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What Next? Embrace Uncertainties in the Utility Industry

Dec. 19, 2018
Different sources, including the so-called experts, vary widely on issues critical to today’s electric utility business.

Sometimes those of us in the electric utility industry say these title words in frustration. A few expletives may precede or follow them. Regardless of our job positions, we all have a stake in the critical decisions our companies are making regarding capital deployment, and indeed, our company’s strategy/role for the future.  Such decisions are complicated by a monumental number of changes going on in our industry and society. But instead of letting the uncertainties we face beat us down, we have to embrace them. We have to consider the search for truth and the optimal path forward not as a burden or a distraction, but as an exciting aspect of our careers.      

There are many technology-related transformations going on in the power sector that seem almost organic and essential. They relate to doing things better, faster and cheaper for our customers. Consider smart grid technologies that range from digital substations to digitally enhanced grid systems that automate substation operations, distribution management and outage management.  These technologies improve storm response, reduce outage durations, increase grid efficiency, improve capacity and even reduce peak demand. Then we have smart grid analytics and asset health management systems. These technologies can help us reduce cost and optimize service for our customers.  Most companies will implement a significant percentage of these advancements.  It’s just a question of knowing our systems and determining the sequence of implementation based on available capital and the expectations of our customers and regulators. 

Admittedly, implementing any of these new systems will involve plenty of roadblocks and some challenges, but they are not likely to totally alter the scope or direction of the business.  There are strategic decisions and technology choices ahead that may do just that.  These decisions/issues may substantively change the fundamentals of our business in the future and the strategic direction of our companies.  Following are two possible examples. 

In the electricity business we historically told stakeholders we handled a product that must be created essentially at the time of use. "Fresh squeezed" we would quip using the illustration of an orange being squeezed for juice. Today, however, battery technology has advanced to the point that we are able to store bulk amounts of electricity for meaningful use later. This may well represent a fundamental shift in our industry.  Accordingly, it is incumbent upon us to learn everything we can about storage technology and what it can (and cannot) do for our business.

A recent announcement from NantEnergy proclaimed that its new rechargeable zinc-air battery can store power much less expensively than lithium-ion.  The New York Times headline proclaimed a “Cheaper Battery is Unveiled as a Step to a Carbon-Free Grid.”  A number of readers commented on the story, pointing out that cost alone is not worth getting all fizzy over.  A potentially more telling attribute for metal/air batteries is how well they cycle. One reader noted that at least 10 attributes are important for determining if a new battery technology will work out: high total energy storage, high current capability, low cost, plentiful materials, low weight, high spatial-energy density, a thousand plus charge cycles with no more than 10% performance degradation, low fire danger, low heat production, good charge and discharge efficiencies.  Another reader produced two announcements relating to the same breakthrough technology announced by NantEnergy: The first from 2009 was the breakthrough announcement and a co-development agreement with a major company and the second, from three years later, was a bankruptcy announcement.  Do you know the appropriate questions to ask about a new battery technology or application? 

Another paradigm shifting technology for our industry is solar.  Already, it has profoundly affected some regions of the U.S.  and as prices come down and the technology improves, more utilities will be significantly impacted. With this being the case, many jurisdictions are turning to solar valuation studies to better quantify the costs/benefits of distributed generation arrays on the grid. It is our duty as utility professionals to learn as much as we can about distributed solar technology and how it can be accurately evaluated, so that we can make appropriate recommendations to our companies, customers and regulators.

Think solar valuation is already fully understood, that this horse has already left the barn? Think again! Earlier this year, two “expert” studies released a month apart pointed out how far we have to go.  The first study conducted for Northwestern Energy and released in March found distributed solar has a levelized 25-year value between $0.035/kWh and $0.046/kWh. An April 10 preliminary study conducted for Maryland’s Public Service Commission (PSC) determined distributed solar’s 2019 value within the state to be between $0.31/kWh and $0.41/kWh. That’s a difference in valuation of over 85%, well beyond the difference in solar radiation and other physical factors at play.

This piece is not intended to impugn the above solar studies or the NantEnergy article from the NY Times.  It is intended to illustrate that different sources, including the so-called experts, vary widely on issues critical to today’s electric utility business. Of course, none of us has the capacity to become experts on every issue, but we can strive to gain discerning knowledge on one or more industry issues we believe are fundamental to the future of our companies and the power business. Don’t understand some aspect of evaluating a new technology?  Ask around your company.  Folks will appreciate your interest.  And please, respectfully share what you learn; help shape our future.  

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