As the dangers of climate change become ever more urgent and the costs of renewable energy plummet, the electricity sector has been experiencing wrenching shifts. More intermittent, distributed sources of energy, new technologies, new competitors, new business models, and policy changes. As we drive toward lower and lower carbon sources of energy, how can the power sector deliver abundant, affordable, secure, flexible power all at the same time? It’s a critical question for the clean energy future, and it also happens to be the subject of a new book by Peter Fox-Penner.
In this edition of Columbia Energy Exchange, host Jason Bordoff is joined by Peter Fox-Penner, who is Founder and Director of Boston University’s Institute of Sustainable Energy, and is a Professor of Practice in the Questrom School of Business. His extensive research and writing interests, in the areas of electric power strategy and regulation, energy and climate policy, and sustainable finance, include the book Smart Power and now its sequel, Power After Carbon. Earlier in his career, Peter was a Principal at The Brattle Group, where he specialized in energy and regulated industry matters. He served as Principal Deputy Secretary at the U.S. Department of Energy’s Energy Efficiency and Renewable Energy unit, and as a Senior Advisor in the White House Office of Science and Technology Policy. He also currently serves as Chief Strategy Advisor to Energy Impact Partners. Peter received his Ph.D. in economics from the University of Chicago.
Jason Bordoff: Hello and welcome to Columbia Energy Exchange, a weekly podcast from the Center on Global Energy Policy at Columbia University. I’m Jason Bordoff. As the dangers of climate change become ever more urgent and the costs of renewable energy plummet, the electricity sector has been experiencing wrenching shifts: more intermittent, distributed sources of energy, new technologies, new competitors, new business models and policy changes. As we drive toward lower and lower carbon sources of energy, how can the power sector deliver abundant, affordable secure flexible power all at the same time? It's a critical question for the clean energy future, it also happens to be the subject of a great new book by my friend Peter Fox-Penner. So, I asked him to come on the show and talk with us about it.
Peter serves as Director of Boston University's Institute for Sustainable Energy. He's a Professor of Practice in the Questrom School of Business there. His extensive research and writing interests in the areas of electric power strategy and regulation, energy and climate policy and sustainable finance include his books Smart Power and now it's sequel Power After Carbon. Earlier in his career Peter was a Principal of the Brattle Group, where he specialized in energy and regulated industry matters. He served as the Principal Deputy Secretary at the U.S. Department of Energy's Energy Efficiency and Renewable Energy Unit. And he was a Senior Advisor in the White House Office of Science and Technology Policy. He also currently serves as a Chief Strategy Advisor to Energy Impact Partners. Peter received his PhD in Economics from the University of Chicago.
Peter Fox-Penner, thank you for joining us on Columbia Energy Exchange, it's so good to talk with you and to see you again.
Peter Fox-Penner: And likewise Jason, thanks for having me on the program.
Jason Bordoff: So, there's -- we're not -- I'm certain we will not have enough time to talk about all the things that I want to talk about with you, what's happening in the energy sector, what's happening in the electricity sector and your fascinating new book which I have right next to me here. So, congratulations on that, Power After Carbon, which I recommend all of our listeners. I want to start by talking a little bit at a high level about where we are in the energy transition and then go a little bit deeper into some of what you talked about in your book about how the electricity sector is being transformed, the world of utilities, the world of the grid and then get you to talk a little bit at the end about how we think about moving forward from a policy standpoint.
So, I have on my syllabus another book of yours, Smart Power, that was written about a decade ago, I believe. At the time the U.S. was in the midst of debating a cap and trade bill that would have transformed the power sector landscape and the subsequent 10 years have been sort of full of ups and downs for the power sector. Talk about what trends you find most encouraging or most discouraging, in our effort to decarbonize the power sector relative to what you thought we might see when you wrote that ten years ago.
Peter Fox-Penner: Well, I'm happy to say Jason that most of the trends are strongly positive and stronger than I thought they would be. So, we're, I think, a bit further down the road than I expected, but we have some big boulder sitting in the road, one of which is named Trump and I'm hopeful that we will move them as well and I think there's a good chance that we will achieve decarbonization well before 2050 in the electric sector. And I did not have anywhere near that inkling when I wrote Smart Power in 2010. Some -- many of your listeners will know the great news that has sort of surprised me since then, solar and wind have dropped, I think solar is down to -- more than 80% since 2010, wind maybe 65. Offshore wind has dropped quite dramatically and at least some forms of storage, in particular lithium ion, has dropped by almost comparable amounts. Those are three keystone technologies we need. They're not all that we need, but they've made a gigantic difference.
The other thing that I have been presently surprised by is that the power industry itself has really I would say awakened fully to an understanding that its mission has evolved from simply selling more kilowatt hours and trying to discourage change in its generating sources because any change might be expensive and disruptive and being kind of the stodgy, reliability obsessed industry that’s been. It's still obsessed with reliability in a very good way and has added resilience to its concerns. But the industry really sees that it's kind of at the core of a clean energy transformation. It's central to the -- to climate policy and it sees that as a gigantic business opportunity and that wasn’t true in 2010. It was seen as an impediment, something that was going to hurt sales and hurt the industry. And now it is seen, I think properly, as probably the biggest boost the industry will get at least since the 1950s and maybe ever.
Jason Bordoff: And so, we've seen renewables grow at a pretty dramatic annual growth rate, still pretty small as a share of the total. So, can you tell us where things you expect to be headed from here? Are they going to continue to grow at the same rate or greater and how dependent is that on technology improvements, how dependent is that on policy?
Peter Fox-Penner: Well, I think solar and wind will continue to grow at single to double digit rates. And I do a calculation in the book where I ask myself if we had only solar and wind to rely on which we don’t and won't, but if we did and we needed to build twice the energy production -- the electric energy production that we have today by 2050, because, as you will know Jason and your listeners, much of the climate solution, not all of it, but much of it will involve electrifying current fossil fuel uses, starting with of course transportation, but particularly personal mobility and mass transit and rail of course and then also I think adding in much but not all the freight and lots of building heat and then some industrial electrification and all that will create quite a bit of need for additional power even with strong energy efficiency policies.
So, I just did a kind of a back of the envelope what if scenario with positing double the electricity usage in 2050 that we have today which I think is an overestimate but might be right. And how much would we need to increase the pace of current solar and wind construction above what we're doing today annually and the answer is seven times as fast, a little under seven, 6.7 times as fast.
Jason Bordoff: In order to what, to reach what goal?
Peter Fox-Penner: To create enough wind and solar capacity that would generate twice the electricity that we generate today.
Jason Bordoff: In a -- sorry, with what percentage of the grid decarbonize I guess I'm asking.
Peter Fox-Penner: Oh! Like a 100%.
Jason Bordoff: Yeah, okay. So, you're talking about to fully decarbonize, to meet our client goals.
Peter Fox-Penner: Fully decarbonize. So, if we had to do that I believe we could ramp up wind and solar production sevenfold in this country. In fact I think there will be years when it is seven times as bigger than it is today, when you start adding in offshore wind, onshore wind and lots of utility scale solar construction alongside every rooftop in America effectively that gets sun having rooftop solar and so on. So, I think that this is a mission that is doable. I think we need more than wind and solar and as I said I think we'll have that. We need continued R&D and innovation, but I don’t think this is outside our grasp.
Jason Bordoff: And we've seen obviously significant decline in the share of electricity coming from coal, is that sort of on a multiyear continued trajectory down? Are we going to see significant additional early retirements of fossil generation in the next five to ten years? What impacts if any by the way, do you think that COVID-19 or depressed electricity demand due to lockdowns might have to maybe accelerate those retirements if any?
Peter Fox-Penner: Well, first let me talk about the pre-COVID trend which was clearly downward, I think will continue to be downward and as you know Jason, I work with lots of utilities all across the country and I don’t know of any that expect to be running their coal fleets in 2050. Most of them I think are expecting to be shutting their coal plants down by around 2030, maybe a -- what -- maybe a few after that --
Jason Bordoff: And I think that’s because of the expectation of policy or just the market forces they see and have cheap --
Peter Fox-Penner: I think it's a combination of both. I think they recognize that the American people back climate action by a wide margin and that’s only getting stronger and that in spite of the current federal government that is trying to bring back coal everywhere else in the world including China as you well know Jason, there is an understanding that coal use must decline over the next 30 years, unless we get carbon capture and sequestration operating which I think there is little expectation of that rescuing coal that I see in the United States. Outside the United States, I'd let you speak to that more than me or some of your colleagues at CGP. But coal I think is on a clear downward trajectory, I think it is a planned, I think it is fair to say that the industry has a planned phaseout of coal in the United States well before 2050.
Now as to whether COVID is accelerating that I think, I don’t see a large effect of that. There is a significant reduction in electricity usage, since wind and solar are more difficult to curtail than controllable plants. I think that is hurting some coal plant margins, I have read something about that, I just don’t know how significant that’s going to prove in the short run.
Jason Bordoff: What do you think looking forward, over the last decade, we saw a sharp decline in coal, made possible but how quickly renewables and battery storage costs have fallen, also very cheap natural gas and you know that’s a controversial question about what role gas should play in the power sector moving forward, given that our end goal needs to be deep decarbonization, but you don’t get there overnight. So, how do you think about what role gas will play and should play and what that means for policy in the next say decade or two?
Peter Fox-Penner: Well, that’s maybe the 64-dollar question in creating the fully decarbonized system of the future, because natural gas now really does provide numerically, virtually all of what I call in the book balancing energy. It also provides a significant amount of just pure base load or cycling to use the industry intermediate energy term. And so natural gas, it's about 50% of our generation last year. And it plays this as I said, a really critical role balancing out the variability of wind and solar. Over the next 20 to 30 years as we fully decarbonize either we have to get carbon capture and storage working for gas economically and I think there is a significant chance that we'll see that in which case natural gas plants will continue to be kind of the balancing energy that matches wind and solar. Wind and solar are already as you know Jason, just in pure -- kilowatt hour, cents per kilowatt hour terms, they are the cheapest form of energy in the United States and in most of the world.
So, even if we decarbonize natural gas, I don’t think it will displace the growth of wind and solar, but it will balance them out. If we can't economically decarbonize natural gas, then we'll have to phase it out and in its place use balancing energy from various forms of storage which are really not ready at scale yet, except for hydroelectricity which is difficult to build. And that is the number one gap, technological gap.
Jason Bordoff: The longer duration storage you mean?
Peter Fox-Penner: Long duration seasonal and annual storage, terawatt-scale storage that is provided by hydroelectric plants and to a degree, pumped storage facilities today.
Jason Bordoff: And when you look at a deeply decarbonized grid, what role does nuclear play in it and what do you think policy makers should be doing today with the existing stock of nuclear capacity which is starting to shutdown in some places?
Peter Fox-Penner: Well, provided it could be done safely and that’s a very, very important provision, I'm in favor of continuing to run the nuclear plants that we have, because they're giant zero carbon sources of base load power for the next two decades, while coal phases out and we are in this search for balancing energy which is so critical, balancing on a terawatt-scale annually and seasonally. And while we are in that search, I think the existing nuclear plants are playing an extremely valuable role providing base load low carbon energy. But once we transform to a grid where wind and solar and other renewable sources dominate we need balancing energy more than we will need, I think base load and thus I think the nuclear to look to are the new small modular reactors which can cycle more easily than the large units that we have that really can't follow load. And I think looking to the future beyond this generation of nuclear plants that’s really what we need in the United States, not cheap "base load energy" because I think we will get that from wind and solar, we're starting to get it already. I think we will need adjustable nuclear, small base load units will also I think be affected in some places.
Jason Bordoff: So, now, so the question of course is how do we get there, how does this future kind of -- how do we produce the energy you're talking about, the electricity, first in the context of significantly larger denominator, we're using a lot more electricity, because as you said dealing with climate change probably means electrifying a lot more stuff and then how do we deliver and generate all that power at reasonable cost and do it without carbon. That is what Power After Carbon is all about. I'm holding it in my hands, this is an audio podcast, but you can see it here on the screen and it really is, again recommend it, it’s a great road map for people who want to understand that. So, I'm going to ask you about a couple of the details of how we bring this about. Start with telling me about what the role of the consumer and then even then some of our listeners may be familiar with the term prosumer some may not, but tell us what a prosumer is and what that means about the changes that may happen for the role that we all play as consumers of electricity and bringing about the future you described.
Peter Fox-Penner: Well, the -- first of all prosumer refers to the fact that we electricity consumers now have the opportunity to make some, usually not all, but certainly a significant amount of our own power and thus be producers as well as consumers and of course I'm referring to rooftop solar. So, if we produce some of our own power as well as consume it at different times, of course because we use power at night and the sun isn't shining, we become what's called prosumers, and that in itself is a profound change in our relationship with the power grid and with our local utilities, many of us including me here sitting in Rhode Island have rooftop solar on our houses and send some power out into the grid when we're generating more than we're using and I do that sometimes in this house.
We also most of the time use more than we're making. So, we're consumers. So, we have a both consuming and producing role, that’s a big change, but more broadly our engagement with the electric power system which is the lifeblood of our residential lives at home these days and really the lifeblood of the economy, a completely digitized communication-enabled, AI-enabled economy, electricity is absolutely core to that and with all the growing smart grid intelligence and technology that we have, we can monitor, measure and control our electricity usage much, much more completely than we ever could even 10 years ago when I wrote Smart Power and that enables a relationship with our utility and with the larger energy ecosystem that is much richer and can create much more value. We can offer essentially through pricing signals or just through agreements with suppliers and with our local utility to adjust our own power use so that we use less power when it's more valuable, we effectively sell it back to the system or save ourselves money on our power bill, more or less the equivalent.
We can do that, I think -- we will be able to do that with our electric cars that can both send a little bit of power back into the grid and as the smart grid gets more sophisticated, these new relationships with the utility which will come in the form of new product that we can offer essentially to sell back to the utility in the form of adjusting our use or changing our usage patterns are going to make for a much more -- a much richer as I said commercial relationship with utilities and the utility system and that will enable great help to the balancing energy needs that we need to decarbonize and to the whole mission of decarbonizing the sector. So, by agreeing to be more flexible in our energy use and allowing our electric cars to give a little energy back to the system when it needs it, to be willing to program our energy uses so they move around, we can help the system smooth out wind and solar and other forms of energy production. And thus as prosumers, we can contribute quite a lot to the transformation of the grid and the decarbonization of the grid.
Jason Bordoff: So, I mean, that all sounds great, you're describing the future with a lot of opportunity, I want to come back to that in a minute, and essentially because we're doing this virtually like everything else in these pandemic times and we both have solar panels on our roof if it's sunny where I am, if it is where you are this is a solar powered podcast we're recording which one would think is a good thing, in reading your book it creates a lot of challenges too. I mean, you said it was more expensive than you -- centralized utility scale solar, it can really complicate how we charge people for the electricity they use, it can complicate how we plan for and build the grid, so talk about how we overcome what those challenges are and how we overcome them?
Peter Fox-Penner: Well, that is -- the third section of the book is about distribution utilities, those are the local utilities that we all connect to. There are about 3000 of them in the United States and they're all natural monopolies, they're the single provider of distribution services that is the electricity that's delivered to you or taking the electricity you generate and sending it back into the rest of the grid. And the role of these distribution utilities is what has changed so much as I was referring to earlier and has gotten much more sophisticated, much richer and has lots of opportunity, but is a lot more challenging both as a technical matter and also as a financial and regulatory matter.
When utilities simply delivered power from big power plants down to each consumer in one direction and they simply had to make sure that enough power was getting your house, and set the prices on the power that they delivered such that they just kind of broke even. They earned what regulators allowed them to be a fair profit and they covered all their costs. That was a relatively simple business model and it worked well for almost a 100 years, but now we need a business model and a regulatory model that enables and allows utilities to essentially trade or allow trading of not just electricity but other services like reactive power coming from automobiles and load switching, load swapping services and many other forms of service that are still now being developed, those have to be, the regulatory rules of the road have to be developed to enable all this sophisticated trading, this is -- so your question was spot on Jason. And those are turning out to be quite a challenge to develop. They’re evolving, but there's a lot of work to do to make sure that the financial exchange is fair, that all utility customers are treated equitably, that profits are fair but not excessive, that the role of outside providers who might compete with the utility is recognized, some markets lend themselves to competitive services and some like to call marketization and some don’t so, I'm laying out a list of challenges that regulators and utilities and all the stakeholders involved in the downstream electric ecosystem have to wrestle with. And it is a lot more complicated in order to realize this much richer and sophisticated future that helps decarbonize.
Jason Bordoff: Now you have a chapter I think it’s called why we grid? So, given what you just talked about, what is the role for the big grid? We know from Thomas Edison, you build the power plant, you string wires all over the place versus these decentralized models and in an area like ours, which is different from some other parts of the world, we’ll come to that in a minute, that already has a fully developed grid, are there benefits to sort of fully utilizing that integrated grid with functional wholesale markets to sort of magnify the benefits of distributed micro grids or do we need to rethink the model we have?
Peter Fox-Penner: Well, obviously the book talks about, advancing the model that we have, I don’t know what rethinking it is the word I would use, but we certainly, the industry needs to continue to evolve, it has evolved quite a bit, needs to continue to evolve and I think it will. The book does begin by asking the question, how much electricity are we going to need to decarbonize ourselves by 2050 or really earlier. And it, sort of comes to the conclusion that we’ll need, I think at least 40% more, and maybe double as I mentioned earlier, somewhere in that range. Let me pause for a minute to say, to highlight Jason the importance of energy efficiency policies, because when I say a statement like that, it is predicated on the strength of our energy efficiency policies.
And that is one of the core elements of a stronger national energy policy that we really need in order to decarbonize in a way that is affordable and creates reliability and resilience and great customer value. So, energy efficiency policies are, I would say moderate in most parts of the country. They vary state by state and many states have been in the lead and have managed to create flat or even downward trajectories in electricity use.
But with the need to electrify the transportation industry and so on and so forth, we’re going to have significant increases in sales and I don’t think they can be fully offset by energy efficiency policy simply because the country hasn’t shown the political will to adopt efficiency policies that match the potential that folks like ACEEE and Amory Lovins tell us is there. So I think energy efficiency policies won’t fully offset electricity growth, but I think they will offset a substantial amount of it and I want to highlight the importance of doing that, because that’s the best way to decarbonize, it creates great high quality local jobs, right where people use energy, where in the cities which especially post COVID, are very hard hit, and that’s really important.
But once you get beyond what we will be able to do with energy efficiency, we’re going to have an increase in demand for electricity that I don’t think we can serve directly from distributed generation and rooftop solar. I just don’t think there’s enough of it in the right places. And in a nutshell Jason, that’s why we grid, we have a grid because we use 70 or 80% of our electricity in cities where we all live and work, but most of it, that much power can’t be generated off rooftops in those cities.
Jason Bordoff: I wanted to ask you about efficiency both from a technology standpoint, but it also I think clearly ties to what you talked about in terms of the kind of utility business model that may make the most sense moving forward and the book goes into a lot of detail, but broadly speaking these models you describe of what you call a smart integrator versus an energy service utility, can you just – what – explain at a high level if you can, how one should think about the different models that exist for what the utility of the future should look like and to what extent that affects the incentives that exist to deploy things like improved energy efficiency services?
Peter Fox-Penner: Right, well, thanks for bringing those up, in Smart Power I coined the term energy service utility and smart integrator for two exemplar business models, you might say, for looking to the future of the industry when from the vantage point of 2010, I thought that electricity sales would be flat for quite some time, even possibly downward thanks to the strength of our moderate energy efficiency policies, and what I thought was the maturation of the U.S. economy and a bunch of other factors you could read about in Smart Power.
And it turns out sales have been largely flat since around 2008. They are creeping up a little bit in some parts of the country and still trending down in others, but when the original utility business model was simply to make money off selling kilowatt hours, one kilowatt hour at a time, and still that is the overwhelming revenue model for the utility industry today. Any of you look at your power bills, even in states that are restructured, have competitive electricity services, I’m certain that almost all of you look at your bill and see basically a price in cents per kilowatt hour.
And I thought that was not – that was not the right way to think about the utility’s mission and business model going forward, instead I thought of two different business models, one of which is the smart integrator, where the utility thinks of itself as a delivery platform, the UPS or FedEx of power services and it makes money on delivering kilowatt hours, not on selling them, and on all of the other services that I mentioned are going to evolve from the smart grid.
Demand response services as they're called load swapping services, ancillary services like reactive power, that the power system needs to buy and disaggregating even energy into different prices by different times of day when energy has very, very different values, when we have a surplus of power in many places now, when we have bright sun at noon and they -- we have the well known ducker and so on. So the energy – the smart integrator is a platform utility that makes its money as the same sort of platform that Uber is to transportation and Amazon is to much ecommerce and that’s one potential model and utilities are moving in that direction in -- particularly in restructured states and in Europe. The second business model is energy service utility, and there utilities become more holistic and complete suppliers of energy services, not the kilowatt hours that we buy that enable energy services, but they look to ways to combine better technologies and controls and electricity itself and so services like heating and lighting and screen hours of computing and things like that. And there were utility –
Jason Bordoff: Amory Lovins always says nobody wants kilowatt hour they want a cold beer.
Peter Fox-Penner: And a hot shower.
Jason Bordoff: And a hot shower right.
Peter Fox-Penner: And actually the term energy services utility was coined in homage of Amory and Roger Sant, who also used that term very, very early in a very, very famous Harvard Business School -- Harvard Business Review Publication back in the 70s.
Jason Bordoff: So can – so the, I’m just curious, quick observation on how you think it’s playing out, where I live in New York, which has this reforming the energy vision model that provides, you were involved I think in helping to think it through early on, what lessons do you think we’ve learned from that and what does that tell us, about whether utilities are capable of being the system integrators for centralized distributed energy resources.
Peter Fox-Penner: Well, I think what we learnt from REV lots of things and REV, Richard Coffman would shoot me, if I didn’t emphasize that REV was more than the particular reform of the distribution system business model that I was part of it, and indeed, I’m speaking for you Jason, who is in New York, but I think New York has really moved into an overall position in energy and climate leadership on many fronts, transmission planning, and bulk power market policies and, it’s approach to nuclear plants and many, many areas.
So I just wanted to on Richard's behalf paint that larger picture of REV, but with respect to the distribution utility business model, as you’re correct somebody who was in on the ground floor there it’s a longer and harder enterprise undertaking than I think we thought when we launched REV, I think, that’s one of the reasons why I wrote Power After Carbon, is to prepare people for the year by year spade work that we need to do to evolve the business models, the regulatory processes, the pricing of electricity which is still as I said, priced largely on a flat rate per kilowatt hour or on a couple of tiers, pricing that hasn’t changed in 30 or 40 years, as the technology in the industry has just gone through two or three revolutions.
So, it takes more time and thought and careful stakeholder engagement and experimentation than we thought when we maybe first thought about REV.
Jason Bordoff: And can you talk about, you mentioned the technology what you see that lies ahead, how the technology is going to evolve, what role artificial intelligence, machine learning may play in how we produce and consume electricity, how storage will evolve, other technological innovations you think will be disruptive in the years ahead.
Peter Fox-Penner: Right, well first let me just say that AI is already playing an interesting role in the power sector industry. At Energy Impact Partners we have Urbint and Particle and several AI focused companies that are working with utilities right now and they are able to just make utility processes that have to run the keep the grid stable, just run smarter and faster. But over time I think which you’re alluding to is that there is a trend with AI and edge computing to move more intelligence into the network and in the electricity sector, that means moving communications and actual grid control intelligence into the edge of the grid, into micro grids that I think we’ll see more and more of, and even into some individual large structures.
And I think overall that will -- that is most likely to be another factor that helps reduce energy use so, it is on net an energy efficiency technology and also enables more sophisticated balancing of the grid which is what we’ll need to do to match load and variable sources as they get larger and larger. But there are some things that I think we don’t understand about AI’s role and there are some scenarios in which I could see AI increasing electricity use, I talk about that in the Bloomberg law post.
The most likely outcome though is that it’s going to enable new forms of service provision and better energy efficiency, and that one -- that’s a very, very welcomed development.
Jason Bordoff: I wasn’t sure if this is what you’re getting at, when you talked about some of the work you do with Energy Impact Partners, but the -- I think, when people talk about energy efficiency, they’re often talking about sort of the consumer side of this. There’s a huge amount of energy inputs that are wasted in the process of producing and transmit – distributing electricity. Is that something we can make meaningful progress on through technology?
Peter Fox-Penner: Well distribution and transmission itself is pretty efficient, I mean line losses in this country are used typically under 7% going end to end and we are, with better technology, we will be able to cut that down a little bit and as we generate more locally, we’ll reduce losses a little bit. The big change in generation efficiency is that as you move away from traditional fossil based and steam turbine based generation, which is typic – what – a form of generation that typically losses two thirds of the energy put in before you actually deliver the electricity to the grid, as we phase that down absent CCS with natural gas turbines, and we move to wind and solar, we’re not going to have those giant generation losses.
Jason Bordoff: I’m going to move, in our last couple minutes just talk about the policy path forward, first of all just at a high level, I mean over 20 years ago, electricity deregulation meant markets were going to do a lot of the work of determining planning in rates, not government, but is the model you’re talking about mean that, we need, we should and will and need to see more public takeover of utilities. This is being talked about obviously municipalization of utilities, in California and elsewhere, is – do we want that, is that part of what should happen and will happen moving forward?
Peter Fox-Penner: Well, no, I don’t think we should be pushing for management and ownership changes of utilities, I think that’s not necessary. I think we need several trillion dollars of capital going into the -- our energy system, and I think private markets are an important source of that capital, both to municipal utilities, and co-ops as well as to investor owned utilities, but so, I don’t think that’s the path, but I do see why you asked the question, and that is because in the book, I do say that bulk power markets and retail deregulated markets, have produced fantastic benefits in the United States and in Europe, and a few other places where they’re used. But they have not in my judgment been a substitute for effective national climate policies.
And thus those policies that I think we need to move as quickly as we have to move include stronger government planning on things like the transmission system, which is not something the market itself is good at building and planning. Transmission systems, they’re a system, they’re a grid, they have enormous externalities, there’s enormous sensitivities about where you build them and how you build them, which are legitimate, and that needs to be worked out as a political as well as economic and financial and environmental regulation matter, and that’s something that inherently calls for government.
In Europe for example, where the EU policy says quite firmly to rely on restructured markets as we call them, there is still a very strong government run energy and transmission planning process and that’s -- the process we have here in the U.S. is too weak, it’s not producing grid plans that are keeping up with our decarbonization needs and thus, I do call for an expanded government involvement in the power sector, but all motivated by the need for an accelerated climate policy, not motivated by an intent to displace or reduce the size of bulk power markets.
I foresee them being substantially bigger 20 years from now but they will be bigger and better if they’re coupled with better planning, not if we just keep the weak planning that we have.
Jason Bordoff: By the way on the role for policy, we’re obviously seeing widespread protests in the country this week calling for a response to inequality and racial injustice, we know there’s an environmental dimension to -- where environmental harms are concentrated. Is there a risk that some of the most vulnerable communities may sort of be skipped over in this new world of advanced energy services you’re talking about, the way we see sort of food deserts in some communities when grocery stores skip over them and what can policy do about that?
Peter Fox-Penner: I think there is definitely a risk, I think it’s already happening and, shout out to, in support of Black Lives Matter and all of the folks who are calling for increased racial justice and climate justice. As you know Jason, the communities of color have been often the places where environmental justice doesn’t occur, we've sited too many of our pollution-emitting energy facilities in those communities, they have too many diesel buses running through them. And in general their access to rooftop solar, has been -- is systematically less than some folks like you and I to be frank.
There are groups starting to address this, the utility industry, I think starting to address it. One of our EIP companies, GridX has a good idea to consolidate your solar payment with your power bill and therefore you’re not required to have a credit score to finance your system, your system would be entirely financed on bill. And we need an extremely strong focus on climate justice throughout a national climate policy and that must, and it’s another reason Jason why we need a national policy, as much leadership as we have seen from the states, we need certain things to be front and center everywhere in the nation and that’s one of them.
Jason Bordoff: I want to ask – I want to conclude just by asking you, not only about vulnerable communities here in the U.S., but around the world, where obviously it’s – climate change is a global problem, it doesn’t matter where a ton of CO2 comes from in terms of the contribution so, we need to transition electric grids all over the world, including places that may not have electric grids yet. So, can you just, we don’t have time to go deep into this, but how different does it look in different parts of the world to talk about the evolution of the grid toward a low carbon system in the way you’ve talked about, for this discussion in the U.S.? What are the key differentiators and what needs to happen?
Peter Fox-Penner: I think the technologies that we’re talking about are all global in scale and they work very well in India and Africa where solar and wind power are also becoming the cheapest sources or already the cheapest sources of kilowatt hours. But I specifically wrote Power after Carbon, for the developed world for several reasons. Number one, there are – the emerging economies are not all alike, they have very different resource basis, they have very different polities, they’re in different stages of development and I thought it would be pretentious and inappropriate for me to lump them in with what I knew was needed in the United States and to a lesser degree in the other developed world.
So Power After Carbon is about developed world utilities, and most of our conversation has been about developed world utilities. In the emerging economies, wind and solar and energy efficiency and all of these tools are absolutely essential, but having done recently a very deep dive into the African power sector that your listeners can see on the website of Boston University’s Institute for Sustainable Energy, you can see that the immediate needs of the African power sector, the continent we looked at are very different from those in the U.S. There are very important power shortages that need to be addressed, the villages have particular power needs, the cities have different power needs so, I really think that each area of the world needs a decarbonization plan, that’s why we have the Paris Climate Accord that must be strengthened and maintained and I don’t think one size will fit all, we’ll use a lot of the same tools in the tool kit, but the institutional arrangements, which are the most important system that will enable decarbonization, that’s different.
Jason Bordoff: Peter, thank you so much for this conversation and for writing this book. There are so many aspects of the energy sector that are being turned on their head right now from the shale revolution, changing patterns of energy, trade and use in emerging markets and, but maybe nothing changing quite as quickly and dramatically and consequentially as the power sector and so this is a really tremendous contribution to help all of us understand it. Power After Carbon, Harvard University Press, Peter Fox-Penner, thank you for joining us.
Peter Fox-Penner: Thanks Jason, best wishes.
Jason Bordoff: Thank you Peter and thanks to all of you, our listeners for joining us on Columbia Energy Exchange, for more information about the podcast or the Center on Global Energy Policy visit us online, @energypolicy.columbia.edu, or follow us on social media @ColumbiaUEnergy. I’m Jason Bordoff, thanks for listening. We’ll see you next week.