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2021 Electric Report: Executive Summary

Power Sector’s Transformation Keys on Clean Fuel Technologies, Energy Storage and Grid Modernization

Power Sector’s Transformation Keys on Clean Fuel Technologies, Energy Storage and Grid Modernization

For more than 130 years, the U.S. power sector has remained committed to consistently overcoming regulatory challenges, climate headwinds and other hurdles to keep power flowing and drive the economy. But a mix of emerging challenges — from an escalation of power-disturbing weather events and wildfires to publicized cyber threats and advancements in clean-fuel technologies, energy storage and grid modernization — continue to reshape the industry.

Underscoring the need for making grids more resilient, widespread electric disruptions in 2021 spotlighted the vulnerability of electricity delivery to cataclysmic weather events and scorched earth. Such was the case when a powerful, deadly February winter storm blanketed much of Texas with snow, ice and record low temperatures, and months later when Hurricane Ida made landfall in Louisiana in late August. Adding to the misery: raging wildfires fueled by a combination of record temperatures and extreme drought in the western U.S. At the same time, governments and corporations are striving ambitiously to decarbonize, turning to renewable energy drawn from solar and wind, both on land and offshore. This is forcing power providers around the world to thoughtfully plan and invest in ways to accommodate new green energy on the grid. The bottom line: As assets become increasingly distributed across utility networks and are owned and operated by third parties, grid management is becoming more localized, demanding rigorous attention.

All the while, cyber threats and regulatory uncertainty remain among the top concerns. The ascendancy of new technologies — notably hydrogen, a rising star in tomorrow’s energy mix — and wider use of battery storage are drawing more attention, prodding utilities to integrate them in a diversified, balanced energy portfolio.

Our new Black & Veatch 2021 Electric Report — based on survey data from nearly 500 U.S. electric sector stakeholders — details a complex industry transforming itself in a quest to become more reliable, resilient and responsive. Relying on expert analyses of the survey’s data, key topics examined include utility investment uncertainty, hydrogen’s vast potential in an increasingly decarbonizing landscape, climate change, clean energy trends, cybersecurity and fleet electrification.

And in many ways, the data is telling.

Aging Infrastructure Still the Top Challenge, As Usual? Think Again

Aging infrastructure was the industry’s most pressing worry in our reports for more than a decade. That’s no longer the case. Reflecting an industry repowering itself, roughly one-third of survey respondents (34 percent) now rate the integration of renewables as their foremost challenge, moving up one spot from last year (26 percent) to top the list ahead of cybersecurity (28 percent), which ranked sixth in 2020. Respondents cited the accommodation of renewables as the biggest challenge universally, regardless of their region or the size of their utility.

Aging infrastructure — No. 1 last year at 33 percent — has fallen to third at 26 percent, with planning and forecasting uncertainty, aging workforce, lack of a skilled workforce, environmental regulations and reliability were tightly bunched at about 20 percent.

The growth of renewable energy is undeniable. In July, the U.S. Energy Information Administration (EIA) reported that in 2020, renewable energy sources — wind, solar, hydroelectric, biomass and geothermal — generated a record 834 billion kilowatt hours (kWh) of electricity, or roughly one-fifth of all electricity produced in the U.S. Only natural gas produced more electricity than renewables, which surpassed nuclear and coal for the first time on record and shows no signs of abating.

Use of U.S. renewable energy — led by wind, along with the increasing growth of solar — reached record highs over the first half of 2021. Looking down the road, a U.S. Department of Energy study released in September found that solar energy has the potential to account for 40 percent of the nation’s electricity by 2035, powering all U.S. homes while driving deep decarbonization of the grid. Last year, the U.S. added a record 15 gigawatts (GW) of solar to reach a total of 76 GWs, amounting to 3 percent of the current electricity supply.

With federal estimates predicting that wind and solar will provide three-quarters of U.S. electricity by 2035 and 90 percent by midcentury, utilities are feeling pressure to make their grids more flexible and resilient, adding battery storage and advanced inverters to accommodate the rapid growth of renewables.

Utilities see it coming. Two-thirds of respondents to a question about the top concerns for grid development over the next three to five years cited the generation mix, with fewer traditional base load units and more utility-scale renewable sources. The regulatory lag in meeting the needs for system change came in a distant second (44 percent), followed by a lack of a qualified workforce to maintain and operate the more complex system (35 percent) and the ability to invest in and operate a more resilient grid (32 percent).

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On the investment front, 56 percent of respondents say government incentives or policies are driving renewable energy investments in their region. Half cited increased pressure or influence from governments. More than four in 10 (42 percent) pointed to increased demands from shareholders and a drive toward sustainability goals.

 

Climate Change, Electric Vehicles and the Call for Greater Grid Resilience

Although the pursuit of a more resilient U.S. grid isn’t new, calls for resilience have intensified since Hurricane Sandy — better known as “Superstorm Sandy” — hit the northeastern U.S. hard in October 2012, exposing shortcomings in that region’s grid. More broadly, that storm affected two dozen states and much of the eastern seaboard, leaving more than $70 billion in damage.

That disaster — proof of how 21st-century storms can overwhelm 20th-century power infrastructure — launched the conversation about U.S. grid vulnerabilities.

The Biden administration has taken note, proposing an infrastructure spending plan that received final congressional approval in November 2021, to channel tens of billions of tax dollars into what the White House has called “our aging electric grid (that) needs urgent modernization,” with wider adoption of renewable energy at its core. Under that measure, $73 billion — the single biggest federal investment in power transmission in U.S. history — would be committed to grid upgrades, including thousands of miles of new, resilient transmission lines to help expand renewable energy. The measure also will invest in research and development for advanced transmission and electricity distribution technologies while promoting smart grid solutions that deliver flexibility and resilience.

While climate change may amount to a moving target, utilities must think aggressively about mitigation strategies that look decades down the road and plan accordingly, accounting for the burgeoning new energy economy. As the survey makes clear, U.S. electric utilities confronting the shifting energy landscape are seeking a broad spectrum of solutions to meet their clean energy goals, with increasing use of hydrogen and renewable power, the retirements of fossil fuel-powered assets, and broader battery energy storage leading the way.

Not surprisingly, nine out of 10 respondents expect energy storage investments to increase in the next five years in their region, up from nearly 80 percent last year. More than half — 56 percent — expect their generation capacity investment in hydrogen to rise over the same half-decade, double the number of respondents (26 percent) who anticipated as much in 2020.

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Envisioning a green future in which greenhouse gas emissions are slashed, President Biden in August signed an executive order calling for electric vehicles (EVs) to account for half of all U.S. auto sales by the end of this decade. While not legally binding, Biden’s action as a key component of his climate change strategy is ambitious, considering that the share of new EV sales — including plug-in hybrids — was only 2 percent in 2020.

Given that EVs and electrified fleets are growing, power providers are being pressed to meet charging needs.

 

Hydrogen and Batteries

In pursuit of a decarbonized electric grid by 2035, the Biden administration is encouraging the U.S. economy to lower its carbon intensity, especially when it comes to buildings, transportation and heavy industry. Two emerging technologies — “green hydrogen” and battery energy storage — can help propel that quest for alternatives to fossil fuels.

Green hydrogen is produced when electricity from solar or wind or other carbon-free generation is used to power the electrolyzers that separate the hydrogen and oxygen atoms in a water molecule. That hydrogen gas then can be stored in a tank or cavern before being funneled into a fuel cell to create clean, emissions-free electricity. It can also replace natural gas or be blended with it to cut the carbon footprint of gas appliances. Complementing electrolysis, battery storage allows non-dispatchable resources like wind and solar energy to make energy that can be used precisely when systems need them most, helping balance load and generation across time and space.

Utilities envision hydrogen as tomorrow’s transcendent energy source. Over the next decade, the survey finds, the energy sector expects solar (86 percent) and wind (68 percent) to help meet its clean energy goals or cut their emissions and carbon output, presumably because those options have established, matured technology and competitive costs. Those numbers drop to around 50 percent beyond 10 years, giving way to more deployments of hydrogen — at 64 percent, the most-cited option beyond the next decade — and battery energy storage (51 percent) amid expectations that the costs of those technologies at scale will continue to decline, widening adoption.

Now more than ever, utilities — along with regulators and other industry stakeholders — must commit to and collaborate on tomorrow’s energy mix that’s virtually certain to be based on cleaner, greener options, using new strategic thinking, access to technology, proactive investments and aggressive planning.

About the Author

Mario Azar is president of Black & Veatch’s energy and process industries business. He previously served as president of the company’s power business, where he led all aspects of the business serving global power generation and delivery clients through comprehensive planning, consulting, engineering, construction, program management and combined engineering, procurement and construction solutions. Azar has more than 30 years of global leadership roles in power and oil and gas with breadth of experience in adapting to global changing markets. He has overseen multiple power and oil and gas businesses spanning the globe.

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