Energy roadmap helps diversify Arizona’s energy mix

It’s no secret that fossil fuels comprise a substantial portion of the U.S. energy generation resources. Even with several western states’ recent decisions to retire their coal generation resources, currently those resources are more often being replaced with natural gas than with clean energy resources. These decisions are being driven in large part by the current price of natural gas and new discoveries through “fracking,” the process of drilling and injecting fluid into the ground at a high pressure in order to fracture shale rocks and release the natural gas trapped inside. Natural gas prices have historically been volatile, and with liquefied natural gas terminals being developed for export, this pricing trend is likely to continue and be more closely tied to global pricing. Although Arizona hosts Palo Verde, the largest nuclear power plant in the country, the state does not have many of its own oil or natural gas resources and most of its coal reserves reside on Sovereign Nations, namely Navajo and Hopi. Arizona does benefit, however, from renewable resources with its abundance of sunshine and a small amount of wind. When one considers the lack of diversity in its own natural resources, it is concerning that less than 2 percent of Arizona’s entire energy mix is renewable. Although current renewable technologies have found it difficult to compete with more efficient fossil fuel and nuclear generation, there is clearly a strong societal movement toward the importance of including renewable resources in the mix. EPA’s recent push toward more stringent regulation of carbon and greenhouse gas emissions has severely impacted the western states’ dependence on coal resources, forcing the utilities with coal-fired generation to take a hard look at what the future will hold for their energy mix. Despite its current somewhat diverse mix of energy generation, it will be difficult, if not impossible, for Arizona to continue to adjust to the changing market conditions and environmental regulations without a comprehensive energy plan to provide long-term direction and focus. Such a plan will need to address issues such as developing supportive state and federal policies to promote industry growth and providing better access to capital for further development of the industry. It is for this reason that the Arizona Energy Consortium (AEC) has worked within the energy industry to develop The Arizona Energy Roadmap.

The AEC provides a forum to have an open discourse on these types of issues in a thoughtful and methodical way to help further develop the industry. The roadmap is a living document that will evolve with the development of the energy sector through the implementation of innovation and changes in policy, and by incorporating other private and public sector efforts to guide the industry. Arizona has had its share of uncertainty within its energy industry. The deregulation and net metering battles are just two of the issues that have brought uncertainty to our market. Without a clear plan as to how Arizona desires to develop and transform its energy mix, finding common ground to resolve these issues will remain difficult. It is critical to remember that Arizona competes for business that will go to other states if we do not have the appropriate policies in place to be competitive, and these policies cannot be made in a partisan vacuum. It is equally important that an energy plan come from both industry and regulators so that it works in the real world, and benefits both the providers and users of energy. Any imbalance of equities will ultimately result in an unstable market that prevents growth instead of encouraging it. A strong emphasis throughout The Arizona Energy Roadmap is that energy policy must create a stable climate for investment, be sustainable, and protect the needs of the current generation without compromising the availability of energy for future generations. The continued adoption and expansion of the clean energy sector cannot happen until investment capital is easier to access. Securing capital for the continued diversification of Arizona’s energy mix remains an issue for much of the industry due to the lack of a clear and stable policy and regulatory environment. There are tools that can be developed, such as Master Limited Partnerships (MLPs) and Real-Estate Investment Trusts (REITs) that allow tax benefits to be enjoyed by a larger investor base to enable renewables and efficiency measures to leverage the same tools that have enabled the expansion of oil and gas exploration in the U.S. As with building a strong investment portfolio, it is critical to diversify and pursue multiple resources with energy. For a low carbon environment to continue to flourish, the industry mindset must shift from viewing renewable generation and energy efficiency as a means to satisfy a series of mandates to an opportunity diversify its energy mix, while at the same time stimulating and enhancing Arizona’s economy. New business and development is attracted by consistent policy and access to capital. To be successful, Arizona must adopt an energy policy conducive to both.