US utilities and electricity providers are pursuing decarbonization and electrification in an unstable economic environment underpinned by rising interest rates, supply chain constraints and threats to system resiliency.

The emerging consensus among industry experts, executives, grid operators and private asset managers gathered April 17-19 at the Platts Global Power Markets Conference in Las Vegas to discuss the nation's transition to carbon-free resources was that resource planning and grid management need to change.

"Customers need energy when they need energy where they need energy," Bill Berg, vice president for market development at power provider Constellation Energy Corp., said. "Overproducing clean energy in hours when no one is consuming it really isn't doing much for reliability."

Berg and Philip Holder, senior vice president of strategic planning at CenterPoint Energy Inc., pointed to load balancing in Texas as an example of the challenges facing regional grids throughout the country.

A lot of renewable resources are being built in Texas, but it is not as easy to build the transmission necessary to "get that power into the zones where it is needed," Holder said, acknowledging the running debate over market design in the Electric Reliability Council of Texas Inc.

"In Houston, we import as much as 40% of our load every day," Holder added. "As you think about migrating to a grid that needs to be more flexible to incorporate these resources ... opening up some of those transmission pathways is probably the most critical way in which we can participate to increase reliability."

As part of the transition to new intermittent technologies, "there needs to be a pathway for resources that are 50, 60 years old that are critical to reliability today in Texas to retire," Berg said. "They should be able to retire and be replaced with something more efficient and cleaner. But to do that, you have to have the right price signals to incent that turnover."

Berg acknowledged a "delicate balance" when it comes to preparing to retire a unit and knowing there will be resources to fill the gap.

"We do need more baseload dispatchable generation to replace those units that will eventually need to retire," Holder said. "I don't think you would find a bank out there today that would finance a new gas plant in ERCOT. That is something that policymakers will have to wrestle with over time."

Promising technologies

Among the ways to ensure legacy resources are fully tapped, companies are looking at utilizing existing sites for new technologies such as hydrogen and long-duration energy storage.

In March, Constellation began producing hydrogen from a 1-MW demonstration-scale facility at its 1,937.5-MW Nine Mile Point power plant in Oswego County, NY.

"We are excited about the potential to bring hydrogen to parts of the industry that can't right now be electrified," Berg said.

Constellation, a large nuclear generation owner, also plans to build a $900 million green hydrogen production facility in the Midwest using tax credits from the Inflation Reduction Act (IRA) of 2022.

Minneapolis-headquartered Xcel Energy Inc., meanwhile, has received a $12 million grant from the US Energy Department to pilot high-temperature hydrogen production using excess steam and electric power from its 1,092-MW Prairie Island nuclear plant in Minnesota.

"Hydrogen has incredible promise," Xcel Energy Chairman, President and CEO Bob Frenzel said during a keynote sit-down at the Platts conference. "We should be making hydrogen where the wind is the cheapest and the solar is the cheapest, and that is right in our backyard."

Xcel Energy plans to invest in hydrogen and seek opportunities to utilize clean fuels throughout its generation and gas distribution networks. In January, the company entered into a partnership with Form Energy Inc. to build long-duration storage projects at two of the utility's coal plants in Minnesota and Colorado that are set for retirement. The 10-MW, multiday iron-air batteries are scheduled to be connected in 2025.

"We're going to bet on the side of technology," Frenzel said.

The industry continues to look to advanced nuclear technology, such as small modular reactors, and nuclear generation overall to play a significant role in a cleaner energy future.

"If we are serious about net-zero, [nuclear] has to be there," Entergy Corp. Chairman and CEO Drew Marsh said during an executive roundtable.

Frenzel and Marsh both acknowledged a potential "tripling" of electricity demand by 2050.

Economic outlook

The transition comes as the economy recovers from a pandemic and could enter more turmoil.

Beth Ann Bovino, US chief economist for S&P Global Ratings, expects the economy to enter into a "shallow recession" later this year.

"Shallow in that if you blink, you might miss it," Bovino said during an April 19 macroeconomic outlook at the conference, adding that stubborn inflation and tight credit conditions are expected to remain a "drag on growth."

The Federal Reserve has hiked interest rates by 475 basis points since March 2022 and is expected to raise interest rates again in May.

"May may be their last move at this point in time," Bovino said, adding the rating agency expects the Fed to raise rates by 25 basis points.

S&P Global Ratings does see the pressure on the global supply chain easing. "We are starting to see some disinflation in prices for goods," Bovino said.

A full economic recovery is expected to last into at least 2024, with no expected drop in interest rates over the next 12 months.

Bovino said a faster interest rate cut would signal a worse recession.

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