Focused Policy Key to Reliable Electricity Sector Transition: Part 2

This is part two of a two-part blog series. To read part one, please visit this page.

Policy Gaps in Electricity

In the United States, no one at the federal or state level is responsible for both setting decarbonization targets and maintaining grid reliability, creating an enormous policy gap.

There is a clear federal focus on industrial policy through technology-neutral IRA incentives to help shape a decarbonized electricity sector in the U.S. However, a specific technical mix of resources is needed to ensure reliable grid operations.

In addition, the EPA set carbon pollution standards for individual generation plants. To comply with these regulations, states will be required to develop a planning process that includes meaningful engagement with relevant communities. The EPA “recommends that states reach out to all reliability authorities” as part of this meaningful engagement.  

However, the policy gap means there is no coordinated regional planning process currently in place to ensure the mix of assets needed to provide critical grid attributes, such as balancing energy, as the resource mix changes.

The Role of Natural Gas

Gas generation accounts for 40 percent of all electricity generated in the U.S., and gas generation is increasingly used to provide balancing energy needed to integrate renewable resources.

Even as natural gas generation output will likely decline over time as more batteries come online, unless and until there is a commercially available technology to replace it, natural gas assets are needed.

Ensuring a natural gas sector capable of supporting the electric sector throughout the transition may require additional gas pipelines and strategic gas storage reserves to support electric grid reliability, particularly for gas assets that are providing critical balancing energy and operating reserves.  

How to Transition Away from Natural Gas   

Looking ahead, dispatchable, clean, and flexible resources capable of replacing the reliable services that natural gas assets provide include geothermal, advanced nuclear, long-duration storage, hydrogen, bioenergy, and fossil assets with abatement technologies.

Most of these technologies are not commercially available today, and some require investment in additional infrastructure, such as pipelines for carbon capture and storage or hydrogen, to enable their use in electricity.

Focused Policy is Critical

Today, gas and electric interdependency requires that policymakers address missing regulatory institutions in the gas sector, creating reliability risks. Following production challenges during extreme winter weather, NERC and FERC called on Congress to establish reliability rules for the natural gas system. 

EPA carbon pollution standards require that individual existing coal and new gas plants meet defined emission reduction targets. (Existing gas plants will be addressed in a later proposal.)

As coal plants are retired and replaced by renewable, storage, and natural gas assets, new pipeline infrastructure is needed to support abatement (CCS), or possible compliance technologies (hydrogen, DAC) for remaining fossil assets.

State plans must enable reliable grid operations now and in a future system that will rely less on fossil resources. Coordination across states is needed to build out supporting infrastructure that ensures system operators have access to the mix of assets that meet both policy targets and grid reliability needs.

Coordinated Planning Is Possible

EPA regulations and IRA incentives may create incentives to coordinate regionally. However, an institutional mechanism is still needed that connects policy and grid reliability needs, and enables targeted and focused investment for specific kinds of generation resources and associated infrastructure.

A way forward is for states to rely on reliability coordinator system planning to inform their choices. In some regions, the reliability coordinator is the Regional Transmission Organization (RTO)/Independent System Operator (ISO), in other regions, Balancing Authority (BA) enagement may be required.

Below is an example of the kind of coordinated, reliability-informed planning that can help focus policy and enable targeted incentives for specific technology and associated infrastructure. This kind of coordination may also help break down regulatory silos that make it challenging to plan across the gas and electric sectors today.

Not only would this kind of coordination fill a policy gap creating reliability risk, but it can also help reduce investment risk in the high-capital but not-yet-commercial technologies and infrastructure that are critical to enabling the reliable transition of the electricity sector.

Kelli Joseph

Senior Fellow, Kleinman Center

Kelli Joseph is a Kleinman Center Senior Fellow. She works at the intersection of policy and markets, with a focus on transitioning the electricity sector to support a decarbonized, climate resilient economy.