Electrification and the Utility of the Future
Jun 24, 2018
Imagine you’re the CEO of an investor-owned utility. (Go ahead, it’s easy!) Your core business—producing and selling electricity for commercial and residential customers—is likely regulated by a public commission. For decades, you’ve been expected to keep the lights on and power costs stable, but now your customers want more meaningful engagement through services targeted to their specific needs—from large customers wanting renewable energy to meet their corporate sustainability goals to homeowners who want smart thermostats and apps that are tied to smart meters that help them monitor and control their electricity usage. You’re also under pressure to modernize your aging grid infrastructure to make it more resilient and enable it to adapt to the changing distributed grid environment.
Meeting these needs requires more data, analysis, planning, and resources, which often means a higher cost. Electricity demand is either flat or declining due to a combination of market forces: heavy industry moving overseas, increasing penetration of customer generation, and customer adoption of energy efficient options. This combination of new customer expectations and declining energy sales has resulted in utility revenue declining while the cost of service increases. Your customers are also price sensitive and concerned about the environment; they want low-cost, clean power.
What would you do to sustain growth against these detrimental market forces? If only there was a way for utilities to identify new revenue streams—and do it in a socially responsible way that helped reduce greenhouse gases. If only the technology was available and the infrastructure could be controlled by the utility in somewhat the same way they’ve controlled power lines for a century. And if only this miracle had a name that accurately reflects what it is and is easy for the public to understand.
Luckily for everyone, such a solution exists. Electrification is here, and it has the potential to transform the economy, save the planet, reduce dependence on fossil fuels, and breathe new life into the utility industry. Electrification takes advantage of trends that are well-established—particularly the increasing demand for electric vehicles (EVs) as an alternative to gas—and diesel-powered automobiles—and is much cheaper for businesses and the public. It can also significantly reduce costs and increase efficiency for homeowners and industries, particularly agriculture and aviation.
So what is electrification, and how does it work? Electrification is the conversion of end uses that were traditionally powered by fossil fuels to electricity, “replacing technologies that do not use electricity with ones that do,” according to the Electrification Futures Study, a new report from the National Renewable Energy Laboratory. Obvious examples are EVs for gas-powered cars, electric-powered truck stops for traditional truck-idling, and electric-resistance heating for process heat applications. Electrification works because it’s cheaper, more efficient, and better for the environment, but there is a cost to conversion and an inherent resistance to change that can be overcome with a combination of outreach and incentives such as a rebate program or tax incentives for the purchase of an EV.
The benefits of such a program to the utility, the customer, society, and the environment are extensive. For utilities, a recent Brattle Group study noted that “significant electrification of both transport and heating (could lead) to a central and ongoing role for electric utilities to generate and distribute much more electricity to end users… Overall … a very positive business outlook and opportunity for utilities: continued growth of sales from centralized (i.e., non-distributed) generation as well as a crucial and likely significantly enhanced role for electricity network infrastructure and controls.”
Adoption of EVs means utilities will experience revenue growth because of increased customer use of electricity supplied by the utility. As technology evolves across geographies, utilities may be in a position to leverage storage available through EVs—or at homes or commercial facilities—to address their curtailment needs without affecting customer comfort or necessitating customer action.
Customers switching from a typical gas-powered passenger car to an EV will save approximately $1,100 per year in fuel costs. Utilities will sell an additional 4,000 kWh annually to those drivers–almost a 40 percent increase in sales for the average household—according to recent data from the Energy Information Association, Department of Transportation, and Department of Energy:
The environment is the biggest winner. Electrification—combined with continued decarbonization of the power sector through increased use of renewables—could lead to a more than 70 percent reduction in U.S. energy-related GHG emissions relative to 2015 levels, an important step toward overall economy-wide emissions reductions targets.
Electrification will not happen overnight but there is a clear path to adoption. Policy and market barriers include a lack of political will, lack of customer awareness, and challenges associated with utility funding of charging infrastructure. Utilities and industry stakeholders will need to define roadmaps that are effective and meaningful, and consider leveraging existing energy efficiency programs to facilitate market transformation. It is essential for utilities to include electrification as an important component of their future plans.
Nexant is in discussion with several utilities that are thinking about what their Utility of the Future model would look like. We can also help you navigate the uncertainties and fill in the map for your utility’s future, including electrification. Let’s start the conversation now.