Utilities and the low-carbon future
To stem the effects of climate change decarbonization is imperative, and the key to success lies in the trend toward an increasingly digitalized and decentralized energy sector. Technology and energy policy play a large role in these trends, but are utilities also ready to lead these changes? Author and leading energy academic Professor Benjamin Sovacool has the answers.
The electricity sector is in the midst of a radical transition: from fossil-based to renewable sources, from centrally controlled national systems to a multiplicity of connected but autonomous microgrids, from demarcated roles for market participants to consumers – or prosumers – who store and generate their own power. To understand these changes requires embracing the basics of several disciplines that include politics, economics and consumer behavior along with how we generate, transmit and store our power. At the same time, a constant eye has to be kept on climate change and the urgent need to decarbonize.
Fortunately, there are people who relish this challenge, and one of the most illuminating and tireless is Professor Benjamin Sovacool. In his office at the Centre on Innovation and Energy Demand at the University of Sussex, on one of those damp British days that make it easy for some to forget our world is heating up, Sovacool recalls that the distributed-generation or prosumer model is in fact over a century old and was used by his compatriot Thomas Edison, America’s greatest inventor and the founder of the first investor-owned electric utility.
So what caused the change from decentralized prosumers to centralized utilities and what’s causing it to swing back again? One answer is policy and regulation, which has driven centralization in the past and can help drive decarbonization now, but technology plays a large role as well. The technologies that are helping the energy sector transition to renewable sources also happen to dovetail with decentralized energy systems. “But the big utilities,” says Sovacool, “haven’t fully grasped the opportunities of the energy transition.”
Companies can drive decarbonization with progressive thinking.Benjamin Sovacool, Professor of Energy Policy, the University of Sussex
Opportunity knocks: utilities and the energy transition
Many utilities are still applying the traditional business model that assumes passive consumers, instead of appreciating these as potentially “active agents, generating energy or providing ancillary services, more like partners.” Customers, motivated by environmental and economic concerns, are taking a more active engagement in energy, leading to less paid energy consumption, but also to a need for increased energy management, innovations in electricity storage and load balancing on distribution grids. All of these are opportunities that could lead utilities to new revenue streams through data-based platforms and business models.
Utilities also stand to gain by investing more in research and development. “For utilities in the United States, research and development intensity is around 0.3 percent,” says Sovacool, compared to an average across all industries closer to ten times that proportion. “Electric utilities spend less on research and development than the dog food, ice cream, perfume and fashion industries – but innovation is critical for utilities.” This is especially true in an energy era being revolutionized by digitalization, which is opening up new opportunities for more efficient grid management, predictive maintenance and assets with self-healing capabilities.
Finally, utilities can also benefit by shifting from being reactive to proactive. “Instead of waiting for things like carbon pricing or national regulations to drive decarbonization,” says Sovacool, “companies can drive decarbonization with progressive thinking. One great example is the US federal Tennessee Valley Authority, which has been actively displacing coal-fired power with a mix of renewables and energy efficiency.” Being proactive means that utilities can not only strengthen their public image, but also focus on new forms of power generation, more efficient transmission and distribution and the benefit of coupling sectors like mobility to electricity.
Lightning in a bottle: Can utilities take the lead?
Despite the predominance of traditional models, changes are happening. In June, the new president of the utilities’ association Eurelectric, Enel chief executive Francesco Starace, stated in his “Presidency Manifesto”: “This is the right time to roll up our sleeves and lead the transition to a low-carbon economy.” And European governments support such a shift. In April, Kristian Ruby, Eurelectric’s secretary-general announced that “26 of 28 [EU] member states have stated that they will not invest in new coal plants after 2020. History will judge the message we are bringing.”
Moreover, Sovacool lists places where renewable-fueled prosumers are increasing – across Northern Europe and in New York State, for example, and the time is right for utilities to lead large-scale prosumer initiatives and invest in updating the infrastructure of their grids. According to Sovacool, “the century-old grids with their captive customers and sunk costs often seem to act as drags on innovation.” Nevertheless, Sovacool is sympathetic to the conservatism of utilities. Centralized systems, he maintains, offer many benefits we take for granted. They avoid duplication of investments and fee charges, and they deal with challenging competing mandates: No suspension of system availability is acceptable, financial rates of return are often regulated to a minimum and it is very difficult to disconnect a non-paying customer.
“Electricity is complex,” he says, “unlike any other commodity. Supply has to match demand exactly, which can deliver asymmetrical power to small additional market players who may disrupt the grid, as was seen with the California blackouts of 2000 to 2001. Storage is difficult: Electricity is also hard to see, measure, differentiate – all kilowatt-hours are functionally the same.” The US National Academy of Engineers seems to agree with the scale of the challenge that managing an electricity system represents, judging the grid to be the best invention of the 20th century, beating out vaccines, airplanes and toilets. “We forget,” Sovacool concludes, “how hard it is to create bottled lightning and send it into every home.”
The balancing act: energy policy and leadership
Here is where regulators and policymakers come into play. In Sovacool’s article “Going Completely Renewable: Is It Possible (Let Alone Desirable)?”, written with Charmaine Watts and published in The Electricity Journal in 2009, he lists seven policy recommendations that would enable a major shift to a renewable power sector. These recommendations include the promotion of energy efficiency, the elimination of subsidies for undesirable fuels, the standardization of renewable power systems as well as the use of feed-in tariffs, grid interconnection, streamlined planning and permitting, and distributing information to investors and customers about the latest in energy regulations and technology. “There are no sound technical reasons why existing renewable power plants could not replace all conventional units,” writes Sovacool. “A renewable power sector is achievable with the correct configuration of policy support and political leadership.”
This is the right time to roll up our sleeves and lead the transition to a low-carbon economy.Keith Cronkhite, Senior Vice President, Business Development & Strategic Planning, NB Power
So, the answer to how much utilities can reasonably be expected to achieve will involve balance. First and foremost: Decarbonization is urgent. At the end of 2016, around a quarter of electricity was from renewable sources, but this was mainly hydropower, which cannot expand significantly, and there is no reassurance that renewables are growing fast enough at this point to mitigate climate change. But as Sovacool points out, however, experiences in Spain, Ontario (Canada) and Denmark have all shown renewable generation having to be capped because it surpassed expectations and destabilized the electricity system’s financial health.
The transition is not necessarily bad news for utilities. For example, encouraging distributed generation can reduce a utility’s requirement for infrastructure investment. Ian McLeod, former Chief Executive of the Australian utility Ergon, says that from 2010 to 2015 greater use of rooftop photovoltaic cells and smart technologies let his company defer or avoid US$664 million worth of investments. “So distributed generation or distributed energy resources for Ergon is helping us defer the traditional investments.”
Utilities are still vitally important and will continue to dominate the electricity sector for decades. As Adnan Amin, Director General of the International Renewable Energy Agency, emphasized at the recent European Utility Week 2017: “Utilities’ leadership is critical for an affordable energy transition that reaches consumers and meets renewable potential.” Market liberalization gives utilities a powerful incentive to innovate, even if it at first runs against their natural conservatism. “Let’s hope the nettle will be grasped,” says the optimistic Professor Sovacool.
Benjamin Sovacool is the Director of the Danish Center for Energy Technology at the Department of Business Technology and Development at Aarhus University and Professor of Energy Policy at the University of Sussex, where he directs both the Centre on Innovation and Energy Demand, and the Sussex Energy Group. He is author and editor of a number of books on energy policy and climate change, including The Political Economy of Climate Change Adaptation and Fact and Fiction in Global Energy Policy: Fifteen Contentious Questions.
Daniel Whitaker is an independent journalist based in London.
Picture credits: Siemens AG
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