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Congress Must Move Beyond Permitting Reform to Speed Up Adoption of Digital Energy Solutions

Congress Must Move Beyond Permitting Reform to Speed Up Adoption of Digital Energy Solutions

May 26, 2023

In Washington, nothing is possible until it’s done. With federal permitting reform, that moment might be just around the corner, but Congress must not miss the opportunity to think beyond procedural reforms to federal permitting laws and should include a broad innovation-based approach to solving our nation’s energy infrastructure dilemmas.

There is strong bipartisan support for reforms to permitting that would speed up the process so that companies can build a national energy system fit for the 21st century. The White House signaled support for Senator Manchin’s (D-WV) earlier permitting reform efforts, while House Republicans passed legislation to streamline permitting for gas pipelines and reforms to the National Environmental Policy Act (NEPA). ITIF has previously called for reforms to traditional environmental permitting to make it easier to site, permit, and build.

What’s needed now to jumpstart and build the energy infrastructure of the future is not only permitting reform but regulatory support for next-generation digital energy technologies like virtual power plants (VPPs), smart grids and multidirectional power flows, and AI-enabled grid management software. Addressing the increasing strain on the grid through existing poles, wires, and pipelines via digital solutions is a missed opportunity.

Congress needs to design a policy to increase the deployment of smart grid technologies and distributed energy resources to build a robust; resilient; and, most importantly, flexible energy infrastructure. Congress should include legislation that advances grid innovation, not just legislation that reduces procedural hurdles to make it easier to build more of the same.

Grid Policy Needs to be More Than Permitting Reform for Poles, Wires, and Plants

The energy grid of the 20th century connected large, centralized power plants to tens of thousands of users in a monodirectional fashion. The grid of the 21st century must connect hundreds of thousands of various sizes and types of power sources with millions of load centers including homes, electric vehicles and buses, industrial heating and hydrogen facilities, and energy storage, all in a multidirectional fashion. These resources must be able to communicate in real-time; shift demand and supply in accordance with weather patterns; and be safe, secure, reliable, resilient, and flexible as more of the economy becomes dependent on electricity as a primary energy source.

Recent Congressional permitting hearings noted that many electric grids across the country are facing unprecedented reliability concerns. Yet, the discussion focused on speeding permitting for physical energy infrastructure and neglected the potential of digital energy technologies to enhance reliability. Traditional energy infrastructure faces steep federal and state permitting hurdles in the form of procedural environmental reviews and siting issues. Digital energy technologies face unique regulatory hurdles beyond just procedural burdens, such as a burdensome regulatory structure that treats many digital energy solutions providers like traditional utilities, a lack of coordination among regional grids, and different industry standards and protocols for digital technologies that communicate across the grid.A failure to address regulatory burdens to digital energy technologies leads to a missed opportunity to think beyond the 20th-century notion of what the electric grid can look like.

Virtual power plants (VPPs) are an emerging suite of technologies that enables the ability to connect different energy resources from all over the country and send energy to where it’s needed, when it’s needed, while strengthening the resiliency and reliability of the system through multiple layers of redundancy. They can also save consumers money, with a Brattle Group analysis finding up to $35 billion in potential consumer savings by 2033 due to investments in VPPs over traditional centralized power plants. Yet state and federal regulators often treat VPPs and distributed energy resource management systems (DERMS) as if they were a traditional regulated utility, which dramatically increases the regulatory burden placed on these small distributed and multimodal resources. For example, regulators can make VPPs and DERMS submit to onerous rate-making proceedings. Additionally, some states only allow established electric utilities to set up and manage VPPs, giving a natural advantage to incumbents.

Congress should preempt state utility regulators from automatically treating VPPs as if they were traditional poles-and-wires utilities and instead treat them for what they are: individual load and generation resources that are able to aggregate and communicate across a multidirectional grid and respond to demand and generation signals in a flexible fashion. Congress can also require that regional grid operators, in their periodic resource adequacy reviews, consider how VPPs, rather than traditional centralized generation, can meet those needs.

Alongside traditional poles and wires (which we need more of and need to be sited, permitted, and built faster), policy makers need to recognize the role that digital technologies, including AI-enabled software, will play in managing this increasingly complex and interconnected system. Today, however, the U.S. electric grid is anything but a single, harmonious unit. Rather, it’s a balkanized system of dozens of regulated and unregulated power markets, with various layers of state, regional, and federal oversight. There is little trading across these borders, and efforts to increase digital energy technology adoption on the grid are hindered by a lack of federal guidance or industry standards to ensure all the nodes of the system can communicate and share data safely with one another.

Congress must direct the Federal Energy Regulatory Commission (FERC) to quickly implement federal regulations to speed up the connection of transmission projects between different grids. This would be instrumental in getting more clean energy on the grid and spurring the adoption of digital energy technologies that can improve resiliency. Effective implementation of FERC’s Order 2222 is meant to stimulate greater investment and adoption of distributed energy resources through market compensation for distributed energy resources like home batteries, behind-the-meter solar, EV charging, and other flexible resources. Such implementation will be key to ensuring these technologies are widely adopted.

Successful implementation could be stymied by failures to coordinate competing interests at the state, regional, and federal levels. Currently, different regions are designing and implementing FERC’s order in ways that may not allow easy communication between the grids. Congress can ask FERC to speed up its efforts to encourage state and regional regulators to participate in inter-regional and cross-regional coordination of distributed energy resources.

Current permitting efforts address old hurdles and propose reforms to existing, known problems, such as timelines and judicial review. Congress should also consider how they can spur greater investment in new digital technologies by requiring states to think about how digital energy infrastructure could do the job of traditional poles and wires by regional grid operators. Congress should require that permitting authorities weigh how the costs and benefits of proposed projects match up against those for newer technologies, such as DERMS or VPPs. Congress could allow projects—such as interstate transmission investments that use cutting-edge digital software to maximize and optimize the flow of energy—that are responsive to shifting, and allow for multidirectional energy flows to jump ahead of old, “dumb” traditional poles-and-wires projects in the permitting, environmental, and interconnection queues.

Under the Federal Power Act, Congress can require that regional grid operators streamline how they review energy infrastructure that crosses regional boundaries to require a consideration of benefits outside of those that directly accrue to the region. With such physical and regulatory balkanization within the U.S. energy infrastructure space, it’s difficult to provide regulatory certainty to energy innovators and developers, increasing the backlog and limiting investments in newer technologies. Finally, Congress must clarify FERC’s federal backstop authority in the siting of interstate transmission lines that are viewed as critically necessary to improving grid security, reliability, and resiliency and that reduce grid emissions.

An innovation-centric permitting process would aim to hasten the deployment of digital technologies. We must use the permitting and regulatory processes to incentivize investment in the latest technologies and ensure speedy permitting, rather than continue to build old infrastructure at a snail’s pace.

Building New Tech in the Field Can Drive Down Prices and Improve Performance

Permitting reform is all about reducing the hurdles and bottlenecks that keep projects from being built. Current permitting issues affect all types of projects, although they especially negatively impact new innovative clean energy technologies like hydrogen, carbon capture and storage, long-duration energy batteries, and small modular reactors. This is because these projects require new technology and infrastructure and have fewer successful projects to point to and learn from in the permitting process.

Big spending bills like the Infrastructure Investment and Jobs Act and the Inflation Reduction Act have a limited funding window, anywhere from five to ten years of federal support. If those new clean energy projects are held up by byzantine permitting processes, then the United States will have missed the opportunity to deploy, learn from, and improve the technologies that will be needed to reduce emissions.

Permitting reform must focus on reducing the hurdles to deploying technologies in the field in a reasonable time, rather than just making it easier for older-technology projects to be built. Clean alternatives, even with generous federal subsidies, are largely more expensive than incumbent technologies. One way to drive down costs for these alternatives is to speed up deployment to gain valuable data, build products and market demand, and increase learning-by-doing. Federal and private investment in RD&D is crucial and so are federal regulations and subsidies for new technologies. But nothing beats the power of the market in testing the metal of new technologies.

Congress has a once-in-a-decade opportunity to fundamentally rethink how the United States does energy permitting. There are clearly reforms to the old way of permitting that must be implemented to build both the necessary fossil and clean energy infrastructure that we continue to need. But Congress should not miss the opportunity to think broader than mere procedural changes to the country's permitting process. Rather, Congress should require federal agencies to evaluate what’s keeping newer digital energy technologies from being deployed on the grid, how they can enhance reliability and security, and what’s needed to bring the latest technology to market at a price and performance level that is competitive with incumbents.

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