by Bob Shively, Enerdynamics President and Lead Instructor
These are uncertain times for electric utilities. With flat load growth, increasing distributed energy, shrinking value for many large centralized power plants, and discussion around changing business models, electric utility shareholders are left wondering from where future earnings growth will come. Meanwhile, despite the current administration in Washington, utilities in many regions are feeling increasing pressure to reduce environmental impacts.
Historically, utilities have grown earnings by investing in capital facilities as loads grew. Large fossil fuel power plants were a favored source of investment. Customers were generally on board since growing loads meant costs were spread over more sales and rates did not go up much. However, load growth now appears uncertain. As recently stated by Jim Rogers, the former CEO of Duke Energy:
“I think the demand for electricity is going to be anemic, at best. Perhaps more likely than not, the demand for electricity will actually decline.”
Without demand growth, the path for utility investment seems restricted to system upgrades. Unfortunately, investment without load growth inevitably leads to rate increases. But, there may be a new path to load growth that will help utilities find a new wave of growth while also benefiting the environment.
Jim Avery, Chief Development Officer at San Diego Gas & Electric, believes electric vehicles (EVs) are the solution. Says Avery: “Think I’m worried about growth? I’m worried about how the hell do I serve all of that.”
The potential for load growth and environmental benefits was covered in a recent whitepaper from the Brattle Group, titled Electrification – Emerging Opportunities for Utility Growth. In the executive summary, the authors write that under the current prevailing paradigm, utilities struggle with weak sales and growing distributed generation (DG) while projections show that emissions of greenhouse gases (GHG) will continue to exceed what is needed to meet long-term GHG reduction goals. But the authors suggest that with electrification of the transportation and heating sectors coupled with a significant reduction in GHG outputs from electric generation, a different paradigm can be achieved that offers a strong future to electric utilities. Under this scenario, electric utility sales could nearly double by 2050 while energy sector GHG emissions would decrease by 70%.
To make this happen, the authors suggest that electric utilities could strive to shift loads to electricity from fossil fuels. The benefits could be achieved by addressing two key sectors:
- Light duty vehicles including passenger vehicles such as the cars we all drive
- Commercial light trucks
- Freight trucks
For this sector, current liquid fossil fuels would be replaced with battery electric vehicles.
- Residential and commercial loads:
- Water heating
- Space heating
Here, current demand fueled by natural gas, propane, and fuel oil would gradually be replaced by heat pumps, electric water heaters, and electric ranges.
The result according to the Brattle Group could be a 96% growth in electric load coupled with a 72% decrease in U.S. energy-related GHG emissions.
How can utilities move toward this more positive future? Brattle Group suggests the following:
- Regulatory outreach to communicate the potential benefits and to overcome barriers
- Infrastructure deployment to build vehicle charging facilities
- Rate reform to remove barriers to electricification and to account for the characteristics of the new end-use technologies
- Program development including pilot projects and financial incentives to promote adoption
- Resource planning including enhanced load shape forecasting and analysis of cost trajectories and adoption rates
While utilities currently struggle with the risks of slow load growth and potential competition from distributed resources, the Brattle Group presents a vision of an alternate future that could prove lucrative for utility investors.