As the renewable energy revolution comes to the large entities who are responsible for providing us with electrical power, investor owned utilities (IOUs) could be caught off-guard. The IOU business model centers on rate-based investments in large scale power generation. However, the growth of renewables indicates they will have fewer opportunities to invest in large projects, as state regulations begin to favor distributed generation, microgrids, and smaller independently operated grids. By 2050, one can predict that the IOUs that expand their view of what they invest in now to include renewable technology will be the ones to continue to expand their businesses.
It’s often said, “during a gold rush, sell shovels.” We often see companies find success not necessarily by innovating new technology, but through predicting demand for something new and offering services that support it. As the energy landscape evolves, it’s important for utilities to continually re-envision what their “shovels” would be.
For instance, Google’s Alphabet invests in building many new technologies that could someday serve to support the core business of Google itself. Google Fiber is providing fiber-based home internet services, to broaden high-speed internet access throughout the United States, either with their own service or by forcing competitors to join them in a fiber race. Faster internet for everyone leads to more viewership of advertisements, videos, and better connected smart home devices (IoT) — all which give the tech giant more user data to monetize.
The Amazon purchase of Whole Foods in 2017 is another example. It’s speculated that the acquisition was considered valuable for Amazon to secure more urban and suburban locations vital to its delivery business.
In previous pieces, I discussed the importance of utilities researching new market trends. I also applauded the efforts of utilities who breed new technology through research labs, incubators, and funding rounds.
Most utilities were painfully late to the uptick of solar energy generation and are attempting to get ahead of electric vehicle (EV) charging before that market also moves forward without them. Since, typically, utilities have a 25-year planning horizon and are accustomed to making significant investments that will pay off for decades to come, it behooves the industry to explore new strategies for investments into new markets that are likely to generate more electricity sales, preferably, clean energy.
The Drive Toward Driverless Vehicles
As autonomous vehicle technology improves, companies such as Alphabet’s Waymo, Uber, Peloton, Volvo, and Mercedes are working to develop self-driving vehicles.
These autonomous vehicles will most certainly be fueled by electricity (it’s hard to fathom an autonomous vehicle powered on combustion engine). Taking the worst-case scenario ‘worst U.S. grid region’ as an example, research by the University of Michigan and Ford Motor Company indicates that even autonomous electric vehicles (AEVs) operating in regions with the highest use of fossil fuels for grid power would produce fewer emissions than its gasoline counterpart. The emission reduction is because the added weight effect of autonomous technology is more substantial on gasoline vehicles than EVs.
Autonomous vehicles are another way utilities can prepare for electrification, as it opens up a significantly larger market for the sales of electricity (preferably derived from clean energy).
Cryptocurrency
At the time of writing this article, cryptocurrency markets are again more vigorous. It’s estimated that the annual mining of cryptocurrency accounts for 57.63 TWh of electricity. That’s the equivalent of how much energy 7.1 million U.S. homes would use in a year.
Mining bitcoin requires so much energy that regulators in China are reportedly considering a ban on mining as an “undesirable” economic activity. But what if that energy could be generated from renewable sources and stored for mining use?
Cryptocurrency mining is a complex process in which computers solve a complicated math puzzle to win cryptocurrency. In the Cascade Mountains in Washington state, cryptocurrency miners flocked to the area because of the cheap electricity received from the five hydroelectric dams that straddle the rivers in the region. Utilities there would like to stop cryptomining operations from siphoning off too much power from the local grid and overtaxing the residential electrical infrastructure with commercial-scale electricity demands.
To the entrepreneurial mindset, such a problem could also hold a solution. Just as large data centers run on renewable energy, so could cryptocurrency farms. One could imagine dedicated sites, powered by renewables and energy storage, where cryptomining could safely take place, without impacting local electrical grids and generating continuous revenue for site owners. There’s no reason those site owners could not be a utility. To be sure, for a utility to jump on the cryptowagon, it requires great boldness and is fraught with regulatory challenges.
Indoor Horticulture, Vertical Farming, and the Cannabis Growing Industry
Whether you’re growing tomatoes or participating in the booming cannabis industry, indoor horticulture is on the rise and uses a massive amount of energy. By 2050, global food production will need to increase by an estimated 70% in developed countries and 100% in developing countries to match current trends in population growth (based on production information from 2005 to 2007). However, overpopulation and overfarming make finding adequate farmland difficult.
That’s why some in the agriculture industry are turning to vertical farming as a solution to maximize crop yields and minimize land use. Vertical farming reduces water use and maximizes productivity by growing crops “hydroponically” in small amounts of nutrient-rich water stacked in a climate-controlled building.
However, the energy demand associated with vertical farming is much higher than other methods of food production. For example, lettuce grown in traditionally heated greenhouses in the United Kingdom need an estimated 250 kWh of energy a year for every square meter of growing area. In comparison, lettuce crops grown in a purpose-built vertical farm need an estimated 3500 kWh a year for each square meter of growing area.
Meanwhile, a single marijuana plant consumes more energy per year, in terms of lighting, temperature control, and ventilation, than seven refrigerators. Considering that cultivation facility may contain upwards of 400 plants, that’s a significant increase in energy consumption that will only grow as legalization becomes more ubiquitous. In fact, in the state of Washington, analysts anticipate an average load growth of 80 to 160 MW of power over the next 20 years due to cannabis production — the equivalent of a small city.
No matter what these farms are producing, vegetables, landscape plants, hemp, or cannabis, utilities have the opportunity to develop custom solutions and services tailored to these markets to cultivate their growth. Services could include custom pricing models and rate structures, or even subsidizing through programs the storage technology needed to all these facilities to operate on 100% renewable energy 24X7.
As more renewable initiatives arise, it’s also not out of the realm of possibility for utilities to partner with cities and develop community vertical farms or industrial parks specifically designed to supply power to cannabis growing operations. This type of partnership would ensure utilities have better control and transparency over energy use, while also increasing the sale of electrons.
While it’s always difficult to predict the future, utilities hoping to survive and remain on the new energy model trajectory already taking place, must broaden their investment focus. It’s not uncommon for large corporations to invest in nascent technologies, with the understanding that fostering such markets can reap large benefits to their bottom lines in the future. Utilities have the same opportunity, those utilities that are bolder, more forward thinking will remain part of the energy landscape, while those that languish in evolution, where a choice is made to remain in the comfort zone, will become a thing of the past.
