Last September, Gov. Katie Hobbs announced the formation of the Arizona Energy Promise Taskforce with the goal of proposing consensus-driven recommendations for ensuring the state retains its reputation for affordable and reliable power. Arizona’s successful economic development efforts have laid down the groundwork for greater prosperity, but the strain being placed on critical resources could snap the state’s growth streak.
“Energy and water are the two inputs that appear on the pro forma for nearly every project our members build, and both are undergoing a moment of reckoning at the same time,” explains Cheryl Lombard, president and CEO of CREDA Arizona. “You’re either growing or you’re dying, and Arizona has spent years building real momentum in population, jobs and investment. Getting energy and water right keeps that engine running — getting either one wrong risks a setback that could take years to claw our way back from.”
The final report, which was sent to Gov. Hobbs on March 1, outlines where the state should focus its resources to increase energy resiliency. Lombard, a member of the taskforce herself, says the diversity of viewpoints represented in the group only made the proposals stronger.
“When you put 36 people from utilities, generators, large energy users, consumer advocates and industry in the same room, you get a set of ideas that have already survived contact with everyone who has to live with them,” she continues. “That’s why the 31 recommendations actually have a chance of sticking, rather than getting picked apart the first time they hit a committee hearing.”
Better, faster, stronger
The approaches put forward by the taskforce touch on multiple facets of the issue, from how to handle large load users to what new energy sources should be explored. Maren Mahoney, director of the Governor’s Office of Resiliency and chair of the taskforce, notes that focusing on efficiency is the best place to start.
“Arizona is seeing enormous population growth and has become an international hub for the semiconductor industry. Our summers are also getting hotter, which means we must be intentional about building fast yet strategically,” she continues. “We have a grid that can be used more dynamically, so we should optimize it for that use. Then, we can look at which new technologies are worthwhile investments.”
Across the 31 recommendations, one recurring theme from the taskforce is the desire to modernize and streamline existing procedures, which Lombard says would have a more significant impact than people might think.
“I spent time in D.C. drafting federal permitting reform legislation, and the lesson there applies just as well in Arizona: a lot of what slows down energy projects isn’t a lack of political will, it’s agencies operating on processes that were built for a much smaller, slower-growing state,” she explains.
Establishing a centralized permitting coordination council, modernizing State Land Department procedures, expanding co-location and removing barriers on available transmission capacity are steps the governor can implement quickly.
“None of these recommendations require new spending or a new power plant,” Lombard adds. “They require agencies to talk to each other and update rules that haven’t kept pace.”
Other ideas offered by the Arizona Energy Promise Task Force include:
• Encourage responsible investments in the energy system and update incentives for large load customers.
• Support generation conversions that are reliable, affordable, and sustainable.
• Increase deployment of distributed solar projects by reducing administrative barriers and supporting new tools and resource development to decrease the land and water footprint and quickly and affordably add new energy capacity.
Sharing the load
Following the Great Recession, Arizona’s leaders embarked on a multiyear initiative to break out of the boom-bust cycles that harried the state’s economy for decades. These efforts reached their zenith when TSMC announced a once-in-a-generation investment in Phoenix. With the state’s semiconductor industry on the ascent, TSMC’s $265 billion acts as its gravitational center, pulling suppliers and other related businesses into its orbit.
Manufacturing the critical components needed across multiple sectors is undoubtedly a boon for Arizona’s economic future, yet there are drawbacks. These facilities are classified as large load users due to their considerable power requirements, and insufficient grid capacity could stymie future investment.
But the commercial buildings that attract the most negative attention are data centers because of perceptions that they require too much space, electricity and water for what the community receives in the form of permanent jobs and sustained economic activity.
While cooling technology is far more water efficient than it was just a few years ago, there’s no denying that data centers are power hungry. For example, a typical big box store needs around 1 megawatt to operate, while a data center with the same footprint needs 400 megawatts.
“We used to look at 50 megawatts as a massive project, but today that’s nothing,” adds Jim Pratt, general manager and CEO of SRP. “I’m not trying to make excuses, but never in our history have we had this much demand all at once.”
The confluence of population growth, successful economic development and extreme heat has led the state’s utilities to forecast a 40% increase in peak demand over the next 15 years.
Put another way: it took APS 140 years to build its current generation and transmission capacity, but projections show the grid must double in size over the next decade to keep pace.
Compounding the problem is unresolved issues with supply chain. Some equipment that used to take 18 months to deliver has stretched upward of five years.
“It’s one of the worst times to try and go fast,” Pratt says. “We’re doing everything we can to speed things up, such as buying equipment even if we don’t have a specific project in mind.”
Kevin Thompson, chair of the Arizona Corporation Commission, adds that the cost of turbines have increased by 700%, “so there’s a cornucopia of challenges that have hit all at once.”
The biggest concern, he continues, is enusring the burden of grid expansion falls on the appropriate parties.
“APS, SRP and TEP are coming up with tools, whether it’s large load user tariffs or energy service agreements. [The Arizona Corporation Commission] has made it very clear that development must pay for itself. We’re not going to let that be put on residential consumers.”
For example, Thompson points to the Project Blue development in the Marana area, which the Arizona Coporation Commission recently approved a energy service agreement for.
“TEP went above and beyond because they wanted to make sure they were capturing all of the expenses,” he continues. “In the event the project doesn’t come to fruition, any assets being built are paid by the end user. A $25 million bond was included to recover that cost.”
Mahoney adds that rate structures are the purview of the Arizona Corporation Commission, but the state is exploring how to keep stakeholders involved and informed when these projects are under consideration.
“We can play a part in bringing communities, developers and other stakeholders together to have honest conversations,” she continues.
At a time when misinformation and distrust runs rampant, Mahoney argues that open communication is the best antidote. As Arizona grapples with the symptoms of success, Lombard underscores that collaboration is the only viable way solutions can be found and enacted.
“The taskforce did the hard part of getting 36 stakeholders to agree on 31 concrete steps,” she concludes. “The work now shifts to the legislature, the Arizona Corporation Commission and utilities, and whether they treat that consensus as a mandate or let it sit as a menu they cherry-pick from.”