August 8, 2024

Transition Finance Weekly 

Exploring the policy, politics, and economics of the clean energy transition

Each week here in Transition Finance Weekly, researchers and analysts from Pleiades Strategy summarize the top stories and trends related to the policy, politics, and economics of the clean energy transition in the states.

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1. Before winning the “veepstakes,” Governor Tim Walz set an example of how to do clean energy the right way in Minnesota.

• He’s made Minnesota a leader in clean energy — signing into law a commitment to 100% carbon-free electricity by 2040, establishing Minnesota as the 15th state to adopt Clean Car Standards, embracing renewables, and speeding up permitting.

• In the 2023 session alone, Minnesota lawmakers passed and Walz signed more than 40 climate and energy initiatives. Some are at the leading edge of climate innovation, like solar pollinator gardens that help bees thrive while generating electricity.

• Minnesota makes it happen by bringing together agriculture and manufacturing interests, organized labor and businesses, and rural and urban leaders to tackle climate challenges Minnesota communities are already grappling with, like heat, drought, and flooding. He’d likely bring that approach to the White House, too.

Walz: “[Y]ou don’t win elections to bank political capital — you win elections to burn political capital and improve lives.”

2. Minnesota is a Transition Finance Leader, Too

The state recognizes the power of the purse to help steer climate change response — both spurring clean energy economic opportunity and protecting against climate risks. When the state puts its financial heft behind climate goals, things change faster.

• Earlier this year the Minnesota State Board of Investment, chaired by Gov. Tim Walz, adopted a climate roadmap, emphasizing clean energy investments, proxy voting, and engagement with portfolio companies. The SIB manages the retirement savings of more than 840,000 Minnesotans and their families, stewarding $134B in total assets. The SIB is charged with protecting and growing these savings for the long term — including by navigating the costs of climate crisis and market changes within the energy transition.

• The Minnesota Climate Innovation Finance Authority (MnCIFA), a “green bank,” has already made its first loan — to build a geothermal system on St. Paul’s disadvantaged East Side. Established last year by the legislature, the bank will devote at least $45 million to clean energy projects that can’t easily get conventional financing, both directly and by providing state matching funds for federal investment. 40 percent of funding is reserved for environmental justice projects.

• Walz likewise signed into law the 2024 budget, which included $250M in funding dedicated to climate investments — including dollars to bring in Federal matches through cost-saving programs in the Inflation Reduction Act and spur household energy savings.

• Meanwhile, with climate change effects driving up property insurance rates, the state is investing in resilience, too. “Strengthen Minnesota Homes,” which will repay homeowners for the costs of making their homes storm-safe, should start issuing grants next year.

Governor Walz, on Minnesota’s Climate Action Framework: “This Climate Action Framework includes ambitious goals that will harness the power of Minnesota’s innovative spirit and small businesses to create thousands of well-paying jobs and develop the next generation of climate-smart technologies. We can do this together while ensuring that everyone — including neighborhoods that have been historically marginalized — can thrive in Minnesota.”  

3. Utilities Gamble On AI Data Centers — Risking Credit Ratings in the Process

Financial analysts say utilities that overbuild will see credit downgrades. But demand trends in the fast-growing AI market are hard to predict accurately.

• It’s hard enough for utilities to develop accurate integrated resource plans (IRPs) in conditions of stable demand, but spiking data center power loads due to the AI boom has made it even harder. If utilities build more capacity than they can monetize, it could hit their credit ratings, raise borrowing costs, and increase rates for residential and commercial customers, said analysts at ratings agencies Fitch Ratings and Moody’s.

• Some utilities try to cover themselves by requiring minimum payments and termination fees from new data centers, providing needed protection for families and existing customers.

• Accurate forecasting remains a key frontier, and there’s no universally accepted methodology. Microsoft thinks Georgia Power overestimated the power draw of its planned data centers by undervaluing expected efficiency gains.

• The risk is greatest for utilities that are already up against the wall — like Georgia Power, which has seen demand rise so precipitously in the last few years that its 2022 IRP had to be revised in 2023 — precipitating an ask to regulators to construct new fossil gas plants. AI growth projections are driving most of the sudden surge in proposed new gas generation — which utilities say is more reliable.

• But the reliability of gas is a myth, and new gas plants, which have a financed lifespan of 25-30 years, built today are in conflict with US commitments to 100% carbon free electricity by 2035. While the new report highlights the credit risks to utilities of overestimating AI demands alone, this credit risk becomes more serious in a world where the assets overbuilt become stranded assets and must be expensively retrofitted or retired before the end of their financial life.

Brian Janous, utility forecaster: “Every single one of those utilities is saying, ‘With all the demand that we're seeing coming into our system, we have to put more fossil fuel resources on the grid. It's the only way that we can manage it in a time horizon we have….’ [T]here's a lot of debate about whether that is true, but it is what’s happening.”

4. Protecting Workers from Extreme Heat

With states like Texas and Florida blocking local workplace rules, a national heat safety standard is welcome, the Biden Administration takes action to protect workers from extreme heat.

• After strong pressure from workers and advocates, the U.S. Department of Labor announced a proposed rule to require employers to protect workers from the health risks of extreme heat. Every year workplace heat kills 2,000 workers, injures 170,000, and costs the economy $100 billion in lost labor — and the danger mounts every year.

• The challenge is greatest for outdoor laborers like farm workers, construction workers, and delivery drivers, and people working in poorly ventilated spaces like Amazon warehouses. But in punishing heat waves like this summer’s, many more people face an elevated risk.

• Heat protection for workers isn’t complicated; access to water and shade, and work breaks, are practical steps that make a big difference. Some labor-employer partnerships, like the Teamsters and UPS, have negotiated stronger protections, and states like California and Minnesota are addressing the issue, too.

From a Vox analysis by Sam Delgado: “Lulu Guerrero, an undocumented farmworker in Colorado, told Vox she has fainted twice from the heat — once last year and once the year prior. ‘Two years ago, the temperature was about 105 degrees,’ she said in Spanish. ‘It’s very difficult for us, because we still have to keep working to earn money.’”

5. Texas Breaks a Renewables Record (Again!)

Solar power met 26% of the state’s demand, for the first time in history — a steep improvement over even a year ago.

• The energy revolution is well underway in Texas. On July 31, with 20,459 MW generated, solar power met more than a quarter of the state’s peak demand — that’s a 50% increase over last July’s Texas peak. Year over year, solar generation in Texas is up 38% in the first five months of 2024, more than double California’s increase. Wind energy is flowing in Texas, too; it covered another 20% of peak demand on July 31.

• Battery storage, which collects supply when it’s available and releases it when it’s needed, is a necessary part of a holistic renewables generation and distribution system — especially in a place like Texas, where overall supply is under strain. That’s why Texas is expected to install 6.5 GW of utility-scale batteries by the end of this year.

• To take best advantage of the ample sun and wind, ERCOT, the Texas grid, has established a flexible interconnection process that has bypassed key deployment bottlenecks in other markets and sped the growth of renewables and storage, allowing them to work together in service of Texas customers.

Doug Lewin, Texas Energy & Power Newsletter: “Oh, Texas' solar record is 1,000 megawatts more than California's record. Jus' sayin'.”

$2.2 Billion for Grid Resilience

Without a climate-ready grid that can handle heavy and fluctuating loads in more extreme weather conditions, the energy delivery system fails. That’s why the U.S. Department of Energy’s Grid Resilience and Innovation Partnership (GRIP) awards are so important. The 8 second-round awards announced last week will yield more than 1,000 miles of new transmission lines and line upgrades, and help unlock 13 GW of new grid capacity.

A notable award is $700 million to cover roughly 25% of the cost of Grid United’s North Plains Connector, which will bridge the Eastern and Western Interconnections for the first time. This will directly link three grid operators and allow power to move across the entire continental U.S., excluding Texas.