By Dave Leligdon, Jeremy Klingel and Dean Siegrist
For all of the positives, renewable energy and applications that change how and when energy is used — from electric vehicles (EVs) to energy storage — are rattling the conventional power industry, propelling its transformation. But headwinds, including rigorous regulations and consumer expectations of reliability, may make the process feel like a bridge too far instead of a once-in-a-century opportunity.
Like many major evolutions, the process is slow but certain to move forward. And in an increasingly digital world and ever-morphing consumer landscape, utilities should take notice just how quickly in this generation that business models can and have changed.
That happens when disruption collides with the forces driving sustainability. Consider that Wall Street, once defined by traders who shouted and signaled transactions in crammed pits known as “the floor,” is far more sophisticated and virtual, with buying and selling now possible by anyone with just a keyboard and internet access. Ridesharing services such as Uber and Lyft have enjoyed a meteoric rise, elbowing into the domain of taxi services while dawning the age of the gig economy and the “uberpreneuer” – ordinary people making cash on the side by using their cars as cabs.
Television has been transformed by rapidly shifting consumer preferences and viewing behaviors made more complex and competitive by streaming devices, platforms and services. Apple’s rollout of its pioneering iPhone launched a global telecommunications arms race, using do-everything, palm-sized gadgets. Additionally, legal streaming services — such as Spotify, Pandora and Tidal — now define a music scene once dominated by vinyl and compact discs, helping lift that industry out of years of doldrums.
Through it all, the consumer and user experience are true north. The backdrop in which the electric industry, roughly 130 years old, now finds itself is filled with challenges and opportunity. Surveys show many stakeholders believe a “utility death spiral” fanned by advancements in distributed energy resources is taking place with things such as microgrids, rooftop solar units and EVs — and consumers demanding cleaner, cost-effective energy forcing the outcome. That’s if the industry doesn’t adopt alternative energy solutions or if regulations fail to allow flexibility. Or both.
As environmental and climate concerns grab more global attention, there’s little debating that renewables are going to be the cornerstone of tomorrow’s power generation — and that technology transforming the electric industry is reshaping how consumers both use energy resources and interact with their utilities. It’s in that vein that the electricity sector and businesses alike need to show they’re serious about clean power and collaborate on energy solutions for increasingly urbanized societies, rendering discussions about “off-the-grid” approaches much less relevant.
Solar Power Grabs Widening Spotlight
The Renewable Energy Policy Network for the 21st Century, in its yearly look at the market, recently revealed that renewables globally are outgaining fossil fuel and nuclear capacity combined, representing one-third of the world’s installed capacity.
Looking ahead, the Energy Information Administration (EIA) expects generation of renewable energy to spike to nearly half of global electricity generation in the next three decades, with solar’s share growing fastest among renewables. Forbes recently reported that in the coming 30 years, $10 trillion to more than $15 trillion will be funneled into solar and wind energy, depending on the percentage of incremental power that these renewables supply. Energy storage — key to fully harnessing intermittent power generation — is predicted to become a $20 billion annual market.
Electric utilities and commercial and industrial stakeholders are taking note. In a recent Black & Veatch survey of hundreds of respondents for the company’s 2019 Strategic Directions: Electric Report, slightly more than one-quarter of them (27 percent) expect distributed energy and renewables to dominate utility service offerings in the next five years. That number spikes to 45 percent on a 10-year horizon and 55 percent when forecasting 15 years out.
The reasons for the renewables surge are legion: policies increasingly favoring renewables, regional load growth and declining costs of technology ranging from the photovoltaic panels to the highcapacity batteries that store that energy.
That raises the question: In this dynamic moment in the history of power supply, are the keepers of the grid — that complex web that zips power from electricity generators through substations and on to homes and businesses — responding? Put another way: As solar, wind and distributed generation steadily encroach on traditional power generation, are utilities committing to upgrade a dated system to accommodate renewables and two-way energy flows that come with them?
Electric Industry Recognizes Threat, Potential of Renewables
Without question, there’s an understanding in the industry of the growing sway of renewables. When asked recently for their biggest concern for tomorrow’s grid development, electric industry respondents to the Black & Veatch survey overwhelmingly — 70 percent of roughly 700 saw this question — cited a generation mix with fewer traditional baseload units and more utility-scale renewable sources. By a lesser margin, respondents also pointed to regulatory lags in addressing needed system changes and the lack of qualified workers to architect and run the more complex system.
Separately, three-quarters of respondents see adoption of alternative behind-the-meter energy options as a threat to the utility business model, either if regulatory models preclude market flexibility or if utilities fail to implement their own alternative energy solutions. Utility business models must be allowed to evolve.
Businesses Rethinking Energy Options
The changing energy landscape — with renewables gaining a widening footprint as they approach price parity with power from the local utility — is prodding businesses to rethink how they use and manage electricity. For utilities that don’t notice or react, bad news comes in a single word: defections. Sustainability-minded companies are migrating toward the cheapest form of renewables or a basket of green energy options that gets them a reasonable cost of power. The catalyst is that businesses have a deeper menu of ways to satisfy their appetite for power, and they may see renewable energy — chiefly solar — consistent with their sustainability goals.
Some large companies have said they’d power some of their operations with renewable energy, while many others are going all in by installing their own solar arrays, energy storage, microgrids and other resources. A “RE100” listing by The Climate Group and what was formerly the Carbon Disclosure Project shows that more than 120 multi-national companies — many in the C&I sectors — plan for their power to come entirely from renewables as part of a global corporate leadership initiative.
Many of these companies are generating their own energy and buying renewable-based power from off-site, grid-connected generators. Beyond the environmental benefits of switching to renewable energy, they insist the business case for green energy is strong, demonstrating that these companies are listening to the rising chorus by the citizenry for better environmental practices by commerce and industry. Yet progress is slow, very little renewable generation is on-site or localized, and the pressure to see an economic return is beginning to build.
So what does that mean for utilities and those they serve? Lacking agility in making changes that align with growing clean energy and decarbonization mandates could drive away sizable commercial and power-hungry industrial clients who have the financial means to turn to renewables or distributed generation on their own. Such defections from the grid inadvertently would make the system more expensive by spreading its fixed costs among fewer ratepayers and adding to the network’s complexity.
As consumer demand again reshapes the energy marketplace, utilities can make their investments more valuable by using monitoring, control and automation technologies to unlock the full potential of grid assets for greater reliability, efficiency and security. This includes renewables and two-way communication on the grid, giving utilities and consumers more control and insight into everything from the grid to power generation options and bill management.
Renewables Gain Growing Favor Among Regulators
As coal-fired generation continues to fall out of favor, new plants powered by cleaner-burning natural gas are drawing growing scrutiny in favor of renewables.
In the spring of 2019, Indiana regulators unanimously rejected a proposal by electric and natural gas utility Vectren — a division of CenterPoint Energy — to replace three coal plants with an 850-megawatt (MW) gas facility, concluding the new site could become a stranded, uneconomic asset as customer demand changes, energy storage matures and the cost of renewables fall. Regulators also questioned whether the new plant would “serve to foster utility and customer flexibility in an environment of rapid technological innovation.”
CenterPoint’s Lynnae Wilson said in a statement that while “the case was filed at a time of significant changes in generation technology,” regulators have directed the utility “to increase our focus on the benefits of a more diverse resource mix.”
“As we demonstrated in our case, economic and reliability factors are driving a transition from coal-based generation and the selection of replacement resources will continue to be our focus,” wrote Wilson, CenterPoint’s chief business officer for its Indiana electric utility business.
In the Southwest, the Arizona Corporation Commission in 2019 extended its ban on constructing new natural gas plants generating at least 150 MW in the state. That comes as Arizona weighs a grid modernization plan calling for 80 percent of the state’s electricity to come from zero-carbon sources — renewables — and coal by mid-century, along with a target of 3,000 MW of energy storage by 2030.
Onus on Utilities to Get Current With Renewables
Consumers, equipped with increasingly sophisticated technology and no longer content with arms-length relationships, are demanding real-time, transparent engagements with their utility. And, along with a growing number of businesses, they’re demanding power in cleaner, greener ways.
The onus of being nimble is thrust onto electricity providers, who admit flexibility to adapt to what’s coming is atop their wish list. More than half of Black & Veatch’s survey respondents said that when it comes to identifying the most essential things for tomorrow’s invariably more complex grid, 55 percent pointed to innovations that are more malleable in configurations to handle changes, ostensibly those linked to renewables. That’s followed by better modeling and forecasting, and more real-time telemetry and control devices.
For power producers, the opportunity rests in adopting technologically sophisticated, cost-competitive and bankable engineering, procurement and construction (EPC) solutions that focus on integrating the complex grid, modernizing the vast infrastructure and putting reliability at a premium. Persistent regulatory questions will remain, requiring the industry to work collaboratively with their government overseers, among other things, to minimize rate impacts.
The push and pull of cost and consumer choice that reshaped the music, phone and television industries are taking aim at power generation and delivery.
The lesson is that time waits for no one, not even an entrenched business model that, despite sustaining electricity for so many decades, suddenly has competition compounded by mounting pressure to commit to a more renewables-focused grid.