As usual leaders take up the challenge and find solid working
solutions when real change arrives.
The fact remains that a given utility can sit on its book of business
and not respond and they will get along okay for quite a while. Yet
that is a form of eating your capital.
What is important is that a flood of technological change is upon the
industry right now. The palette is filling up and certainly prudent
buys are demanded.
At the same time, it is clear that natural gas will replace Coal
unless there is something wrong with the reserves. The value
proposition is just too compelling. The speed of the turnover has
been breathtaking.
Sooner or later a new heat source will be rolled out to replace
natural gas.
Behind Closed
Doors, Utilities Grapple With New Strategies
According to energy
analyst Chris Nelder, not all utilities are simply digging in their
heels against change.
CHRIS NELDER
: JUNE
19, 2013
Not all utilities are
simply digging in their heels against change, or merely wringing
their hands over disruptions to their business models. Some are
taking the bit between their teeth and experimenting with new ways of
doing business.
San Antonio-based CPS
Energy, the largest municipally owned electric and gas utility in the
U.S., is the solar leader in Texas, accounting for roughly half the
solar power installed in the state under utility rebate programs.
Supported by one of the most attractive rebate programs in the
country, which covers nearly half the cost of a rooftop solar system,
CPS Energy’s system includes 10.8 megawatts of
customer-installed rooftop solar and 44 megawatts of utility-scale
solar PV.
The utility aims
to add another 400 megawatts over the next four years,
increasing its utility-scale capacity by a factor of ten, as part of
its ambition to generate 65 percent of its power from “low-
and no-carbon-emitting” sources by 2020. The utility
also offers rebates for energy efficiency upgrades, free
weatherization for low-income households, and demand response
services.
Private forums
On Tuesday this week,
CPS hosted the second in a series of invitation-only, closed-door
regional forums designed to bring utilities, regulators, and
“advanced energy” businesses together for frank discussions on
how to adopt new grid technologies and services more rapidly.
The Advanced Energy
Executive Forum series was conceived last year by Hemant Taneja, who
co-founded Advanced Energy Economy along with California billionaire
hedge fund manager and clean energy activist Tom Steyer, and Dr.
Richard Lester of MIT's Industrial Performance Center. They hope that
the discussions will lead to an action plan to remove the structural,
financial, regulatory, and cultural obstacles that stand between us
and AEE’s vision for a “prosperous world that runs on secure,
clean and affordable power.” The MIT Industrial Performance Center
is pitching in by studying various strategies for accelerating the
adoption of low-carbon power.
Attendees at the first
forum, held at MIT on March 6, included top executives from PSEG
Energy Holdings, Northeast Utilities, CPS Energy, NRG Energy, NextEra
Energy Resources, CLEAResult, EnerNOC, Gridco Systems, SustainX,
Viridity Energy, and California ISO.
The San Antonio forum
included executives from OGE Energy, First Solar, Silver Spring
Networks, Landis+Gyr, Green Energy Corp., C3 Energy, and the Electric
Reliability Council of Texas (ERCOT), in addition to attendees from
the first event.
On a Q&A call
after the forum, Lester explained why it’s so important to engage
all the stakeholders in the utility business to find solutions. It's
important to “recognize that the power industry is on the verge
of a set of changes that are greater than anything that has taken
place for the last century,” he said, “both upstream and
downstream. Mainly because of need.” In his view, “There’s no
innovation and change needed more in this country than the
transition to renewables while maintaining reliability.”
Taneja emphasized that
making public policy more friendly to renewables must be done at a
regional level, because each state has a different set of
regulations. Lester was drawn to Texas, he said, “because some of
the most interesting and exciting activities are happening here”
and it might offer some useful lessons to the rest of the country.
When I asked if that was partly due to the fact that Texas is the
only state in the union with its own grid, which would make it easier
to implement changes, CPS Energy CEO Doyle Beneby acknowledged that
it certainly helped, but asserted that “differentiated solutions
for various areas” will work across the country.
I asked Beneby if
municipally owned utilities are better positioned to adopt
distributed generation from sources like rooftop solar, as I
speculated in April, since it poses a challenge to the investor-owned
utility (IOU) business model. Beneby didn’t think there was an
“absolute answer” to that question, but noted that one of the
IOUs participating in the forum was “on a similar track to us,”
which he saw as a “validation of bottom-up, inside-out change.”
For both municipals and IOUs, Beneby thinks it’s important to “take
the pulse of your own customer base, regulatory regime, and zeitgeist
to figure out what works in your community.”
Where Beneby does see
an advantage is in being vertically integrated: owning generation,
transmission and distribution assets. It allows CPS to implement
changes in the system more extensively, and means the utility is
“linked instead of coupled” to the value proposition of each
business unit. Being locally managed also means the utility can get
things done more quickly.
Try and try again
Distributed generation
and technologies like demand response and microgrids need not cut
into the revenue streams of utilities, Beneby said; they just have to
be marketed the right way. Utilities should differentiate their
service offerings and segment their companies to go after specific
niches, much as Rob Day suggested in April. Beneby noted that
demand response and microgrids can be treated as a generation source.
Even the problem of
short-term overproduction from wind and solar, which occasionally
drives grid prices into negative territory, could be addressed by
“aggregating at certain times of day or in certain regions” so
that it “can be bid into the market profitably.”
Regulations must also
be updated to allow renewables to compete more effectively. The
utility industry has become calcified and lost its innovative spirit.
“Regulations set a rigid framework, and ways of thinking are
conditioned by those ways of doing things,” Lester observed. “All
that has to be loosened up to get the kind of innovation we need over
the coming decades,” he said, even as innovation is being forced
upon the system from outside.
Naimish Patel, CEO of
grid integration company Gridco Systems, agreed. “Current
regulatory structures have historically been shaped by reliable and
cost-effective delivery. That’s worked well,” he said. “Now
what’s happening is that technology is becoming available to meet
diversified customer needs.” But to meet those needs, it will be
necessary to "pare down certain regulations.” Patel is
confident that “well-placed and -architected deregulation would
help to unleash innovation.”
Specifically, Beneby
thinks state renewable portfolio standards offer a supportive policy
framework, as do regional greenhouse gas standards like those in
California and the Mid-Atlantic region. “Hard” reserve margins on
generation capacity, instead of the soft reserve margins in Texas,
might also be worth reconsidering.
The participants
agreed on one thing: There aren’t any one-size-fits-all solutions.
Every region has its own needs and its own capacities. The best
strategy is to start experimenting and see what works. “We can’t
delay,” Beneby said. “We need ideas and test beds. [...]
Utilities have to reach out beyond conservative, low-risk approaches
and start trying things. We have to keep evolving, [...] get
something in the ground and moving, and see what happens.”
CPS Energy seems to be
taking that notion to heart. After announcing in April that it
would replace its net metering program with a new “solar credit”
program that would only pay about half as much for the power
generated by rooftop solar systems, the utility responded to the
resulting cries of dismay by delaying changes to the program for
one year. It now intends to work “with local installers to come up
with an equitable solution.”
***
Chris Nelder is an
energy analyst and consultant who has written about energy and
investing for more than a decade. He is the author of two books
(Profit From the Peak andInvesting in Renewable Energy) and
hundreds of articles, and has been published byScientific American,
Slate, the Harvard Business Review blog, Financial
Times' Alphaville,Quartz, the Economist Intelligence Unit,
and many other publications.
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