Reasonable Government Approach to Advance Clean Energy and Energy Efficiency

By Richard Kauffman, Chairman of Energy and Finance, Office of Governor Andrew M. Cuomo, New York

With energy efficiency measures facing numerous challenges at the federal level, U.S. Supreme Court Justice Louis Brandeis’s observation that states serve as the “laboratories for democracy” couldn’t ring more true in the clean energy sector. Under Governor Andrew M. Cuomo’s leadership, New York State is advancing practical and reasonable policies to accelerate and capture the significant economic development and environmental benefits of the emerging clean energy economy.

Due to rising costs, aging infrastructure, and increasingly frequent extreme weather events, we need to fundamentally change how we generate, consume, and store energy. At its essence, our energy system is little changed since the time of Thomas Edison: electricity is produced in large power plants and it is transmitted through power lines to customers whose demand is assumed to be inelastic. In New York (as in much of the country), almost half of the capacity of the system is idle most days. The current system is both capital and energy inefficient. Approximately 33% of energy is lost from production to its final use—from its initial conversion to electricity, through its transmission and distribution. Furthermore, the electricity that is used in our buildings can be used more efficiently.

Just in the same way that the computing industry has made a transition from a centralized mainframe system to a decentralized one with personal computers connected to the cloud, the electricity system also needs to evolve into a diverse mix of different network types that includes central power plants combined with smaller, local solutions closer to the customer. Why is adapting to such a hybrid system so essential to meeting our energy goals? Efficiency is one, but cost is another. Thanks to low commodity prices, costs of generating electricity have abated, but costs for transmission and distribution continue to climb. In New York, delivery costs to residential customers have risen by more than 40% in the last 10 years, and over the next decade, these costs will rise an additional 63%—totaling $30 billion—just to maintain the system. (This figure doesn’t even include critical resiliency investments to mitigate the effects from extreme weather events such as Superstorm Sandy.)

Through our Reforming the Energy Vision (REV) strategy, New York is working toward building a smarter, networked electricity system that will be cleaner, more reliable, and affordable, and will provide greater value to customers. This new system will take advantage of innovative technologies and solutions already being developed and deployed—such as solar, wind, fuel cells, combined heat and power, and energy-storage batteries—to transform how we generate, consume, and store energy. The “Internet of things” can improve the efficiency of the electricity system if we reform our regulatory and market incentives and transition them into the twenty-first century. By modifying incentives, utilities can help customers find ways to save money and bring new technologies into their homes, giving them more choice and more control over their energy usage.

Central to REV is its plan to bring in private investors to rebuild the energy system with new innovations built around market competition. To help with this effort, Governor Cuomo created the $1 billion NY Green Bank (the largest green bank in the nation) to help serve as a bridge from government support to more developed clean energy financing markets. In the first deals announced last year, NY Green Bank is using $200 million to leverage an additional $600 million of private investment for a total of $800 million in energy efficiency and renewable projects across the state. These transactions would not have occurred without NY Green Bank’s support. This market-focused approach is addressing clean energy technology and project financing barriers, thus helping clean energy companies achieve real scale. Once a sustainable, clean energy market can exist on its own, NY Green Bank will step away.

A common criticism of government (and the private sector) is that “we don’t invest for the long term.” The “laboratory” known as New York State is taking a long-term view. Every day utilities spend capital on infrastructure that can last 50 years. We need to stop building the system of yesterday and build the system of today and tomorrow. Our approach is pro-consumer, pro-growth, pro-innovation, and pro-environment. Those are elements that should be attractive to everyone. We hope other states will join us in building their own REV labs.

Richard Kauffman is Chairman of Energy and Finance for New York State under Governor Andrew M. Cuomo. He oversees the state’s entire energy portfolio, including the New York State Department of Public Service, the New York Power Authority, and the New York State Energy Research and Development Authority.