On April 12, Virginia Governor Ralph Northam signed the Virginia Clean Economy Act into law. The post below, originally published on March 12, describes what is in it and how it came about.
Over the last decade or so, Virginia has gradually transitioned from a purple to blue state. Now it will embark on another transition, from fossil fuels to clean, carbon-free electricity.
After voting for Republican presidents going back to Richard Nixon in 1972, Virginians began consistently voting for Democrats for president in 2008. And they have a long tradition of Democratic governors, the latest being pediatric neurologist and Army veteran Ralph Northam, elected in 2017.
In September of 2019, Northam tried to do what Democrats generally do when elected: support clean energy. He issued Executive Order 43, which laid out a plan for the state to reach 100 percent carbon-free electricity by 2050 (in keeping with the consensus goal of national Democrats) and to join the Regional Greenhouse Gas Initiative (RGGI, a nine-state carbon trading network).
But in the wake of the 2017 elections, the GOP still held narrow majorities in both houses of the Virginia General Assembly (the oldest continuous legislative body in the nation), so Northam’s plan went nowhere. In the state budget, the Republican legislature even took the time to specifically prohibit Virginia from joining RGGI.
In the 2019 election, Virginia voters finally figured out the one weird trick that allows any jurisdiction to pass good climate and clean energy legislation: They put Democrats in charge, with a 21-19 majority in the Senate and a whopping 55-45 majority in the House.
Sure enough, last week, the General Assembly passed the Virginia Clean Economy Act (VCEA), which puts Northam’s vision into law. The House voted 51-45 and the Senate voted 22-17; in each chamber, the bill received precisely one Republican vote.
Virginia has now become the first state in the South to embark on a clean-energy transition and one of the leading states in the nation on clean-energy policy. Let’s take a quick look at what the bill does.
Virginia will push fossil fuels to zero, and clean energy to 100
The VCEA will use multiple tools to squeeze emissions out of Virginia’s electricity system. They are built around four basic pillars.
1. Enter RGGI and develop a cap-and-trade system
The bill instructs state agencies to develop a carbon cap-and-trade program and to enter RGGI, which has generally had healthy economic effects on the states involved. Virginia’s participation could help make a somewhat oversupplied RGGI market more competitive, spurring a faster transition to clean energy. The revenue from the program will in part flow to vulnerable communities (see No. 3).
2. Target 100 percent clean energy by 2050
The most significant provision in the bill is a renewable portfolio standard (RPS), which would require the state’s two big investor-owned utilities, Dominion Energy and Appalachian Power Company (a subsidiary of American Electric Power), to obtain a set percentage of their energy from carbon-free sources. Several dozen states have RPS policies but Virginia wasn’t one of them until now. At a stroke, it went from no RPS (or rather, a voluntary one) to a one of the nation’s most stringent.
The law requires Dominion to get to 100 percent carbon-free electricity by 2045 and ApCo by 2050. To ensure steady progress, the RPS contains a series of interim targets for the overall electricity system: 58 percent clean power by 2030, 73 percent by 2035, 88 percent by 2040, and 100 percent by 2050. Conveniently, the day the legislation was passed, Dominion announced its own self-adopted target of 100 percent net-zero emissions by 2050.
VCEA also requires a state government study of how to achieve 100 percent by 2045 and bars the State Corporation Commission (SCC), which oversees state utilities, from issuing any permits for fossil fuel power plants until the study is done (after which the state may issue longer-term bans). And it requires utilities to incorporate a social cost of carbon when considering new fossil fuel investments, thus factoring climate damages into investment considerations.
The law would shut down all of Dominion’s biomass plants by 2028, almost all its coal plants by 2030, and the rest of the state’s fossil fuel power plants by 2045.
That is no small thing in a state experiencing a glut of natural gas plants. An investigation by S&P Global found that Dominion has been artificially inflating its demand forecasts for years in order to justify building more plants. (The Rocky Mountain Institute reports that such demand inflation is common among IOUs.) It was only late last year that Dominion finally abandoned plans to build 1.5 gigawatts of additional natural gas plants, even amidst the glut.
Earlier this month, the General Assembly passed a law that would give state regulators control over the timing and finances of coal plant closures, to ensure that they benefit ratepayers. Dominion fiercely opposed the bill; it was the first Dominion-opposed bill to get out of the Senate in years. There will likely be a similar battle over natural gas plant closures in coming years.
3. Hold costs down and protect low-income and vulnerable communities
The best way to reduce electricity bills is through energy efficiency, and Virginia legislators have given it considerable attention. VCEA would establish an energy efficiency resource standard (EERS) in the state, which would require investor-owned utilities to reduce overall energy demand from customers. Dominion must reduce consumption 5 percent (against a 2019 baseline) by 2025; ApCo must hit 2 percent. The SCC will then adjust energy efficiency targets every three years thereafter. Utilities must prove they are hitting those targets before they are permitted to build new fossil fuel plants.
To protect low-income consumers, the law will create a Percentage of Income Payment Program that caps the amount they pay for electricity to a set percentage of their income. The state will prefer low-income and vulnerable communities for new renewable energy projects and job training programs, prepare a report every three years detailing the impact of the transition on those communities, and direct some portion of various compliance and carbon revenues to them, funding programs like the Community Flood Preparedness Fund.
4. Boost storage, offshore wind, and rooftop solar
VCEA sets specific targets for several technologies, both under the RPS and outside of it.
By 2035, Dominion must construct or acquire 2,700 megawatts of energy storage capacity; ApCo must secure 400 MW. Cumulatively, that is one of the more aggressive storage targets in the nation. Ten percent of the storage must be “behind the meter,” supplying backup power to high-value facilities like hospitals and nursing homes.
Under the RPS, the bill instructs Dominion to construct no less than 5.2 GW of offshore wind capacity through the end of 2034. (Dominion proposed a 2.6 GW project last year.) In doing so, the utility must prefer local workers, especially workers from disadvantaged communities, and projects that have the most economic development benefits for the state.
The law sets aside 1 percent of the RPS for distributed rooftop solar and requires Dominion and ApCo to consult with the state’s Clean Energy Advisory Board on how best to inform low-income customers about their ability to save money through solar power.
The cap on net metering — whereby customers can be paid for the energy they generate with rooftop solar panels — will be raised from one to six percent of net load. Once the cap is reached, the SCC will determine a value of solar (VOS) rate to pay for net metering projects going forward. One percent of net metering revenue will be set aside for low-income ratepayers, the size of eligible projects will increase from one to three megawatts, and the cap on capacity will rise to 150 percent of the customer’s annual load.
Large-scale renewable energy will be procured through competitive auctions to keep costs low. The cap on power purchase agreements — stable, long-term contracts between utilities and power providers — will be lifted. And a third of that renewable energy will be independently owned, not rate-based, thus introducing some competition to the utilities.
The clean energy revolution is reaching the South
Politically, the battle over VCEA fell along predictable lines: Democrats, representing city-dwellers and inner suburbanites who want clean air and climate action, faced off against Republicans, representing exurban and rural voters with jobs and economies dependent on fossil fuel infrastructure (and who, culturally speaking, dislike the libs).
The votes fell almost entirely along partisan lines. One Republican in each chamber — Terry Kilgore in the House and Jill Vogel in the Senate — voted for the bill. Democratic defections, or threatened defections, mostly came from those who don’t believe the bill is strong enough.
Unlike Oregon Republicans, Virginia Republicans don’t have the option of simply walking out and shutting down the legislature, so there was little they could do to stop the bill’s passage.
What Virginia has done is far more prescriptive, and in some ways redundant (if the cap reduces emissions, what’s the point of the RPS?), than an economist might prefer. Generally, economists like broad targets and wide latitude for how market actors reach them. That’s why they are always going on about carbon pricing. They don’t want policymakers to get into specific mandates for specific technologies.
But Virginia Democrats are legislating for the system they have, not the one they might want, and the system they have involves monopoly utilities that have held a lobbying lock on the legislature for years, have steadfastly resisted progress, and must be forced to take each step forward.
An analysis by the SCC found that utilities would increase rates to cover new storage and renewable energy, but it didn’t quantify energy efficiency benefits. A more complete study by Advanced Energy Economy (AEE) found that the bill would lower rates, create jobs, and boost state GDP. Advanced energy, especially efficiency, is a huge and growing source of employment in the state.
There’s a story to be told about the long process of organizing and policy development that went into this bill, the broad support from business groups, municipalities, and civic groups, and the tireless work by a few key legislators and advocacy organizations, but the top-line story of the bill is fairly simple: Virginians elected Democratic majorities.
The Democrats in the Virginia legislature have wanted to take action on climate, guns, abortion, and health care for years. Now they have majorities and they are going for it, passing bills (including lots of other energy bills) at a dizzying rate.
The same thing has happened in other states where Democrats have taken majority control. It’s a reminder, in a political season, that finds Democrats fighting with one another over which person is best to lead the party, that legislating is less about ideological preferences than it is about numbers and power.
In jurisdictions where Democrats get them — even in the South — they use them.