It’s Time For Energy Regulation To Catch Up

Greg Robinson is the cofounder and CEO of Aston, a company building a clean, firm power network to serve the world’s largest energy users.

There’s a saying that opportunity follows policy. This is especially true in highly regulated industries where regulation drives innovation and growth.

We see this dynamic at play in healthcare, where telemedicine and data privacy policies led to the rise of telehealth platforms and secure electronic health records. Similarly, in the energy industry, the Public Utility Regulatory Policies Act (PURPA) in 1978 paved the way for independent power producers (IPPs) of all types to be able to provide energy to the investor-owned utilities (IOUs) that manage the U.S. grid.

However, a critical but often underestimated factor in this equation is the role of technology. Policy rarely evolves without the presence of enabling technologies that are both accessible and affordable. In the clean energy industry, the dramatic drop in costs of solar panels and batteries over the past quarter century now makes them a viable way to provide power to the grid and solve some of the energy challenges the U.S. is facing.

The biggest challenge currently is how to manage the soaring demand for power-hungry data centers driving the atmospheric rise of AI. Even more daunting is the goal of powering these data centers with clean energy. Utilities are struggling to keep up with the demand, and while there are alternative energy architectures that could help, there isn’t a clear regulatory structure in place to allow them to be treated similarly to already-established constructs like IOUs, municipal power companies or rural co-ops. To address this critical energy moment, the U.S. must act.

A Quick History Of U.S. Power Regulation

PURPA was passed in response to energy crises in the 1970s and fundamentally reshaped the U.S. energy market. Up until 1978, utilities were regulated monopolies that were vertically integrated, providing power generation, transmission and distribution. By allowing non-utility power producers into the market, PURPA introduced much-needed competition to utility monopolies. These IPPs come in all shapes (solar, wind, natural gas, hydro, geothermal, nuclear, coal) and sizes (multi-billion dollar companies with thousands of generation sites to small start-ups with a single site), and as of 2022, provide nearly half of American power generation.

Another watershed moment for the energy industry came in the 1990s with the Energy Policy Act of 1992, in which the Federal Energy Regulatory Commission (FERC) authorized IPPs to have equal access to the IOU’s transmission grid. This ushered in power trading and further accelerated the shift toward a market-based system. The result brought new challenges, most infamously illustrated by Enron’s market manipulation for profit. To prevent this from happening again, in 1998, FERC established independent system operators (ISOs) and nonprofits that coordinate and monitor the operations of the grid, sort of like “traffic cops,” ensuring fair access to energy transmission.

Regulations have also played a major role in the growth of the clean energy industry. One notable example is net electrical metering, which created a business model that allows individuals or towns with roof-top solar or community solar to be paid by the utility for the excess supply they produce. This is made possible by state or local regulations. But none of this would make much sense if the cost of solar panels and batteries hadn’t come down nearly 100%.

Industry Frustration Mounts

Hyperscalers like Google, Amazon Web Services, and others whose growth depends on having data centers that can power and advance their technology are growing impatient with roadblocks to scaling for their energy demands. In some cases, they’re taking matters into their own hands or looking for workarounds.

In 2022, Berkshire Hathaway Energy bypassed West Virginia’s Public Service Commission, the utility regulator in the state, on a $500 million solar power and industrial plant project. Just a couple of months ago, FERC declined to let Amazon colocate a data center next to the Susquehanna nuclear plant in Pennsylvania, representing a big setback for hyperscalers. On the topic of energy colocation for data centers, where supply and demand would be provided mostly on-site, utilities themselves are seeking more guidance from FERC. I’ve talked about this idea of independent power networks (IPNs), which would both serve individual sites but also be connected in a network that could support one another as well as the overall U.S. grid.

The demand for energy isn’t going anywhere and will, in fact, only increase. The energy industry is highly regulated, and for good reason, but as things stand, regulation is not keeping pace with spiking demand. We have the technology. We have the market structures. We have a rising demand for power. Now, we just need policy to open the door to opportunity.

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