By Tim Holder, Director of Strategic Business Development, ReNew Petra
Many of us are somewhat familiar with what an electric utility does. Our house receives electricity, and we get a bill in the mail each month for it. Here in North Carolina, that bill is likely coming from Duke Energy. In other parts of the country it may be PG&E or Dominion Power. For at least a century, these utility monopolies have built power plants, installed transmission and distribution lines, billed customers for their electricity use, and the utility made a predictable margin for their work.
The number one responsibility for an electric utility has long been to reliably generate energy and manage the grid that distributes that energy to consumers. But as generation shifts from traditional energy to renewable and clean energy, the role of the utility will also need to change. That will be no easy task given that the utilities framework is different from state to state.
In some states, the utilities are regulated by a state utility commission of some kind, while in other states there is a deregulated system. In the states that are regulated, customers have zero choice of who they buy from, while in states that are deregulated, consumers are given few choices on who they buy energy from. Because of these jurisdictional differences, the country is facing challenges associated with how the energy markets of the future will form. To further complicate the landscape, some states have different rules about the percentage of renewables that must be provided with mandatory state enforced Renewable Portfolio Standards (RPS) goals. For instance, North Carolina’s Renewable Energy and Energy Efficiency Portfolio Standard (REPS) requires investor-owned utilities in the state to have 12.5 percent of their energy needs met through renewable energy or energy efficiency measures.
As renewables continue to become cost competitive and available independent of the utility, it changes the practicality of monopolistic utilities. Especially now, corporations and manufacturers can create their own power through the installation of solar or wind on their facilities and properties. However, unlike the current utility, solar and wind is an intermittent source of energy because they can only provide energy when the sun is shining, or the wind is blowing. Until independent generators can store energy, they will still require the utilities to offset load requirements by providing stand by service. But as storage capacity and availability grows, we will see a shift away from dependency on the electric grid and the utilities.
What’s more, with increased energy efficiency measures, and more efficient appliances and electronics, energy demand is falling independent of third-party, renewable generation. We’re even seeing this trend penetrate the residential market with individual households producing their own power through technologies like solar panels and using low-scale energy storage. With new innovations like Tesla’s solar roofing, solar energy producing residential roofs may become the norm of the future. In 2018, energy demand from the grid dropped for the first time since the recession in 2008. These transformations are changing the supply and demand of energy markets, leaving an opening for new energy market opportunities.
As demand decreases in the coming years, it will drive down the utility’s margins, which will complicate the utility’s ability to meet their returns and maintain their current business model. Plus, as demand slides and replacement resources become viable, utilities will no longer be able to set the price for generation and distribution but will have to abide the same market pressures that other commodities must adhere to. Utilities can adapt to the changing landscape by integrating more distributed resources and acting in a network administrative role, balancing numerous generators, including their own generation and the generation coming from consumers.
Coordinating and facilitating the creation of third-party generation, and providing services, will be key for the utilities of the future. But beyond that, it is also the realization that as a utility, they will no longer hold the power of the energy generation monopoly. The expansion of renewable energy will bring many positive environmental impacts, such as reduced emissions, but it will also bring the democratization of energy. No longer will households be forced to purchase energy from the local utility, but they will be able to make the choice to create it themselves, as a community, or purchase it as a service from a nearby utility.
Tim Holder is director of strategic business development at ReNew Petra. Mr. Holder’s background covers two decades in the electric utility and energy industry with emphasis on strategic planning, emerging technology, economic development and customer service. Mr. Holder earned an MBA from the University of North Carolina at Charlotte and a bachelor’s degree from the University of North Carolina at Chapel Hill.