The election of Donald Trump as President on November 8th will certainly impact the energy markets over the coming years, but it may take a little while to discern just what that impact will be. November also brought some important developments in the statehouses that will influence the Midwest electricity and natural gas industries for the next several years.
While prior to the election Donald Trump was clear in his total opposition to the Paris Climate Agreement, the president-elect was more circumspect regarding the agreement, saying in a November 20th interview with the New York Times, “that something is there regarding the science”. However, from a practical standpoint, it needs to be acknowledged that a Trump administration is probably going to be more friendly to the traditional fossil fuel energy industry than the clean energy industry. It has been stated that the Trump administration will undo the Clean Power Plan, which is an EPA rule. Though the rule is currently being challenged in the DC District US Court of Appeals, it is possible that the court could issue a decision before the Trump administration actually takes office. Of course, the Trump administration could challenge any ruling that does occur if it is opposite of their objectives. Additionally, though the presidentelect has not named an EPA administrator as of this writing, the three potential candidates that have been named in the press all have decidedly conservative views regarding climate change and the Clean Power Act.
Despite these facts, the clean energy business may continue to grow. The input and construction costs of renewable energy (primarily wind and solar) projects continue to fall. While production tax credits for biomass renewable electricity generation are expected to expire at the end of this year, tax credits for wind and solar electricity generation were extended for several years (though declining slightly every year) at the end of 2015, so there is some certainty there. Renewable (non-hydro) electricity production is now almost 10% of all electricity production in the United States, up around 120% from 2010 levels. There are also still many projects under construction that will be finished in 2017 and 2018. The point is that this industry has matured both economically and politically to a place where it is a significant part of the electricity generation landscape with many proponents and it will be difficult to simply roll it back.
There were three major legislative developments particular to retail electricity deregulation
Nevada voters passed the Energy Choice Initiative (Question 3) with 72.4 percent of the vote, allowing all electricity users to pick an alternative supplier. While this development is important, because it was a citizen-initiated amendment, the state of Nevada requires the amendment to be passed again in 2018, pushing any impact of the vote back some time.
The Michigan Senate approved sweeping legislation that will allow rate-regulated utilities Consumers Energy and DTE Energy to build new generating facilities to replace some of the older coalbased electricity generating units. There is opposition to the bill from consumer groups as the legislation maintains the existing 10% cap on the electric choice program but now would require suppliers to obtain capacity for three years to serve customers or pay an undetermined “capacity” charge to the utilities. The legislation still needs to pass the Michigan House.
The Illinois Legislature finally passed the Future Energy Jobs bill, which has numerous items, the most important being a $235M annual subsidy to Exelon to keep open two of their nuclear plants. ComEd will also receive increased reimbursements for investments in energy efficiency. A proposed demand charge to residential customers was dropped from the bill in the final version. While markets can change quickly, the current depressed forward curves for PJM/ComEd power seem to indicate that keeping the nuclear plants open will keep power prices low for the foreseeable future. The legislation is expected to be signed into law in early December.
Analyst – David Mousseau
Information Sources – Direct Energy, Detroit Free Press, Midwest Energy News and EIA