Utilities are running toward integration in an evolving energy landscape
Renewable energy capacity has seen a 400 percent increase since 2000, and is now the largest source of capacity additions in the U.S. Investing in conventional generation facilities and traditional electric and gas transmission and distribution infrastructure today isn’t easy.
As utility companies face rapidly evolving environmental concerns, customer expectations, and technological developments, what are the best paths forward?
Let’s address the most viable approach to the new energy landscape: integration.
Utilities need cross-functional teams
Increasingly, utilities should be ready to 1) bring different parts of the organization together to see the bigger picture and 2) understand how the changing market impacts all areas of the business.
A holistic perspective empowers utilities to develop a strategy to take advantage of their collective strengths and identify the implications of decisions on the entire business for sustainable growth. Stakeholders and regulators are pressing utilities to adjust their game plans to the following changes collectively:
- Distributed energy resources’ (DER) rapid expansion is increasingly disrupting traditional business models and introducing increasing bi-directional flows onto the grid.
- The electric vehicle market grew by 60 percent in 2016 and continued expected growth will place new demands on existing power grids to manage increased loads.
- The energy storage market is expected to grow by 12 times its current size by 2023, and fundamentally disrupts the just-in-time nature of electric supply and demand.
- Natural gas-fired generation has overtaken coal in terms of percent of national generation and, together with zero-marginal cost renewables, are putting tremendous downward price pressure on wholesale power markets.
- Natural gas pipeline capacity is increasingly difficult to build in certain markets due to near term NIMBY issues, and longer term environmental concerns that building new fossil fuel infrastructure will delay efforts to reduce GHG emissions.
Utilities are enormous, complex organizations—traditionally with functionally siloed departments for generation, transmission, distribution, and customer programs. While this model has given us safe, reliable and affordable electric and natural gas systems, it’s time to build a cohesive strategy that works across traditional utility functions.
Forecasting with DER on the dashboard
To continue to supply clean, safe, reliable, and affordable energy to their customers, utilities need to account for more moving pieces. States with wires-only utilities are increasingly requiring their utilities to develop distribution resource plans (DRPs) in which DER is actively considered in the distribution planning process. Likewise, states with vertically integrated utilities and a “traditional” IRP (integrated resource plan) are starting to require their utilities to develop DRPs as integral parts of their IRPs.
Either case calls for a more granular, bottom-up forecast of DER deployment, in addition to the system’s ability to accommodate DER (i.e., hosting capacity) and investigate DER as part of the planning process.
Non-wire alternatives (NWAs) and non-pipeline solutions are on the horizon
Non-wire alternatives (NWAs) are becoming an important tool in the growing distribution system planning process, leveraging DER, where appropriate, in place of more traditional infrastructure solutions to meet grid needs. Similarly, non-pipeline solutions look at ways to meet demand without having to build additional natural gas pipelines. In both cases, utilities must look at both the demand and supply side of the issue to evaluate and develop sustainable solutions that keep costs down, manage demand, address resource constraints, and mitigate risks.
In turn, the deployment of increasing amounts of the DER on the grid and the need to fully understand the performance of those DER for both planning and operational considerations require that the utilities have much more visibility or situational awareness into how the DER and the grid is performing—increasingly in real time. This requires investments in grid modernization capabilities as well as clear monitoring and control requirements for the distributed resources dispatching to the distribution and wholesale systems.
On the natural gas side, many factors are changing the nature of gas utility business opportunities:
- Continuing improvements in energy efficiency
- Policy efforts to phase out fossil fuel use in specific markets
- Requirements to consider alternatives to traditional investments in natural gas infrastructure, including non-pipeline solutions to reduce demand and delay the need for new infrastructure
- Moratoriums on natural gas service expansions
- Concerns about long-term cost recovery of investments in new natural gas infrastructure, and
- Growing investment opportunities in non-traditional utility assets.
Adapting to the new energy landscape and building long-term business success require more than just looking at the problem from a singular viewpoint. The energy offerings of utilities are intertwined and complex; you cannot make decisions about one without affecting the others.
Failing to adequately plan could result in a range of negative outcomes, from a small outage to a resource supply or grid/pipeline design plan that does not meet resiliency and reliability standards. The new system needs to not only meet current needs but be able to meet the needs of tomorrow and withstand future natural and manmade pressures as well.
There is no one-size-fits-all solution
In the coming months, our energy team will explore several topics from a variety of perspectives to help you see the interconnectivity of the energy businesses, learn how decisions from one area impact another, and understand the importance of breaking down organizational silos. We will look at DRP/IRP and energy efficiency integration, NWAs and non-pipeline solutions, energy storage, electrification, and the long-term role of natural gas in the energy system.
