Ten things to know about the Clean Economy Act
Transmission lines in Louisa County. (Ned Oliver/ Virginia Mercury)
There’s been a lot of hype and a lot of hand-wringing over the Clean Economy Act, the Democratic energy omnibus that outlines a path for Virginia to get to zero carbon emissions by 2050.
In the largely partisan debate, Democrats have contended the VCEA is an ambitious but practical way for the state to combat climate change, the effects of which can already be seen in the sea level rise threatening Hampton Roads. Republicans have complained it sticks electric utility ratepayers with too much of the cost of transforming the state’s energy landscape and will further devastate the already economically disadvantaged coalfield communities of Southwest Virginia.
And some progressives committed to the more aggressive timeline of the stalled Virginia Green New Deal say it doesn’t go far or fast enough in addressing emissions.
Negotiations are ongoing over the final form the bill will take, so changes can be expected. The sprawling 75-page bill includes provisions on a multitude of topics, including green jobs, low-income ratepayers and facility siting. But as it currently stands, here are 10 key takeaways of the Virginia Clean Economy Act.
1. The VCEA has been crafted to achieve an energy policy goal — weaning Virginia off carbon — not to fundamentally reshape the state’s energy system.
While the Clean Economy Act does include provisions designed to carry out Gov. Ralph Northam’s stated aim of promoting environmental justice, the bill is at its core designed to achieve one primary policy goal: reducing the state’s carbon emissions to zero by 2050.
What it’s not designed to do is reshape Virginia’s system of energy provision and regulation. The bill preserves the framework first created by the General Assembly when it re-regulated Virginia’s electric utilities in 2007, as well as the overhaul of that framework passed in 2018 under the Grid Transformation and Security Act that lets utilities reinvest overearnings from customers rather than issuing refunds.
That focus on policy rather than systemic reform has attracted some criticism. Retired utility executive and industry analyst Thomas Hadwin complained that “instead of setting the stage for a vibrant economy centered upon clean energy technologies,” the VCEA “confirms the many utility profit grabs embodied in the … GTSA. And it adds some more, especially related to offshore wind.”
This “zero-carbon-by-2050” foundation, however, may be the key to the bill’s success. Because the VCEA has gained the support of both Dominion Energy and Appalachian Power, Virginia’s two largest utilities, lawmakers are far more likely to embrace the proposal.
2. The House and Senate have passed two different versions of the bill that must be reconciled, with the House taking a more aggressive tack on reductions.
Uncertainty over whether the VCEA would pass the House led to a set of last-minute changes to that chamber’s version of the bill designed to appease a group of Democrats loyal to the more ambitious timeline of the renewables transition outlined in the Virginia Green New Deal, which died in committee.
These changes pushed the deadline for zero carbon emissions for generating facilities forward from 2050 to 2045 and doubled both the energy efficiency targets for utilities and the amount of solar that could be developed through a pilot power purchase agreement program used by schools and local governments.
The House also inserted a provision that would allow the secretaries of natural resources and commerce and trade to issue a moratorium on new fossil fuel generation beginning in 2030 if they determine that emissions reduction targets aren’t being met by Jan. 1, 2028 — an addition likely to face stiff resistance in the more utility-friendly Senate.
3. Both versions of the VCEA clear the way for a new burst of solar, wind and energy storage construction by Dominion and Appalachian Power…
The bill declares 5,200 megawatts of offshore wind, 16,100 megawatts of solar and 2,700 megawatts of energy storage to be in the public interest, a legal term of art that directs the State Corporation Commission to give its stamp of approval to a broad sweep of new construction by Dominion and Appalachian Power.
Under the VCEA, buildouts by Dominion declared to be in the public interest amount to about 10,465 megawatts of solar, 2,500 to 3,000 megawatts of offshore wind (a range that accommodates the utility’s planned 2,600-megawatt wind farm off the coast of Virginia) and 1,755 megawatts of energy storage. Appalachian Power gets the thumbs up to construct about 390 megawatts of solar and onshore wind and 260 megawatts of energy storage.
4. … But they also expand the space for the development of a private renewables industry.
As you might have guessed from the previous numbers, the VCEA reserves a certain amount of all new renewables development — 35 percent — for private, non-utility companies to carry out in an effort to drive down both risk and costs for captive ratepayers.
This carveout expands the 25 percent of solar projects found to be in the public interest that is currently reserved under the Grid Transformation and Security Act for third-party developers.
The State Corporation Commission has previously balked at renewables projects developed entirely by Dominion while praising power purchase agreements between the utility and a third-party developer as providing “significant safeguards for customers.”
Andrew Gohn, the eastern region director of state affairs for the American Wind Energy Association, said that both the VCEA’s encouragement of power purchase agreements and provisions requiring Dominion to competitively procure the goods and services needed to construct additional offshore wind in its federal lease area would significantly increase wind industry opportunities in Virginia.
The carveouts offer non-Dominion developers the chance “to construct really large important offshore wind projects,” he said, but “even just the Dominion piece of this will have tremendous benefits for our membership.”
5. Ratepayers may see bills rise as a result of the buildouts, while utility shareholders will certainly see positive payouts.
Under Virginia’s system of electricity regulation, utilities are allowed to recover the costs they invest in the grid as well as a “fair rate of return” designed to ensure they can raise the capital they need to carry out costly projects.
Once Virginia re-regulated its electric markets in 2007, it began letting utilities add riders with their own return on equity to customer bills to pay for particular projects. Dominion and Appalachian Power will be permitted to pass along the costs of their new projects — with the statutorily guaranteed return for investors — to customers, although a prior part of state code that would have “enhanced” the rate of return for offshore wind costs has been eliminated.
Exactly what those costs will be is disputed. The State Corporation Commission has estimated ratepayers could see at least a $23 per month increase on their bills by 2027-2030. The bill’s patrons and supporters, however, hotly contest that estimate, arguing that it doesn’t include critical factors like fuel savings and savings from energy efficiency. The latter bill reductions, Chelsea Harnish of the Virginia Energy Efficiency Council told a Senate panel this week, could be as much as $17 per month by 2030.
6. Besides ordering the retirement of fossil fuel facilities, the VCEA sets yearly targets for each utility to source a percentage of its overall load from renewable sources.
The VCEA lays out yearly targets for how much of the energy load Dominion and Appalachian Power serve must come from renewable sources, with 100 percent of that energy required to come from renewables by 2045 for Dominion and by 2050 for Appalachian Power. One caveat: the targets apply to the total electricity sold after existing nuclear energy is subtracted out, meaning that nuclear will remain a component of the utilities’ portfolios.
Exactly what counts as “renewable” has been a thorny issue in Virginia, where the statutory definition includes energy from biomass and facilities that co-fire biomass and coal. While the VCEA formally leaves the existing definition intact, it tightens up what energy sources are eligible to count toward the yearly targets beginning in 2025. Read carefully, though: the language of what qualifies is dense, including solar, wind and some hydro, waste-to-energy or landfill gas-fired generation and a limited amount of biomass.
One restriction is clear, though. Starting in 2025, at least 75 percent of all of the sources that energy suppliers count toward their renewable goal have to be associated with facilities in Virginia.
7. Unlike the Virginia Green New Deal, the VCEA does not place an outright moratorium on new fossil fuel construction but instead relies largely on facility retirements and market forces to discourage it.
The Virginia Green New Deal that was scrapped in a House committee would have placed a moratorium starting Jan. 1, 2021, on approvals for any new fossil fuel infrastructure, including generating facilities, import or export terminals, pipelines, refineries and exploration.
The VCEA does not include such a moratorium, but it does include provisions that aim to limit new fossil fuel generation while also disincentivizing new infrastructure by filling utilities’ capacity needs through vastly expanded fleets of renewables.
By “swiftly ramping up the use of more cost-effective efficiency and renewable resources,” said Harry Godfrey of Virginia Advanced Energy Economy, one of the bill’s key architects, the VCEA “will fundamentally change the economics of energy in our commonwealth.”
Market forces are similarly used to discourage the construction of new natural gas infrastructure like pipelines, which the bill does not directly address. (It also includes no provisions dealing with methane, a potent greenhouse gas that often leaks from natural gas infrastructure.) Because the VCEA forces the retirement of all natural gas plants by 2045 or 2050, its designers have theorized that utilities will become increasingly reluctant to develop pricey infrastructure that will have few to no in-state destinations.
Critics, however, are wary of an escape clause written into the VCEA that would let utilities petition the State Corporation Commission to not retire certain facilities if it “would threaten the reliability or security of electric service to customers.” But because utilities are legally required to meet federal and regional reliability standards, that clause is unlikely to disappear.
8. The bill does give the state the right to halt fossil fuel construction — under certain circumstances.
Both the House and Senate versions of the VCEA include a provision that would direct the Secretary of Natural Resources, the Secretary of Commerce and Trade and the State Corporation Commission, among others, to produce a report by Jan. 1, 2022, recommending whether the General Assembly should permanently bar new carbon-emitting facilities from receiving the certificates of public convenience and necessity needed for their construction. Until then, utilities would be prohibited from getting such a certificate and thus building new fossil fuel plants.
There is a possible catch: Dominion has already announced plans for two new peaker plants in Pittsylvania and Chesterfield and could potentially obtain certificates for both prior to the VCEA going into effect. (Dominion has said it has a policy of not speaking with the Virginia Mercury.)
As previously mentioned, the House version also has a provision allowing the secretaries to issue a moratorium on new fossil fuel generation beginning in 2030 if they determine emissions reduction targets aren’t being met by Jan. 1, 2028, although it will likely face steep opposition in the Senate.
Finally, the VCEA would force the State Corporation Commission to weigh the “social cost of carbon” in its deliberations over new generating facilities. The current version of the bill offers no guidance for how the commission would define that cost, but precedents exist in models first developed by the U.S. Environmental Protection Agency under the Obama administration.
9. A range of provisions aim to beef up Virginia’s distributed generation and energy efficiency efforts, although the House bill goes further than the Senate bill.
While the vast majority of the renewables buildout envisioned by the VCEA will occur on a utility scale, significant chunks of the bill are devoted to creating a framework for more robust energy efficiency programs and expansions in distributed generation, including rooftop solar.
Perhaps the biggest stick the bill uses to force utility investment in energy efficiency is a provision that would prohibit the State Corporation Commission from approving any new carbon-emitting facilities unless the utility met its energy savings goals and the SCC found new facilities would be more cost-effective than energy storage or “demand-side” programs.
What those energy goals are differ between the two chambers: In the House version, Appalachian Power must achieve savings equal to 2 percent of its annual retail sales by 2025, while Dominion’s must amount to 5 percent. The Senate targets are half of those.
Another provision dramatically raises the amount of net metering — a type of billing used by utilities that credits customers with solar panels for the electricity they generate — allowed in Virginia from 1 percent of a utility’s peak load to 6 percent. Raising this cap has been a goal long sought by many distributed generation enthusiasts who contend that current limits on small-scale solar are cramping growth in renewables and preventing customers from reducing their electricity costs.
10. Lawmakers aren’t putting all their eggs in the VCEA basket.
Although advocates of the bill see the VCEA as a set of levers and pulleys that together will get the state to zero emissions by 2050, Democratic lawmakers have taken precautions to ensure that even if it fails, its key provisions still have a shot at making it into law.
Several major pieces of the VCEA, including the mandatory renewable portfolio standard and energy efficiency standard, are continuing to move through the legislature.
Still, supporters made it clear that the piecemeal approach was in their eyes a far inferior Plan B to the omnibus.
“The whole process of transitioning to clean energy resources only works if we address both the supply side and the demand side,” said Sen. Jennifer McClellan, D-Richmond, the VCEA’s chief Senate patron. “We can’t do one without the other.”
The story has been updated to clarify the role nuclear plays in utilities’ renewable targets.
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