A new Ceres report finds that energy efficiency and renewable energy technologies are the most attractive options to meet future energy demand. Practicing Risk-Aware Electricity Regulation: 2014 Update examines the challenges facing the U.S. electricity sector and recommends steps utility commissioners can take to minimize both risks and costs for utilities and their customers.

“As utility regulators are evaluating billions of new capital investments every year by utilities, it is important that they recognize the relative costs and risks of the various spending options, whether energy efficiency, renewable energy or new fossil fuel and nuclear power plants,” said Mindy Lubber, president of Ceres. “The report’s risk profiles make clear that energy efficiency is the cheapest, safest investment by far, followed by wind and solar energy technologies whose costs have dropped dramatically the past two years.”

With the wide-ranging challenges facing the industry, Rich Sedano, RAP principal and coauthor of the report, recommends that states take a focused, “risk-aware” approach to regulation. “The challenges facing the industry are too great to be viewed through the narrow lens of traditional utility regulatory models. Utility regulation must evolve to find ways to integrate these low-cost, low-risk resources into the grid and more closely align utility compensation with societal goals.”

“The distribution system will be significant source of new resources. Regulatory supervision of distribution system planning will be of increasing importance,” added Sedano.

The report cites various new developments in the utility sector since 2012, including: proposed EPA regulations to reduce carbon emissions from new and existing power plants; significant events, such as Hurricane Sandy, that elevate the importance of electric grid resilience; and sharply lower production costs for renewable technologies such as utility-scale solar photovoltaic (PV).

The report also evaluates the levelized cost of energy (LCOE) for various generation resources, using analysis from four authoritative sources: Bloomberg New Energy Finance, Citi, Lazard, and the U.S. Energy Information Administration (EIA). According to the report’s risk and cost profiles, utility-scale solar PV power shows the biggest decline in relative costs among all resources, while the estimated LCOE for fossil fuel plants with carbon capture and storage moved those resources higher in the cost ranking.

The report is a follow-up to the 2012 report, Practicing Risk-Aware Electricity Regulation: What Every State Regulator Needs to Know.