility-scale as well as the commercial and industrial (C&I) side. From the residential lens, everyday consumers are becoming increasingly equipped to participate in changing their energy consumption patterns. Maybe I just tend to hang out with fellow energy nerds, but more folks are learning about how time-of-use rates, demand response, and managed EV charging impact the grid and keep down energy costs.
Infrastructure, reliability, and holistic grid planning
Supply, supply, supply! While we expect a 1% drop in energy consumption this year due to milder summer temperatures, the North American Electric Reliability Corporation (NERC) predicts more extreme cold weather over winter, putting grid reliability at risk. Security against attacks is seen as an issue now with a pair of substation attacks in December in North Carolina and Washington State. Cybersecurity may be on the docket for both NERC and the Federal Energy Regulatory Commission (FERC) early this year. There’s a louder call for holistic grid planning and collaboration among all energy stakeholders. FERC 2222 is still evolving (see our blog with Mott MacDonald for a primer on the Order), much to be figured out this year, but we’ll likely see the first significant moves by DERAs to plan their participation with ISO/RTO-run markets. Increasing levels of intermittent generation will make grid management a much more complex task. There’s also focus on improving transmission infrastructure within and between states, such as NYPA's Smart Path Connect Transmission Project. However, infrastructure takes a long time to build, and supply chain risks further delay of projects and increased costs. Meanwhile, FERC is sounding the alarm on generator interconnection, which PJM has already made moves on, and interstate transmission coordination.
What does this all mean? This is just the beginning of what will be an eventful year. We might not see the big effects of the bills until mid-2023, but once the tsunami hits, our collective ability to force change to energy use and the grid as a whole this year will impact the next several decades.
How does Piclo fit into this forecast? We as a society need all the hands we can get to lead this new energy economy. Piclo sits at the center of grid reliability and infrastructure, DER proliferation, energy digitalization, and keeping all of our collective costs low. We anticipate FERC 2222 to be a game changer this year - it already has made waves in the Piclo world with our launch in New York State - and by enabling distributed (and smaller) assets such as solar, EVs, storage, and C&I loads to participate in various energy markets through our Piclo Flex marketplace platform, Piclo will directly support the transformation of how the world trades clean energy. We are all as a planet in a pivotal position to course-correct our environmental impact, and Piclo is incredibly excited to contribute to a cleaner grid throughout 2023, THE YEAR of the big energy transition.
Are you a DER aggregator, asset owner or operator, or clean energy project developer? Visit our Flex platform to see the ongoing competitions, register your company for an account, and get started making money for providing flexibility!