As 2016 fades away, a new year approaches with a new set of unknowns for the evolving energy sector. A variety of different assets are coming on-line and challenging utilities that, even just a few years ago, did not have to consider the types of problems facing states such as California and Hawaii.
But with challenge comes opportunity. For utilities that have sat on the sidelines as solar has emerged, now is the time to consider what solar and other distributed energy resources (DERs) will mean for their operations in the years to come.
Here are five areas utilities need to stay focused on in 2017.
Solar today, electric vehicles tomorrow. For many utilities, the past few years have been all about understanding the impact of rapidly deploying distributed solar on the grid and debating related changes to traditional utility business models. The impact of electric-vehicle adoption is not far behind that of distributed solar, but this time utilities have a chance to be proactive.
Tesla’s Model 3 is expected to roll off the production line late next year, and Toyota has committed to mass production of EVs by 2020. These and other automaker announcements stand to transform how utilities manage the grid.
“There are several moving parts here and infrastructure is one of them, batteries are another; and then there’s the question of whether consumers are willing to buy them,” said Gregg Edeson, energy industry lead in smart grid, asset management and performance improvement at PA Consulting. If the latter holds to be true, then utilities will likely be a part of scaling up charging infrastructure, as is happening with massive charging plans put forward by the large California utilities.
For now, it is too early to say whether utilities will leverage EV batteries as grid resources. Currently, utilities are focused on rates that incentivize smart charging. In the future, vehicle-to-grid applications may offer promise, but real-world applications are limited given technical issues and questions around what that would do to a battery warranty. Managing fleet charging is likely the best starting point, and eventually second-life EV batteries could provide grid support.
Whether utilities are preparing for EVs or other DERs, investing in technology alone to better manage these resources will not be enough. “It’s also about understanding the impacts on the organization,” said Edeson. Even for utilities that aren’t challenged by DERs today, thinking about the evolution of operational business processes needs to start now.
The threat of tech giants. It’s not just solar and EV adoption rates that utilities need to be tracking closely. With Google and Amazon now battling with their connected-home devices, utilities need to pay attention to tech leaders more than ever.
The device, whether it’s the Amazon Echo or the Google Home, is probably being used more for playing music and checking the weather than for managing home energy, but the possibilities are endless. “Utilities need to track this space,” said Edeson.
Savvy utilities might eventually want to offer value-add services, such as appliance monitoring through smart meter data that could be integrated into a connected-home device to let homeowners know if an appliance is malfunctioning.
It need not be limited to electricity, said Edeson, adding that there is a suite of other services, such as water efficiency, that utilities could also integrate into leading consumer platforms via APIs. If utilities don’t bother to do it, they’ll lose out to someone else who will.
Carbon goes local. With the incoming Trump administration, the Clean Power Plan is most likely dead on arrival. The focus on carbon will return to the states. “It’s a little too soon to say, but I do think we’ll see renewed focus on state-level carbon politics,” said David Cherney, energy industry adviser at PA Consulting.
In this new political environment, more states could decide to join the Northeast’s Regional Greenhouse Gas Initiative or California’s carbon market. Participants aren’t limited to regional neighbors; both Ontario and Quebec have joined California’s market. However, the long-term stability of California’s cap-and-trade system is in jeopardy, and without federal support in the coming years, there will likely need to be a renewed effort to shore up support for the program.
Choice is everywhere. Customer choices in energy are quickly evolving beyond an array of sleek thermostats and solar lease options. Solar can now come withstorage and, increasingly, people can choose community solar options. Electric vehicles are also on the menu.
It’s not just customers who are looking for more flexibility. Regulators are also looking to create options through competitive market structures, such as what is happening with New York’s Reforming the Energy Vision initiative.
Utilities are also looking to maintain diversity in their fuel supply, and can increasingly justify the cost of renewables on price alone, rather than as part of meeting a renewable portfolio standard (RPS). GTM Research forecasts that non-RPS market drivers will make up most of utility-scale solar procurements between now and 2020.
Corporations are also thinking more seriously about power options than ever before. Caesars is the most recent defection in a string of casinos that have filed to leave NV Energy and get their power on the wholesale market. Although the situation in Nevada has not played out in many other places, large corporate energy users are actively seeking a cleaner power mix. Google, for instance, said it will achieve its goal of using 100 percent renewable sources for its electricity in 2017.
Coal can’t come back. While many environmentalists are concerned about what the Trump administration might mean for action on climate change and protecting public land and water, Cherney said it’s simply too soon to tell. “There’s a lot of unpredictable aspects with the Trump administration,” he added.
Because many older coal plants have already retired or invested in upgrades to be compliant with coming environmental regulations, even rolling some of those regulations back would not do much to change the picture.
“The uneconomic coal has largely exited the market,” he said. Although there could be an incremental boost for coal in the short term, it is mostly struggling because of cheap natural gas. “We do not believe Trump will have major impact on coal generation one way or the other.”
In fact, if Trump decides to approve more natural-gas pipelines, it’s possible that lower-priced gas could reach even more markets, further undermining the coal industry.