Recently I was meeting with a small group of senior executives from a regulated electric utility. This particular utility currently generates the significant majority of their electricity from coal. During our discussion I looked at one of them and said “You know that (the utility) will be powered by 100% renewable energy in the future, you just don’t know when that will be.” The look that appeared instantly on his face told me two things:
- Up to that very moment he did not know that
- From that moment forward he knew that the statement is true.
This is the literal face of the utility transformation which every utility confronts. And they have two choices, which we also discussed. They can lead the transformation, or they can follow; And if they follow, they will likely not survive as an independent entity.
So how can a utility expect to chart a course through uncharted waters? It’s not simple, but there are methods and examples to draw on. This is not as simple as “follow what the telecoms did”, or “look at the deregulation of the gas industry”. There are unique functions and liabilities of our electric system which are intrinsic to the industry, and cannot change. A few of these are:
- Poles and wires. Contrary to what some write, we will not all move off grid. While micro-grids will become wide-spread, they will mostly be at least weakly connected to the main grid, avoiding upgrades, not disconnecting from the system entirely. Witness the University of San Diego micro-grid system for a great example of this.
- Electricity is not going to flow through the air like cell phone signals. While it is possible to transmit electricity as microwaves, the infrastructure requirements, and the unanswered public health questions, make this method far less attractive than current poles and wires.
- People do not accept a lot of small outages. Imagine if your electric system was as reliable as your phone. In other words, imagine if it blacked out for 2 minutes every 3 hours, like cell phone dropping calls. Or browned out every 10 minutes, like a cell phone handling calls! The reliability we have come to not only expect, but also require in our lives, if very high. Reliability means more than one source, more than one connection, more than one fuel source. This is not an argument for a centralized grid, but is an argument for a well-interconnected grid.
- Whereas cell phones have not been required to provide “default” or “low income” service to all customers, electric utilities are. This will likely continue, so any transformation needs to carry everyone along, at all levels. Due to this requirement, at least a portion of the future electric utilities will remain as regulated entities. Cell phones are only minimally regulated.
- The utility business needs to fundamentally provide a product that looks the same as it does now, but is built on entirely different principals. In this way, the coming transformation is much like the telecom revolution, except more radical. In telecom, we switched from hard lines to cell phones, needing a different infrastructure but performing much the same services, phone and internet. With electricity, the transformation will not only have the utility providing indistinguishable electrons, but also far more command and control at the discrete device level. Imagine if the cell phone company controlled your downloads to manage flow and capacity, controlled screen brightness, charged you different amounts for calls at different times of the day based on actual call volume, all without disrupting your device use. That would be somewhat analogous to where utilities are heading.
So how does a utility map a course in this new, dynamic, and uncharted direction? Utilities have done massive planning for decades, but they have had significant constraints, both internal and external, on what they could or had to, plan for. Now those constraints are being removed or changed by regulators or technologies. So the planning process needs to change and be open to a broader set of potentials.
In future posts I will explore analogues to this transition, and then will explore actual pathways to a new future.