Shoultz & Wheeler: Keeping the lights on in Indiana in transition to renewables

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People understandably worry about losing power, whether caused by natural disasters or nefarious activity like last year’s North Carolina substation shootings. What many don’t realize is that Indiana lacks sufficient energy to meet its predicted needs. While the 2023 Indiana General Assembly is poised to enact some long overdue advancements to help keep the lights on, a perfect storm is looming that may leave Indiana in the dark.

A key role of the Carmel-based Midcontinent Independent System Operator (MISO) is to ensure that there is sufficient generating capacity to meet peak energy needs in 15 states and one Canadian province. A recent MISO survey showed the region could be short 4.4 gigawatts in the 2024/2025 planning year, and the shortage could almost triple — to 11 GW — by 2027/2028. One gigawatt of power serves about 750,000 homes. The MISO zone covering most of Indiana will have the widest capacity deficit in 2023-/024.

Our tech-heavy society increasingly relies on energy-intensive tools in our everyday life, from iPhones to televisions to electric vehicles. Purdue’s State Utility Forecasting Group forecasts that Indiana annual electricity sales will grow by 1.33% annually. How quickly new green power resources come online will be critical to fixing predicted energy capacity shortages. However, getting a new generating resource online requires navigating a gauntlet of local, state and federal regulations.

Indiana stands on the bridge between our past heavy reliance on coal and our future, where we will heavily rely on renewables like wind, solar, battery storage and new technologies. The challenge is to keep the lights on while we cross that bridge. There is a surge in planned solar and wind projects, but actually reaching commercial operation is an uphill battle. Like industries across the nation, renewable projects are suffering from supply chain, labor and pandemic-related delays, high prices of components due to record inflation, delays in obtaining regulatory approvals and permits, as well as significant local opposition.

The U.S. Energy Information Administration released its June 2022 Preliminary Monthly Electric Generator Inventory, which indicates that less than half of the planned utility-scale renewable projects in the first six months of 2022 were actually built. From January through June 2022, EIA reports that about 20% of planned utility-scale solar photovoltaic capacity was delayed.

Meanwhile, utilities are planning to retire coal plants when they are more valuable in the electric market than ever, due to capacity shortages. Northern Indiana Public Service Company (NIPSCO) recently announced delays in the previously planned closures of its coal-fired units at the Schahfer Generating Station, caused by delays in getting replacement solar generation online. Rather than shutting down its 90-megawatt coal unit near the Ohio Unit this year as planned, CenterPoint also recently announced plans to delay closure of the unit until 2025 due to timing uncertainty for renewable replacement generation.

Widespread local opposition has barred many renewable projects from advancing, despite the fact that Indiana Code § 36-7-2-8 provides that a local government may not adopt any ordinance that has the effect of prohibiting or unreasonably restricting the use of solar energy systems other than for the preservation or protection of the public health and safety. That section also provides that “(i)t is the policy of this state to promote and encourage the use of solar energy systems and to remove obstacles to their use.” Nonetheless, it is common for local zoning and county councils to enact “moratoriums” on renewable energy projects or deny permit requests by solar and wind project developers. This begs the question answered by the Indiana Supreme Court decades ago, when it held: “When local regulation attempts to control an activity in which the whole state or a large segment thereof is interested, local regulation must fall.” Graham Farms, 233 N.E.2d 656, 666 (Ind. 1968).

Environmental and cost pressures to quickly abandon coal and replace it with alternative energy sources ignores the practical and “real world” challenges of the transition. During this period of rapid transition in the energy market, it is critical to recognize that 1 megawatt of installed renewable energy capacity does not equal 1 megawatt of capacity from traditional baseload resources like coal, natural gas and nuclear. This is because the wind does not blow and the sun does not shine 2 -hours a day. When planning for a reliable electric grid, regulators must take this into account.

The rapid transition to renewables has left the grid less reliable and electricity more expensive. The Indiana Utility Regulatory Commission’s residential electric utility bill comparison shows that the average Indiana residential customer’s rates have increased 55% since 2009. Our current regulatory scheme allows utilities to make independent plant retirement decisions while providing near-certain cost recovery for both the remaining costs related to the retired generating units as well as new projects as they come online. See I.C. 8-1-8.5 and 8-1-8.8. While the transition to renewable energy is laudable, we must be skeptical about broad claims that renewables automatically lead to lower electric rates. For example, NIPSCO is asking the IURC to add a billion dollars to its rate base to place less than half of its planned solar projects into customer rates.

After years of study, the Indiana General Assembly’s 21st Century Energy Policy Development Task Force issued a report in October 2022 that recommended for the first time that Indiana implement a comprehensive, statewide energy policy that meets five pillars of electric utility service: reliability, resilience, stability, affordability and environmental stability. Such a plan would cure the longstanding myopic view of Indiana’s energy needs, which tends to regulate utilities on a case-by-case basis. Several bills pending this session could help Indiana keep the lights on during the energy transition.

Pending House Bill 1007 would require that all decisions must consider the five pillars when evaluating decisions on electric generation, resource mix, infrastructure and service. The bill also requires the IURC to study performance-based ratemaking that could create new incentives and disincentives for utilities. It also proposes to limit the amount of capacity utilities may acquire from the market, which could reduce reliance on volatile markets currently experiencing high demand and prices. Senate Bill 9 would require scrutiny of coal plant closures, which could provide regulators with a new tool manage the transition to renewable energy. House Bill 1421 would quicken the review for new electric generation requests, and Senate Bill 390 would give communities financial incentives for implementing renewable-ready permitting.

While these bills will help Indiana cross the bridge with the lights on, a reliable transition remains questionable. More work is needed to remove barriers and create pathways to a secure energy future. Hoosiers are depending on lawmakers, regulators and courts to keep us out of the dark.•


Nikki Gray Shoultz and Kristina Kern Wheeler are partners at Bose McKinney & Evans LLP. Opinions expressed are those of the authors.

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