Technical Briefing | Cost Implications and Rate Impacts of Utility Decarbonization

In the U.S, over 3,000 utilities serve roughly 140 million customers in 50 different states with different regulatory, political, and geographic landscapes. This U.S. Department of Energy (DOE) Voices of Experience | Decarbonization Strategies and Grid Planning workshop was held on May 1, 2024, in San Diego, California and provided an opportunity for the 26 participants representing 12 electric utilities to discuss their insights and challenges as they grapple with balancing climate goals with affordability and the often-changing state and local policies that shape their strategies.

Key Takeaways

• State and local policies and politics play a crucial role in developing utility decarbonization strategies. Some states require least- or lowest-cost resource planning whereas others take a more holistic view of energy systems and require utilities to include externalities such as carbon reduction and resilience. This is further complicated by state and local policies that may include mandates on resilience, public safety, or equity or incorporating the social cost of carbon in resource planning.
• Utility grid planning sometimes requires navigating polarized political climates. Utilities have adapted their strategies and resource plans in response to sometimes dramatic changes in regulatory commission priorities for balancing decarbonization goals with economic feasibility and grid stability.
• Transparency and communication around the drivers of cost increases is critical. This includes technology investments, grid updates, and the value of decarbonization initiatives. Utilities are exploring rate designs that balance cost recovery with equity, addressing debates around subsidy models, and the fairness of funding mechanisms.
• The environmental value of distributed solar diminishes as the grid becomes greener. Tariffs originally designed to jump start the rooftop solar market now present challenges for maintaining equitable and effective incentive programs in areas with high solar adoption.
• Like the telecom industry, the utility industry may be moving toward value-based and fixed-cost rate structures. Just as telecom customers no longer pay for long-distance minutes but for the quality and value of service, the utility sector is considering rate designs that reflect the value of electricity service rather than solely measuring consumption—making way for new pricing structures.

Upcoming Events:

Voices of Experience: Decarbonization Strategies and Grid Planning Summer Series. Register Here.

Authors

Jared Leader, Senior Director of Research and Industry Strategy, Resilience
Brittany Blair, Senior Analyst, Research and Industry Strategy
Sonja Berdahl, Project Lead, NREL (National Renewable Energy Laboratory)
Madeline Crouse, Project Lead, NREL (National Renewable Energy Laboratory)