What Does the Clean Power Plan Mean for Utilities?

There isn’t a clean answer

While coal is a clear loser and renewable energy sources are the clear winners, utilities are somewhat divided when it comes to their reaction to the EPA’s (U.S. Environmental Protection Agency) CPP (Clean Power Plan). This is because utilities are vastly different in their energy mix. For utilities with a diversified generation mix, the change may be smoother. For utilities that are heavy on coal, it may end up being quite a task to comply with the final draft of the CPP.

What Does the Clean Power Plan Mean for Utilities?

NextEra Energy (NEE) is diversified. Coal accounts for less than 3% of the company’s total generation mix, while wind accounts for over 25% of the company’s total generation—regulated and unregulated business combined. In contrast, Southern Company (SO) derives over 40% of its produced electricity from coal. It may have to undergo substantial changes to comply with the CPP.

State affair

Another consideration in understanding the effect of the CPP on utilities is the burden the plan puts on the states. The CPP requires each state to submit a plan by September 2018 on how it plans to reduce carbon emissions from power plants. By 2030, each state will have to reduce carbon emissions according to the plan approved for that state. It will lead to an overall 32% reduction in the US carbon dioxide emissions compared to the levels in 2005. So, the impact of the CPP on utilities could depend on which state the utilities operate in.

For those operating in California, the impact of the CPP may be less severe because the state is implementing measures that are stricter than the CPP. Renewables already account for over 20% of the state’s electricity generation. Coal accounted for only 6.40% of California’s generation in 2014. Southern California Edison (EIX) and San Diego Gas and Electric (SRE) may be better prepared for the CPP than utilities (XLU) elsewhere in the US.

Southern Company (SO) was the first among the power utilities to start bracing for the CPP. Let’s see how in the next part of the series.