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2020 Strategic Directions: Electric Report

With or Without a Regulatory Nudge, Decarbonization Planning Must Begin Now

With or Without a Regulatory Nudge, Decarbonization Planning Must Begin Now

The soaring use of renewables and DER are reshaping the electric utility industry as consumers and other stakeholders clamor for cleaner, decarbonized sources of power. Power utilities around the globe are rethinking their generation portfolio with a keener focus on ridding their operations of planet-warming emissions.

The push for decarbonization is taking a firmer hold in an ever-shifting energy landscape. Power providers are being pressed to commit today to investments needed in the future for cost-effective, low- or zero-emission energy options and more modernized, distributed grids that effectively integrate these options.

While renewables present opportunities to ensure reliable, clean and affordable power, the challenge comes with the increased penetration of those sources and in the absence of storage, replacing significant baseload power with an increasingly higher penetration of renewables.

2020 Strategic Directions: Electric Report

Although renewable energy has reached cost parity with traditional energy supply options in many markets, their natural intermittency may complicate efforts to maintain grid reliability when they account for a significant portion of the energy supply stack.

Black & Veatch’s latest Strategic Directions: Electric Report brings it all into sharper focus, underscoring that utilities thoughtfully wanting to accommodate the surge of renewables must plan now and respond nimbly. Of more than 600 industry stakeholders surveyed for the report, more than three-quarters agree that they are devoting more of their capital spending to clean energy.

Pursuing robust decarbonization through renewables — including hydrogen, a potential game-changing energy source that’s still evolving — will be a complicated endeavor, requiring collaboration between consumers, investors, activists and regulators.

States, Enterprises Forcing the Issue

Utilities no longer have the luxury of being passive when it comes to interconnecting their grid with renewables, given growing regulatory or legislative pressure state by state to find a cleaner, greener way of doing business.

According to the U.S. Energy Information Administration, more than two-thirds of states, notably including economic heavyweights California and New York, either have enacted binding renewable energy portfolio standards or carbon-neutral goals or are considering them.

In June, for example, Massachusetts’ top law enforcer, Attorney General Maura Healy, asked the state’s utility regulators to reexamine the future of the Bay State’s gas utilities as Massachusetts transitions away from fossil fuels in hopes of achieving its legally binding statewide limit of net-zero greenhouse gas emissions by 2050.

Healy’s request recognized the state’s findings that the heating sector must make sizeable reductions in its use of fossil fuels — and that doing so “will have profound impacts on natural gas distribution companies and will require them to make significant changes to their planning processes and business model.”

On the local level in Seattle, King County Executive Dow Constantine in August announced his proposal for the local “2020 Strategic Climate Action Plan,” a five-year blueprint that includes cutting greenhouse gas emissions countywide in half by the end of this decade, a stronger focus on climate justice and preparing the region for climate impacts. That plan, which builds upon the county’s previous decarbonization efforts, integrates “climate justice” into all areas of the county’s operations.

Not to be outdone, industry leaders such as Microsoft, Jacobs and Amazon have pledged to be zero-carbon or carbon-negative in their supply chains/operations. Some of the most influential firms are not waiting on policy changes and have chosen to solidify their clean energy commitments via the “RE100,” a list of companies — among them General Motors, Hewlett-Packard, Iron Mountain, Johnson & Johnson and Kellogg’s — that have announced plans to move to entirely renewable power generation.

2020 Strategic Directions: Electric Report

Compiled by the Climate Group and CDP (formerly the Carbon Disclosure Project), the lineup of more than 265 participating companies — many in the commercial and industrial (C&I) space — are intent on generating their own energy through rooftop solar or buying renewable-based power from offsite, grid-connected generators. RE100 companies will need to purchase over 220 TWhs of additional clean electricity by 2030 to meet their stated targets, which is almost as much as the entire energy consumption of Australia.

Promisingly, respondents to Black & Veatch’s survey overwhelmingly say they’re not being passive, actively blueprinting how to lower their carbon footprints or deploying more renewables. More than half say they’re doing so voluntarily, roughly 13 percentage points more than those attributing their efforts to a state regulatory mandate. Fifteen percent report taking no action.

Perhaps given their deeper pocketbooks to cover the cost, the biggest utilities — those serving at least 2 million residents — are most likely to voluntarily invest in emissions reduction or renewables goals, with nearly six in 10 respondents saying they’re doing so without being compelled by regulators. Some 46 percent of respondents from utilities serving 500,000 to 2 million people say their carbon-reduction goals are part of a state regulatory mandate.

As providers of roughly one-third of U.S. retail electricity sales, smaller utilities — typically municipal or co-operative enterprises in markets with fewer than 500,000 people — appear to be the laggards, with three in 10 of those respondents admitting they have no carbon-cutting game plan. Possible drivers of that could be their unfamiliarity with the technology, risks and operating characteristics — and perhaps a misperception of costs, which can be mitigated through self-financed methods or power purchase agreements (PPA). Smaller utilities also often are managed by elected boards reluctant to raise rates or who simply may be willing to wait until new technology and the business case for it is more proven. Simply put, the cost and the environment must be right.

Collaboration a Key to Decarbonization

The Electric Power Research Institute (EPRI) and the Gas Technology Institute (GTI) have unveiled a five-year global effort to hasten the development and demonstration of low carbon energy technologies. With 19 collaborating sponsors in the electric and gas sectors, that Low-Carbon Resources Initiative (LCRI) is targeting advancements in low-carbon electric generation technologies and energy, including hydrogen, ammonia, synthetic fuels and biofuels. Rather than shun natural gas altogether, the LCRI has created a critical collaboration between the electric and gas industries to achieve broader energy and decarbonization objectives.

Among other things, the collaborative will identify and accelerate fundamental development of promising technologies, demonstrate and assess the performance of key technologies and processes, and inform key stakeholders and the public about technology options and potential pathways to a low-carbon future.

“Achieving ambitious targets will require technologies and processes beyond those widely available today,” EPRI’s president, Arshad Mansoor, said in a statement. “This global initiative will advance affordable pathways to economy-wide decarbonization.”

A Pandemic and the Power Supply

Compounding recurring concerns about aging infrastructure assets, new challenges from wildfires, hurricanes and other severe weather events increasingly are testing the resilience of electric utilities. But a new challenge has surfaced in the form of the COVID-19 pandemic, which halted the nation’s economy, left tens of millions jobless and, in large measure, forced power providers to reassess their energy portfolios.

Some seven in 10 respondents to Black & Veatch’s survey insisted that the coronavirus outbreak will have no effect on their region’s electricity generation mix. But as retirements of coal-fired power plants continue to accelerate and bankruptcies in the oil and natural gas sector become more frequent, it’s not inconceivable – as some 14 percent of respondents note – that the industry will migrate more rapidly towards integrating renewables and other clean energy options.

The seemingly prevailing steady-as-a-rock sentiment about COVID-19 and power generation mixes may evolve as some things continue to shake out. A key driver for change includes customer loads shifting from commercial and industrial sites to residential premises, given the dominance of remote working during the pandemic. The bottom line: Possible volatility and uncertainty remains in what had been a relatively predictable industry — most certainly when it comes to forecasting power demand, compounding the challenges of regulatory changes and activist investors enjoying a bigger shareholder voice and demanding swifter shifts to renewables.

For utilities accustomed to thinking in terms of 30-year planning horizons, the world has turned far more dynamic and fast-paced, creating an inflection point in that utilities must respond more frequently and faster than ever imagined. Along the way, utilities need greater certainty that when it comes to distributed energy, storage, electric vehicle charging and all of the new stakeholders coming into the market, they’re going to get reimbursed for those investments at a fair market rate.

Interestingly, non-utilities surveyed offered a far different picture, with 28 percent saying regional changes to their generation mix will be accelerated because of COVID-19, suggesting that the way in which they do business will fundamentally change. An additional 24 percent said the pandemic will simply slow alterations to energy portfolios.

Hydrogen: Tomorrow’s Answer?

Increasingly popular overseas but slower to be adopted in the United States, hydrogen generated power, complemented by fuel cell storage, is drawing acclaim for its promise, given solar and wind energy’s intermittency that raises concerns about grid reliability.

So are we on the cusp of a “New Hydrogen Economy”? Simply put, it depends on who you ask.

Over the next decade, the survey illustrates, utilities expect solar (79 percent) and wind (67 percent) power to help them meet their clean energy goals or cut their emissions and carbon output, presumably because those options have established, matured technology and competitive costs. Those numbers drop into the 40th percentiles beyond 10 years, giving way to more deployments of hydrogen (58 percent) and battery energy storage (48 percent) amid expectations that the costs of those technologies at scale will continue to decline.

As private investment in clean energy continues to grow globally, electric utility planners and regulators will need to adapt their forecasts and investments accordingly. This will require more rapid design and development, as well as collaboration with interested stakeholders and investors. As several studies have shown, clean energy investments create a greater number of — and often higher-paying — jobs relative to other energy investments. Just what we need for a more rapid economic recovery in a pandemic-stricken world.

About the Authors

Jason Rowell is an associate vice president and global technology portfolio manager for Black & Veatch. He is responsible for developing projects and implementing industry leading solutions through technology innovation. Technology portfolio areas under Rowell’s direct leadership include carbon capture and utilization, hydrogen, supercritical CO2, waste-to-energy, biomass, and environmental and sustainability.

Kevin Prince leads Black & Veatch’s global distributed generation business overseeing the strategic direction, growth and execution of the company’s DER offerings serving both commercial and industrial customers as well as utilities. Solutions include onsite solar, energy storage, electric vehicle infrastructure, fleet electrification and CHP. He has more than 18 years of experience in the energy industry and has developed and closed more than $1 billion in projects for Fortune 500 companies and public and governmental entities.

Rob Wilhite leads Black & Veatch’s Global Distributed Energy business line. This includes the design, engineering, development, and monitoring/maintenance of client sustainable power solutions, including distributed generation, microgrids, battery energy storage, asset management services and utility grid services.

Heather Donaldson is director of Black & Veatch Management Consulting, where she is responsible for supporting clients through grid modernization, DER integration and other transformations. A recognized expert in the energy industry, Donaldson has served as a special advisor to the California Public Utilities Commission, as a principal with Southern California Edison, and as a director with California ISO.

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