Navigant Research Blog

Utilities Rightly Taking Larger Role in EVs

— July 11, 2016

EV RefuelingWithin the span of a few short years, utilities have transitioned from being bystanders to becoming active participants in supporting the rollout of plug-in electric vehicles (PEVs). Legislators and utility commissioners have evolved their view of the roles that utilities can and should play, particularly in incentivizing or operating electric vehicle (EV) charging infrastructure.

A few years ago, several states, including California, prohibited utility ownership of EV charging infrastructure. Today, utilities are not only encouraged to operate charging stations, but are also compelled to do so. Public utility commissions have recognized that switching from gasoline to renewably powered electricity for transportation is good for air quality and the local economy, and many have updated their rules to allow utility participation.

Since direct current (DC) fast charging (with power delivered at 50 kW-100 kW or higher) has the potential to affect grid operations, many utilities are focusing on ownership of these assets. For example, Hydro-Québec is expanding its Electric Circuit of fast chargers along Highway 20 in the province of Quebec in Canada. Meanwhile, AGL Energy is offering a flat $1 daily fee for unlimited residential EV charging in Australia.

Change on a Global Scale

This is truly a global phenomenon. My recent travels have taken me to Honolulu, Munich, and Dubai—all of which have EV charging stations operated by utilities. In Hawaii, utility Hawaiian Electric Co. (HECO) is embracing PEVs as a method of helping to balance the power grid in the state. Hawaii has an ambitious goal of moving to 100% renewable power generation by 2045.

In many cases, PEVs are good load additions, as vehicle charging can be timed to balance intermittent solar and wind power production. Utilities are also launching pilots where PEVs are enrolled in demand response programs, as Pacific Gas and Electric (PG&E) and BMW are doing in Northern California. The new load from PEVs can help utilities replace revenue lost to the myriad of energy efficiency programs that are flattening or reducing power consumption. PEVs will also become more frequently accessed as part of the growing use of distributed energy resources (DER).

Navigant Research will discuss the many opportunities for utilities to derive value from using PEVs in demand response, as DER, and for load shifting and other ancillary services during a webinar on July 12.

 

Disruptors Welcome in the Future Energy World—Sort Of

— May 17, 2016

CodeThe future of electric power in the United States looks brighter than many might think, given all the wringing of hands in recent years about a supposed utility death spiral and lurking technology disruptors seemingly about to upset the old guard. I was reminded of this by two stories that crossed my inbox in recent days.

One was an intriguing piece by Tom Kuhn, president of Edison Electric Institute, the trade association representing investor-owned electric utilities. He notes the profound transformation taking place in the industry, and says, “At the heart of this transformation is the terrific progress that we are making today to deliver America’s energy future—a future driven by new and innovative technologies, developments in public policy, and changing customer and market expectations.”

Investments Increasing

Fair enough, and expected comments from an industry booster. But then Kuhn goes on to point out, “What you might not know is that just as all of the devices, gadgets, and services we rely upon are becoming smarter and more dynamic, the power grid is too. In fact, the electric power industry is investing $100 billion per year, on average, to build smarter energy infrastructure and transition to even cleaner generation sources. A record $108.6 billion in investments is estimated in 2015 alone.” That’s real money, and a sign of an industry not afraid to embrace change, though perhaps at a slower rate than Silicon Valley expects. And, finally, Kuhn embraces the competition. “We view many of the so-called ‘competitors’ or ‘disruptors’ to our industry as partners,” he says. “Today, we are working with hundreds of leading technology companies, including Tesla, Google, Apple, and Nest, as well as the startup community, to bring tomorrow’s technologies to customers today.”

Battle of Billionaires

The other was the contrast between energy billionaires Elon Musk and Warren Buffett. In a Las Vegas Sun piece, author Daniel Rothberg paints a picture of old-versus-new grid business models in an ongoing clash between Buffett’s NV Energy and Musk’s SolarCity and Tesla. Nevada is ground zero in this debate, with Musk and Buffett seeking the same goal, a carbon-free grid, but achieving it by different means. “Buffett wants to do that mostly by buying power that is centralized at large-scale plants,” Rothberg writes, while “Musk, with SolarCity, wants to integrate more decentralized rooftop solar and battery-storage technology with the grid.” The outcome means a lot to each businessman, of course, since both stand to win or lose depending on the model that emerges, and that will depend mainly on how the state’s energy policy is shaped in coming years.

This battle between Musk and Buffett is healthy and instructive. It shows there is more than one way to look at energy production and distribution. The combined debate and competition should yield a more efficient, cleaner, smarter grid in the long run, and it has implications for other states wrestling with similar issues. And I agree with Kuhn, the transformation and disruptors in the industry are welcome. It will be messy for a while as stakeholders—policymakers in particular—sort out the competing interests and business models. But a utility death spiral? Seems like that won’t happen. Utility transformation will, and it is already here.

 

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. The power of customer choice and changing 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.

 

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