Posts Tagged ‘electric utility transition’

Where Wind Farms Meet Coal County . . . . . Jobs Are Crucial But At What Cost?

As Upton Sinclair wrote, “’It is difficult to get a man to understand something, when his salary depends on his not understanding it.” When your livelihood depends on fossil fuel, the political, economic and environmental externalities often hold no interest. This well written and informative piece from the New York Times about competing energy types in Wyoming’s Converse County illustrates vividly this point and the energy sector job conundrum.

Health costs and fatalities caused by coal burning power plants are a seldom-identified externality in the energy jobs discussion. While coal jobs are crucial to the families in the article, nowhere is there any mention about families downwind from coal plants who experience appalling health problems.  Long term studies from the EPA and other peer- reviewed papers show that coal burning kills 15,000 people per year in the U.S. while the coal industry employs only 55,000. Not an acceptable ratio. The cost to treat illnesses from coal burning in the US exceeds 10% of our total health care costs of $3 trillion per year and equals up to 6% of GDP.

Do we need a peer reviewed energy ratio model that can be cited by journalists which states X number of energy job types creates X number of deaths and healthcare costs?

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Electric Utility Extincton or Evolution?

For the first time in its 100-year history, the electric utility industry in the US did not have an uptick in electron sales exiting a recession. This is due to a number of factors including the strong emphasis on energy efficiency programs over the last 10 years, growth in distributed generation behind the utility meter, demographic shifts with movement to warmer climates and an economic downward reset after the large bubble burst which led to the great recession.

Solar Energy, utility Meter

A direct connection to the customer

Combined with growth in renewable energy and independent power producers (IPP), this lack of growth has caused extensive discussionand consternation about the future of the electric utilities and their ongoing viability as going concerns in the energy industry and on Wall Street.

Recent discourse centers on the rise of residential PV due to the well-documented reduction in cost of PV systems over the last 6 years. PV deployed on homes now competes with retail priced energy from the electric utilities, which is now at cost parity in many locations.  With the emerging development of PV combined with energy storage using batteries, the conversation is about a utility death spiral that goes like this: as more and more homes deploy solar with batteries, the electric utility loses more and more revenue which requires them to raise rates which then encourages more adoption of residential PV by home owners.

While there is no question that the electric utility industry is going through a large and painful transition to a new and yet to be defined business model as a result of the aforementioned issues, it would seem highly unlikely the electric utility business model would go away completely as many pundits would suggest, for the following reasons:

1)   They possess a regulatory-granted monopoly which evolved to serve a nationwide public need for robust and reliable electric service;

2)   They have low cost of capital in an industry that requires large capital expenditures;

3)   They operate at unprecedented scale with corresponding efficiencies;

4)   They own and operate the grid infrastructure.

Solar energy, utility monopoly

Monopoly with significant barriers to entry.

There is no question that the utility industry has historically been slow to react or plan for the current disruptions in the energy industry. They also have a dismal record when entering new markets and seeming unwilling to accept new or disruptive technology trends and business models. With the exception of a few forward-looking utilities such as NRG, the power utility providers of today have been non-reactive to very large and visible recent trends that are a direct threat to their electron sales-only model. In many instances they have been hostile and retaliatory. But the reasons above provide a very strong platform for a competitive advantage that is unlikely to see the electric utility demise anytime soon especially now that they are waking up to not only the threats but the opportunities.

Solar PV, bankability

Utility Duke Energy owned North Carolina project

Many high profile participants and pundits have been predicting that renewable energy will be larger than 50% of total generation in the future and that all clean energy generation will come from the non-utility players. While I have very little doubt that renewables and in particular solar energy will be a large piece of the generation pie (as smart grid technology and grid improvements are implemented), the electric utilities with their regulatory monopoly, cost of capital advantages, and ability to implement at enormous scale will own a much larger share of the clean energy generation than most observers realize.

Utility adoption of renewables, energy efficiency, energy storage, distributed automation grids and other new business models are beholden to the same issues that IPP’s and other non-electric utility energy market participants face – the transition away from a 100-year old, one direction, aging grid infrastructure to a smarter, automated, bi-directional grid that is hyper-efficient.  This will take time but I give the advantage to the larger electric utilities who are uniquely positioned to both steer the smart grid design and deployment and then efficiently phase their participation in the new energy economy accordingly.

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