Navigant Research Blog

Take Control of Your Future, Part I: Megatrends in the Utilities Industry

— April 29, 2016

Energy CloudThe pace and impact of change in the utilities industry is unrelenting. Each of the following megatrends is changing the way we produce and use power globally. Together, these megatrends are revolutionizing the industry.

  1. Increasing customer demands: More customers want to control their electricity usage and spend, as well as when and what type of power they buy. Customers want the ability to self-generate and sell that power back to the grid. Amazon, Apple, Cisco, Google, Honda, Walmart, and many other large energy buyers have increased their focus on sustainable energy solutions. This trend, in turn, is forcing new power purchase agreements with the incumbent utilities in order to minimize their risk of losing significant load. For example, a second (Google was the first) major technology company, Cisco, has confirmed that it is using Duke Energy’s Green Source Rider to provide clean energy for its North Carolina operations.
  2. Rising number of carbon emissions reduction policies and regulations: The impact of COP21 will be significant. Navigant believes that the “hold” on the U.S. Environmental Protection Agency (EPA) is temporary, and state governments and utilities are not waiting. They are taking actions now to be compliant. In fact, sustainability objectives between government, policymakers, utilities, and their customers are much more closely aligned than ever before.
  3. Shifting power-generating sources: U.S. electric-generating facilities expect to add more than 26 GW of utility-scale generating capacity to the power grid during 2016. Most of these additions will come from three resources: solar (9.5 GW), natural gas (8.0 GW), and wind (6.8 GW), which together make up 93% of the expected total additions. Existing assets (coal, but also nuclear) are devaluing and are at risk of becoming stranded as source shifting continues and newer natural gas and renewable generation sources come online.
  4. Delivering shareholder value through mergers and acquisitions (M&A): New industry ventures and M&A are happening at a rapid pace. Exelon’s acquisition of Pepco, Southern Company acquiring SoCoGas, Duke acquiring Piedmont Gas, Emera acquiring TECO, etc. In search for shareholder value through scale and increased synergies, this is a path that utilities will continue to explore.
  5. Regionalizing of energy resources (interstate, north-south, global): In order to provide reliable and affordable power, more energy resources are being regionalized. For example, PacifiCorp and Puget Sound Energy (PSE) and, later this year, NV Energy is joining California ISO. One of the main drivers is to achieve the benefits to manage local differences with regard to renewables, wind, and solar. Another example is Florida Power & Light’s (FPL’s) investment in natural gas exploration and production companies in Oklahoma and gas transmission pipelines to secure fuels for its natural gas combined cycle plants in Florida. Meanwhile, the global availability and movement of natural gas has created an abundance of natural gas. Some of the world’s biggest entrants into the growing global gas market have considered investing in power plants and other big projects now that their multibillion-dollar exporter terminals are about to open, executives said at the Columbia Global Energy Summit on April 27.
  6. Merging industries and new entrants: Several industries, including utilities, oil and gas (O&G), technology, manufacturers, OEMs, etc., are merging around areas like renewables, distributed energy resources (DER), energy management, smarter cities, and transportation. Navigant sees many cross-industry movements, and one of them is increased crossover investments between the electric utility and O&G industries. We see utilities investing in natural gas assets. And we see oil companies making investments in utilities. We also see both making investments in new areas of opportunity, like renewables, DER (distributed generation, energy efficiency, demand response, energy efficiency, etc.), transportation, smart infrastructure and cities, and energy management. That’s why the announcement in April by French supermajor Total is not a surprise to me. Total announced the creation of a Gas, Renewables and Power division, which it said will help drive its ambition to become a top renewables and electricity trading player within 20 years. According to a statement by the supermajor, “Gas, Renewables and Power will spearhead Total’s ambitions in the electricity value chain by expanding in gas midstream and downstream, renewable energies and energy efficiency.”
  7. The emerging Energy Cloud: Old infrastructure is being replaced and geared toward an increasingly decentralized and smarter power grid architecture known as the Energy Cloud. The Energy Cloud is an emerging platform of two-way power flows and intelligent grid architecture expected to ultimately deliver higher quality power. While this shift poses significant risks to incumbent power utilities, it also offers major opportunities in a market that is becoming more open, competitive, and innovative. Fueled by steady increases in DER, this shift will affect policy and regulation, business models, and the way the grid is operated in every single region of the world.

These megatrends cannot be underestimated. They are accelerating transformation in the energy industry, enabling the entry of new players, putting pressure on incumbent players, and altering traditional strategies and business models. Organizations will need to adapt, and there will be winners and losers as this transformation takes shape. My advice to senior leadership of energy companies is to take an integrated, holistic view of the opportunities and challenges that are flowing from these megatrends. Only then will you be able understand the full impacts and path forward. And that is the only way you can really take control of your future.

This post is the first in a series in which I will discuss each of the megatrends and the impacts (“so what?”) in more detail. Stay tuned.

Learn more about our clients, projects, solution offerings, and team at Navigant Energy Practice Overview.


DOE Makes Headlines and Encounters Headwinds with Clean Line Approval

— April 13, 2016

Der Rotor wird angesetztThe U.S. Department of Energy (DOE) made headlines last month with its approval of the Plains & Eastern Clean Line transmission project. Headed by Houston’s Clean Line Energy Partners, this venture aims to erect a 720-mile, 600 kV transmission line across the Midwest to help facilitate wind energy delivery throughout the region. Originating in western Oklahoma, this clean energy pathway will traverse eastward and deliver 4,000 MW of power to Arkansas, Tennessee, and other southeastern markets. The project’s path to approval has been beleaguered by opposition and now sets up an interesting conversation surrounding the future of large-scale transmission projects and the DOE’s contested use of the Energy Policy Act of 2005.

Energy Policy Act

To understand the total implications of this decision, we must discuss the Energy Policy Act of 2005, and specifically Section 1222. Section 1222 authorizes the Secretary of Energy to “participate with other entities in designing, developing, constructing, operating, maintaining, or owning, an electric power transmission facility and related facilities.” This authority is subject to a set of conditions pertaining to project need and operating standards. This legislation provides a solution to projects plagued by state-level obstacles. The Plains & Eastern Clean Line is the first project being developed under the umbrella of Section 1222.

An array of benefits stemming from the project have been touted by Clean Line Energy Partners, including increased job creation, renewable energy investment, new wind energy generation, pollution reduction, water savings, voluntary payments and ad valorem taxes to local counties, and right-of-way payments. The line would deliver 500 MW to Arkansas utilities and 3,500 MW to the Tennessee Valley Authority, greatly opening up the Southeast to clean energy.

Not Without Opposition

While activists have been quick to tout the multitude of project benefits, there is strong and vocal opposition to the project. Much of this opposition has emanated from Arkansas, including state legislators and the Cherokee Nation. Senators John Boozman and Tom Cotton have aligned with other representatives in asserting that the project doesn’t meet the statutory requirements of Section 1222 and omits serious concerns that ought to be addressed in a state-level review. These legislators have stressed that decisions regarding electrical transmission siting should be left to the states, as they historically have been. The Cherokee Nation has also let their grievances be known, openly opposing the project due to its perceived impacts on property value and the cultural insensitivity of siting the project alongside the Trail of Tears and through the Nation’s ceremonial ground. Regarding local property values, the project is expected to result in declines of 10%-30% in affected areas.

This landmark approval sets the stage for potentially significant change in the wind energy industry and beyond. This project has the ability to spur wind energy investment throughout the region via increased line capacity. Creating this wind superhighway could inject value across the supply chain through increased demand for wind turbines, components, and associated services. This was the first project to be developed under Section 1222, leaving open the possibility that other similar initiatives can survive the seemingly unavoidable obstacles met by large-scale projects. Who will ultimately decide the fate of these projects is still left unclear, as the state versus federal debate can be expected to continue into the future.


Using Open Data to Close Mobility Gaps

— April 13, 2016

Mass rapid transitCan the open data movement help create better access to high-quality transportation services not just for the urban elite but also for the underserved? That’s what the U.S. Department of Transportation (DOT) is hoping will happen thanks to a new public transit data gathering initiative. In March, DOT Secretary Anthony Foxx announced that the agency is seeking to create a national transit map using transit route data from operators across the country.

Many U.S. transit agencies have already joined the open data movement, driven in part by the opportunity to have Google Maps provide users with transit travel options. A 2015 report by the U.S. Transit Cooperative Research Program (TCRP) on the state of open data in public transportation noted that between 2009 and 2012, many of the largest transit agencies in the United States created application programming interfaces (APIs) that third-party software developers can use to access real-time data feeds of bus and train location information. Many transit agencies have developed the GTFS (or General Transit Feed Specification) feeds that Google Maps uses to provide its transit directions.

National Snapshot

A new development is combining this data into a single map of transit in the United States. According to the DOT, its National Transit Map will provide a comprehensive, national snapshot of “where transit stops are, how frequent transit service is, and where transit routes go.” Note that this is all static information—this National Transit Map won’t take the place of real-time data used by smart phone app developers for individual transit systems. However, the DOT hopes that researchers and advocates will use the data to show where transit coverage is strong and where it is lacking. This is actually the kind of information that’s been available for years on U.S. roadways through the U.S. Federal Highway Administration (FHWA). The FHWA provides data on over 450,000 miles of U.S. highways that can be used to determine accessibility and usage rates.

The United States is joining just a handful of other countries that have open data on national public transportation services, rather than on a transit system level. The United Kingdom was one of the first countries to introduce a national public transportation database. The National Public Transport Data Repository captures every bus, train, and coach trip that occurs in the same week in October across the country. The repository has data from every year from 2004 to 2011, but has not been updated since 2011. When it was made public, the data was used for, among other things, an analysis of which parts of the country lagged in bus service. Sweden’s TrafikLab provides data on the country’s public transport systems. In Germany, transit data was pulled together by a group of activists, rather than the government.

Untapped Potential

There is still tremendous untapped potential in the data on transit services available to the wider public. The U.S. effort to collate this data and make it easy to access is an admirable step in this direction. While DOT secretary Foxx has expressly said his goal is to close the transit access gap, unstated is how this would occur. Presumably through encouraging additional investments in traditional public transit systems, but it would be an interesting exercise to overlay the transit coverage to data on shared mobility options. This data is largely held by private companies, however. There have been some initiatives to let cities access ride-hailing data, such as Uber’s partnership with Boston, but it is likely to be very difficult to access most of this information at a larger scale.


One Water: A Path Toward Unified Water Management

— April 8, 2016

Oil refinery plant along riverDespite generally successful emergency water conservation measures and recent rains, the California drought has continued into 2016, highlighting issues around the state’s long-term ability to handle increased drought and flood conditions. This is an important topic considering the trend toward more frequent droughts and other effects of climate change. Unfortunately, the underlying organizational structure behind water resource management throughout the state has not changed significantly. According to the 2016 update of the California Water Action Plan, “There is broad agreement that the state’s water management system is currently unable to satisfactorily meet both ecological and human needs, too exposed to wet and dry climate cycles and natural disasters, and inadequate to handle the additional pressures of future population growth and climate change.”

Fundamentally changing the water resource management system is a significant challenge. One of the reasons for this is that water-related services are too often kept in silos established by regional and municipal jurisdictions. Because of the variety of roles and responsibilities as well as the large number of local agencies, it is not a simple environment in which to effect change.

Breaking Silos

For example, in the City of Los Angeles, the Bureau of Sanitation (LASAN) handles wastewater while the Department of Water and Power (LADWP) provides potable water and water conservation programs. Furthermore, the Los Angeles County Department of Public Works has jurisdiction over watershed management and stormwater management/flood control. Collaboration is especially difficult among different levels of regional entities such as this. In practice, this model inhibits true, sustainable water resource management.

To their credit, water organizations in California are aware of the importance of working together despite logistical challenges. In Los Angeles, great strides have been made by preparing the One Water LA Plan, which calls for close coordination between city departments and regional agencies to build resilient local water for a sustainable long-term supply. The effort is managed by LASAN and LADWP together, and has a long way to go—when the plan is completed in 2017, it will still have to be implemented. The California Water Action Plan also identifies several initiatives supporting more integrated water management, such as expanding funding for integrated water management planning, supporting local ordinance changes to enhance local water supply and conservation, and more.

The Right Direction

All of this work is certainly a step in the right direction and helps further the conversation about sustainable water management. However, sufficient collaboration to gain a complete perspective of and control over the entire regional water resource requires a huge organizational and intellectual investment. One solution is to modify the underlying structure itself instead.

Communities should move toward a single, holistic water function—One Water—to manage all aspects of potable water, wastewater, stormwater, and flood protection. But how? The concept of fully integrating water and wastewater utilities is not new, but the actual transformation of distinct local organizations into a single unit will take a significant amount of organizational change. The first step is to create a One Water strategic framework, then align and merge city departments so that they can implement and manage the strategy. In addition to managing water sustainably, the One Water approach should also reduce costs and improve service. In many municipalities, this can be accomplished by an ordinance or revision to the city charter.

Some U.S. cities already have aspects of One Water, such as combined sewer and stormwater treatment in San Francisco, and others are moving in this direction; for example, merging water and wastewater (and streets) into one public works department in Geneva, Ohio. California municipalities, under the pressure of drought, should strive to adopt a One Water approach.


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