The Utility of Utilities
Climate activists are no fans of electric utilities. But the market-based alternatives that they often prefer—for rolling out renewable technologies faster than utilities—will not deliver infrastructural change at the scale we need.
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Taller than the Washington Monument, planted in ocean-floor monopile foundations weighing as much as four 747s, heaving blades the length of a football field, offshore wind turbines were meant to be the new American clean energy juggernauts.
Generating power at a larger scale and more frequently than onshore wind turbines, though still intermittently, offshore wind has been central to the decarbonization goals of President Biden and of Atlantic blue states. As of this past January, decades behind its European counterparts, the American offshore wind industry has two turbines, off two coasts, finally delivering power.
But last fall, the future of this focal point of the energy transition began tumbling into a political-economic crisis. Post-Covid supply chain bottlenecks and rising inflation led to escalating losses and plummeting share prices for German wind turbine manufacturer Siemens. Flagship offshore projects were canceled in New York, New Jersey, Massachusetts, and Connecticut. Their total power capacity amounts to about one-fifth of Biden’s goal for offshore wind supply by 2030, the delays all but guaranteeing a miss.
Each canceled project was undertaken with—and financially completely dependent upon—state-negotiated contracts in state-designed competitive auction processes to purchase “renewable” certificates from competitive developers. The power markets aren’t enough; developers of these immensely capital-intensive projects also need subsidies on top. It’s a common scenario for all renewable energy procurement, not just offshore wind, in blue states in particular.
Meanwhile, one massive 176-turbine project off the coast of Virginia is going forward without a hitch. It is owned and managed not by a competitive developer, but by the vertically integrated electric utility Dominion Energy. As a utility, they are afforded economies of scale and efficiencies in system planning. Dominion’s project is larger than the others, and while other projects are lacking in ships to install turbines (one example of the “supply chain problems” plaguing the industry), Dominion is simply building its own.
As a regulated public utility, E&E News explains, Dominion “uniquely enjoys” an investment model unavailable to those capitalists only seeking to develop wind energy alone: thanks to its regulated utility status, “its investments are paid for by electric consumers, with utility regulators approving a return on the investment as profit.” That older model lies in stark contrast to one in which increasingly bespoke markets, price signals, financial instruments, and auction processes, designed in tandem with state policies, lure capitalists without the burden of serving customers.
Newfangled markets and competition versus old-fashioned utilities. When it comes to building tomorrow’s clean energy infrastructure, it’s hard to find anyone left of center arguing in favor of the latter arrangement. That is, except for some of the labor unions representing the energy workforce.
The reality of climate change presents a need to develop clean energy. To decarbonize the whole economy, state-of-the-art modeling from Princeton suggests we’ll need to triple or quadruple electricity production by 2050. This entails not just some wind turbines here and solar panels there but a nationwide remaking of the industrial landscape. What if that older utility model offers greater potential to build the clean energy infrastructure we need?
