EDF en Amérique du Nord

• EDF Inc. >
• questions and answers >
• the American energy market >

questions and answers

the American energy market

• What are the main energy-related provisions of the American Recovery and Reinvestment Act (ARRA) of 2009?
• What are the main energy-related provisions of the Emergency Economic Stabilization Act of 2008?
• What are the main provisions of the Energy Independence and Security Act of 2007?
• What are the key data for the US energy market?
• How is the American electricity market structured?
• What changes were brought about by the 2005 Energy Policy Act?

What are the main energy-related provisions of the American Recovery and Reinvestment Act (ARRA) of 2009?

On February 17, 2009, President Obama signed into law the US$ 787 billion “American Recovery and Reinvestment Act”. Also known as the economic stimulus package, this unprecedented spending bill includes many energy provisions, intended to drive investments in renewable energy, smart grid, transmission, advanced vehicles and energy efficiency projects. Over the US$ 75 billion devoted to energy-related programs, US$ 45 billion go to energy efficiency and renewables, making them the biggest winners of the legislation.

Renewable energy
• Extension of the production tax credit (PTC) for wind facilities by three years through the end of 2012 and for geothermal, biomass, hydropower, landfill gas, waste-to-energy and marine facilities through the end of 2013.
• Project developers of wind, geothermal, biomass and other clean technologies eligible for the PTC may opt for a 30% investment tax credit. In addition, a temporary cash grant program was introduced and developers can receive, under certain conditions, a cash grant in lieu of ITC.
• US$ 1.6 billion in additional authorization for clean renewable energy bonds (CREB), whereby state and municipal government entities as well as cooperative electric companies have access to low-interest funding for qualified clean and renewable energy projects.
• Establishment of a new 30% investment tax credit for certified manufacturers of advanced clean energy technologies.
• US$ 6 billion for a temporary loan guarantee program for renewable and electric transmission projects.

Energy efficiency
• US$ 6.3 billion for energy efficiency and conservation grants, US$ 8.7 billion for modernization and efficiency improvement of federal buildings, US$ 5 billion for the Weatherization Assistance Program for modest-income homes.
• Increase in authorization for qualified energy conservation bonds to US$ 3.2 billion. These bonds are allocated by the Treasury and may be issued by states, localities and tribal governments to support activities targeting the reduction of GHG.

Transmission/smart grid
• US$ 11 billion for research & development, pilot projects and federal matching funds for the Smart Grid Investment Program, designed for the modernization of the nation’s electric grid.

Transportation
• Increase in tax credit for early buyers of qualified plug-in electric vehicles and US$ 2.4 billion for manufacturing advanced batteries and electrification of transportation.

Energy technology
• US$ 3.4 billion for fossil energy research and development, including funding for carbon capture and sequestration projects under the Clean Coal Power Initiative.

topWhat are the main energy-related provisions of the Emergency Economic Stabilization Act of 2008?

On October 3, President Bush signed into law the Emergency Economic Stabilization Act of 2008 comprising the historic USD 700 billion bailout of the financial services industry. The same law includes several energy-related provisions grouped under the title Energy Improvement and Extension Act of 2007 (the 2008 Energy Act), worth of USD 17 billion, amongst which the long-awaited tax credit extensions for renewable energies.
The following energy incentives were granted: an eight years extension of the 30 percent commercial and residential investment tax credit for solar power plants and photovoltaic (PV) systems; a one year extension of the production tax credit for wind plants and a two years extension of the production tax credit for biomass, geothermal, landfill gas, waste-to-energy and other non-fossil energy technologies. For the first time, marine energy systems such as wave, tidal, river current, ocean thermal and other water-based generation technologies are eligible for a two years tax credit.
The 2008 Energy Act also provides USD 1.5 billion for certain advanced coal-based generation technology projects and for certain coal gasification projects that demonstrate the greatest potential for carbon capture and storage (CCS). The act bolsters deployment of CCS through tax credits of USD 20 per metric ton for captured carbon dioxide that is placed in a qualifying geologic formation (e.g. saline reservoir) and of USD 10 per metric ton for captured carbon dioxide that is used in a qualifying enhanced oil or gas recovery project. Qualifying projects must capture at least 500,000 metric tons of CO2 during the taxable year (at the same facility).
The law extends the production tax credit to projects for producing liquid coal and refining oil shale.
It also includes up to USD 7,500 in tax credit to buyers of qualified Plug-in Electric Vehicles. The tax credit aims to encourage early buyers and is set to expire after 250,000 plug-in electric vehicles sales milestone has been achieved.

topWhat are the main provisions of the Energy Independence and Security Act of 2007?

On December 19, President Bush signed into law the Energy Independence and Security Act of 2007 (EISA), an energy bill that calls for the largest increase in energy efficiency standards for vehicles, a fivefold increase in biofuels production, and stricter efficiency standards for home appliances and light bulbs.

The key provisions are:

• • Corporate Average Fuel Economy (CAFE): the law sets a target of 35 miles per gallon (mpg) for the combined fleet of cars and light trucks by model year 2020 (in comparison, 2007 fuel efficiency standards are 27.5 mpg for cars and 22.2 mpg for light trucks). Also, a fuel economy program is established for medium- and heavy-duty trucks, and a separate fuel economy standard is created for work trucks. There are also provisions to foster the development of electric vehicles.
• • Renewable Fuels Standard (RFS): the law raises the current standard of 5.4 billion gallons per year to a standard of 9 billion gallons in 2008, that in turn rises to 36 billion gallons by 2022 (representing 2.3 million barrels per day, the equivalent of more than 20% of current U.S. gasoline consumption). Of the 36 billion gallons total, 21 billion are to be obtained from cellulosic ethanol and other advanced biofuels. Starting in 2016, the total increase in the RFS target must be met with advanced biofuels (defined as cellulosic ethanol and other biofuels derived from feedstock other than corn starch). The EPA Administrator is given authority to temporarily waive part of the biofuels mandate, because the technical feasibility of producing so much advanced biofuels is uncertain.
• • Improved Standards for Appliances and Lighting: the adopted bill includes a variety of new standards for lighting and for residential and commercial appliance equipment.
• • Improved Standards for Buildings and Industry: the law encourages the development of more energy efficient commercial buildings, with the goals of achieving zero-net-energy use for new commercial buildings built after 2025, and of retrofitting all pre-2025 buildings to zero-net-energy use by 2050. It also aims at reducing the energy use of Federal buildings (for instance, for new Federal buildings and major renovations, fossil-fuel energy use, relative to the 2003 level, must be reduced by 55% by 2010 and completely eliminated by 2030).
• • Repeal of Oil and Gas Tax Incentives: two existing tax subsidies are repealed in order to offset the estimated cost to implement the CAFE provision.

At the last moment, the bill was stripped of its two most controversial provisions in order to be signed by the President: first, the proposed Federal Renewable Energy Portfolio Standard (RPS - under which electric utilities must provide a minimum amount of electricity from renewable energy resources), and, second, most of the proposed tax provisions. Among them, the Production Tax Credit (PTC) and the Investment Tax Credit (ITC), both set to expire at the end of 2008, were not renewed because they were tied to the repeal of the tax incentives for the oil and gas industry which were dropped from the bill. The PTC and the ITC were established respectively by the Energy Policy Act of 1992 and the Energy Tax Act of 1978 to help promote renewable energy by narrowing the cost gap between conventional fossil-fuel generation and renewable power. The PTC can be claimed by wind, biomass, geothermal, small irrigation, landfill gas and trash combustion projects. The ITC applies to solar projects (photovoltaic and concentrated solar power) that are not owned by a utility, and also to fuel cells and microturbines.

topWhat are the key data for the US energy market?

generation

The American energy market is the biggest in the world in terms of size. Installed capacity stands at 995 GW, and 4,110 TWh of power was generated in 2008 (source: 2008 EIA preliminary data).

transmission

Three separate sets of transmission grids cover the whole of the US territory: the first serves the West (Western Interconnection); the second serves the Centre and the East (Eastern Interconnection), and the third serves Texas (ERCOT). Following the 1965 black-out, the North American Electric Reliability Council (NERC) was created on a voluntary basis by power utilities to coordinate exchanges between players and thereby guarantee grid reliability. This organization is divided into 8 areas and was granted coercive powers on January 1^st 2007. These powers are within the scope of the Energy Policy Act passed in 2005.
(source: NERC)

energy mix

Coal is predominant, accounting for 49% of power generated. Numerous plans to build coal-fired plants have been canceled since 2007 mainly due to increased uncertainty over carbon regulation. Nuclear energy accounts for approx. 20% of power generated. Quiet since the accident at the Three Mile Island nuclear power plant, the nuclear industry is currently being revitalized with upgrades and new reactor projects under review. Natural gas accounts for 20% of power generated and is seen as a bridging fuel to a low carbon economy. While renewable fuels still remain marginal, there is a strong political will to develop them further as recently shown in the 2009 American Recovery and Reinvestment Act.

(source: 2008 EIA preliminary data)

electricity prices

Average retail prices of electricity to ultimate customers:
Residential: 11.36 c/kWh
Commercial: 10.28 c/kWh
Industrial: 7.01 c/kWh
Transport: 11.28 c/kWh

(source: 2008 EIA preliminary data)

topHow is the American electricity market structured?

The American electricity market is highly fragmented and involves a large number of players. 

Federal and State Regulators:

In principle, electricity is managed by the individual states as long as power lines do not cross interstate boundaries.
The Federal Government, via the FERC (Federal Energy Regulatory Commission) is responsible for the transmission of electricity from state to state. However, this distribution of roles is not always easy to coordinate in practical terms and often gives rise to debate. The 2005 energy policy act broadened the remit of the Federal Government, granting the FERC new powers.

Electricity Providers:

There is a large number of producers, distributors and sellers of electricity in the US. In addition, various competition models across the country add to the complexity of the US power markets.

• Traditional electric utilities:

   - Privately-owned electric utilities (IOU – Investor-Owned Utilities), whose stock is publicly traded, account for more than 70% of all customers served. The main ones are members of the trade group  EEI - Edison Electric Institute.

   - Cooperatively-owned electric utilities, which are owned by and operated for the benefit of those using its service.

   - Government-owned electric utilities include municipally-owned electric systems as well as federal and state public power projects. The Tennessee Valley Authority (TVA) is the largest federal producer of electricity and markets at both wholesale and retail level.

• Non-utility players:

Following the 1990's deregulation of the US electric markets, a new category of non-utility players has emerged.Among this category, Independent Power Producers (IPP) and Power Marketers have access only to the wholesale level while Energy Service Providers are licensed to sell electricity to retail markets, using the transmission/distribution facilities of an electric distribution company.
18 states and the District of Columbia (Washington, DC) have brought in retail competition for all or selected customer categories, of which 3 states have only large customer access (Nevada, Oregon, Virginia).

topWhat changes were brought about by the 2005 Energy Policy Act?

The “Energy Policy Act” was adopted by a wide majority of Congress and signed by President Bush on August 8th, 2005. The previous Energy Act (1992) fostered the development of independent electricity producers and provided outlets by opening up wholesale electricity markets to competition.
This act is an “Energy Policy Act” comprising 14.5 billion dollars of expenditure or tax exemption. It covers all energy resources and services (1,700 pages) and accordingly modifies “control” of the electricity sector.

1. An "Energy Policy Act" in which gas is no longer the key focus

When the 1992 energy act was passed, gas was plentiful and cheap. The Act granted the wholesale market access to independent power generation at deregulated prices, especially where gas was concerned. Deregulation of the retail market remained the exclusive prerogative of each state. The Act also allowed electricity producers to invest outside their servicing area, in other states and other countries.

The Energy Policy Act of 2005 is set against a backdrop of high fossil fuel and electricity prices, and reflects the concerns of guaranteed short and long-term supply. On a short-term basis, it promotes energy savings in terms of demand and the diversification of supply sources in terms of supply: gas is only one source among others, alongside nuclear energy and clean coal. Long-terms issues are dealt with by R&D.

The full set of measures relies on tax incentives and loans guaranteed by the public authorities:

> Clean coal: 1.3 billion USD worth of tax credit, considered sufficient to finance 2.6 GW of integrated gas combined cycle (+ sequestering/possible collection of CO2) and 2.6 GW using other technologies (fluid bed); the department of energy has been granted 5 billion USD to finance R&D projects.
> Nuclear: 6 GW to be built will be granted 18 USD/MWh worth of tax credits over 8 years of service; the federal department of energy bears responsibility for any costs incurred by delays in construction due to “regulatory breaches” (up to 500 million USD for the first reactor); the department has been granted 4.3 billion USD to finance R&D for new technologies (G4, Iter) and the production of H2 by existing nuclear facilities.
> Hydroelectric power: extended tax credits for extending capacity on existing sites (max. 750,000 USD per facility) ;
> Other renewable fuels: renewal of previous tax credits;
> Energy efficiency: setting of new standards for 14 products (fridges, freezers, air conditioning units, etc.) and tax credits for energy efficiency measures taken in homes and the purchase of energy-saving appliances;
> Control of energy demand: states have to evaluate and establish time and season-based electricity prices.

2. Increased powers granted to federal regulators for grid upgrades

This has been done for reasons of guaranteed supply (see 2003 black-out) and not third-party access to the grid. The FERC has been granted the power (“backstop authority”) to demand the construction of new lines in the event of persistent resistance by states.

3. Abolition of the PUHCA Act, which should encourage the emergence of national industrial players and enable players from other industries or countries to operate power plants in the United States

The PUHCA Act (1935) forbade electricity producers to integrate the management of their system beyond each state (regulated areas). This explains why the sector is more fragmented than it is in Europe (4 to 5 times more dispatchers and power plant fleets than in Europe). This act was abolished after more than 10 years of debate. Furthermore, merger/acquisition procedures falling within the competence of the federal regulator were set to be simplified and expedited. This could result in further restructuring and concentration of the sector.

• print this page
• send this page