INVESTING IN OUR FUTURE: ENERGY EQUITY IN CAPITAL PLANNING
BY: DAMIEN QUENTIN, ESG LEADER, AMERICAS, COPPERLEAF
With major geopolitical and environmental events having significant impact on the energy sector and many populations around the world, environmental justice has quickly become a complex and contentious topic of global conversation.
Environmental justice seeks to address the varying and disproportional degrees of climate change contribution and damage, and the impact on specific populations and places. Geographic and socioeconomic disparities can exacerbate climate impacts, resulting in people even within the same city experiencing climate effects differently. Some of the causes of these diverse impacts are the different levels of infrastructure investment and a community’s access to energy through reliability and affordability.
This is why energy equity will become a vital part of organizational strategy and capital planning in the energy transition and beyond. How you invest in energy infrastructure directly impacts the customers you serve. Making effective and equitable decisions will depend on how well energy companies understand the intersectional nature of environmental justice, how you account for tangible and intangible impacts of investments, and how you embrace the interplay between value, methodology, and technology.
Equity, sustainability, and accountability will drive capital planning strategy.
Public discourse has shifted towards placing more value on equity, sustainability, and accountability. The values of regulators, customers, and utilities reflect this renewed emphasis on environmental impact and social justice. We’re recognizing more than ever that where, how, and how much investment is injected into a community can directly impact the environment, people, and quality of life.
Knowing this, federal and state policy makers are requiring consideration of equity and environmental justice as an explicit objective of utility regulation. We've even seen large projects denied by regulators because of inadequate consideration of environmental impact on vulnerable populations. Utilities must prove their investment decisions account for climate change and sustainability efforts, as well as the disproportionate impacts of climate change due to differences in geography, and the socioeconomic factors within those geographies.
Measuring value on a common economic scale will be key to prioritizing and optimizing investments.
Because so many stakeholders (including utilities) within our energy ecosystem are increasingly valuing equitable considerations and investment, so too must these very utilities align capital plans with these shared values.
When utilities plan infrastructure investments for the year, and even the next 50 years, the best way to optimize decision making is through knowing and understanding what you value and how you assign value. To optimize investment planning, decisions must be both value-based and value-driven. But comparing the values of very different things (such as trade-offs between quantifiable returns and intangible impacts) is a challenging exercise when you don’t have a full picture of what you value and how you measure those values.
One fundamental part of the capital planning process will be building and applying a value framework to your investment plan. Identifying everything you value – from safety and reliability to sustainability and equity – and seeing the big picture of everything you value helps you prioritize spending by incorporating these values into your planning in a systematic way.
Technology will continue to be a strong enabler and defender of equitable decision making.
Organizing then analyzing your value inputs to produce data that informs new insights and effective decisions is where technology shines. The real opportunities for optimizing your investment decisions come when you combine a solid value framework with the right technology.
With continued innovation in the geospatial information systems (GIS) space like environmental justice screening tools, we’re also collecting new data and insights on how infrastructure planning and spending (and even emissions) can impact specific communities. This data includes geographic distribution of socioeconomic indicators like income, race, or education, so you can compare them with other equity metrics like outage rates, electrification access, or asset risk exposure.
When developing your infrastructure investment strategy, this information will help define the communities to engage and consult. Once you identify investment needs in underserved areas, you can set portfolio objectives, such as targets for service levels, safety and reliability risk, and risk mitigation.
Pairing environmental justice data with software solutions that use predictive analytics will support scenario planning, where you can compare possible outcomes of different investment options to choose only the plans that reduce the correlation between negative environmental impacts and specific populations.
The power of visualization that the right technology provides will bring benefits like regulatory filing efficiencies even with high-value rate cases. The science and art of transparent accountability becomes much more possible and comprehensible, making your equitable investment decisions even more defensible. Clearly demonstrating how your investment plans have awareness and understanding of tangible and social impacts – and creating plans that meet strategic objectives – builds trust and strengthens your relationships with regulators and customers.
Capital planning approaches will – and must – shift to reflect values that are here to stay.
We will continue to see and experience the convergence of environmental impact, social justice, energy transition, policy changes, and technological innovation. As a result, utilities will face more and more unique challenges that will require evolving pre-existing models into agile approaches fit for a changing world.
As we look to the future and how we’ll invest in it, anchoring approaches and decisions on value – whether financial or social – will be crucial for positioning and equipping your organization and communities to thrive together.
Want to learn more? Find out how Copperleaf can help you build capital plans that drive your Environmental, Social, and Governance (ESG) strategy here or reach out to the Copperleaf team here.