Power companies have resisted climate policy. Now it might be their only hope

by David Roberts, Vox

US power utilities are in serious trouble.

Back when they were created, in the early 20th century, utilities were designed to electrify America. They would invest in the machinery needed to keep up with rising power demand; the returns on those investments would fund the next round of investments; and so on, in perpetuity.

It all worked out fine as long as America’s appetite for electricity kept growing, justifying round after round of new investments.

But that’s over now. After 100 years of robust, dependable growth, demand has leveled off. The economy is still growing, but electricity demand isn’t.

(As I explained in a longer post last week, this is due to the rise of energy efficiency and the explosion in customer-side solar panels and batteries, all of which reduce demand for utility power.)

With no growth, utilities have no reason to invest in new machinery. With no return on new investments, they can’t pay off the old investments or fund ongoing maintenance. They can go to customers for more money, but to the extent they raise rates, they push more customers to invest in energy efficiency or onsite generation, thus accelerating the problem.

This, in a nutshell, is the much-discussed “utility death spiral.” (I also wrote a longer post on that subject.) Utilities aren’t going to implode overnight, but the mid- to long-term prognosis is extremely grim.

So how can utilities avoid this unpleasant trajectory? How can they survive and prosper in the 21st century?

That is a question with lots and lots of complicated answers. But one approach seems pretty obvious: Get demand rising fast again.

The only way to do that is to move a lot of energy applications that currently use fossil fuel combustion — like transportation, heating, and cooling — over to electricity, onto the grid.

In other words, utilities ought to be at the head of the “electrify everything” bandwagon. They can’t accomplish it on their own (it will take policy and coordination across sectors), but they could be important advocates and enablers.

Electrify everything, for the uninitiated, is a strategy for tackling climate change: Since we know how to generate carbon-free electricity, we should get as much stuff as possible hooked up to the grid. (It’s also called “beneficial electrification” — see this report from the Regulatory Assistance Project.)

Widespread electrification would be a godsend for utilities. Why aren’t they backing it? Why aren’t they supporting the kind of stringent climate policies that would drive more energy over to the electricity grid, thereby saving their bacon?

Perhaps they aren’t convinced, or they’re just uncertain how to go about it. Happily, the analysts at Brattle Group have just released a new paper on the subject, walking utilities through it. Let’s take a look.

Electrification could get demand going again for utilities

As things stand, electricity demand is stagnant and expected to remain that way. The US Energy Information Administration’s (EIA’s) 2017 Annual Energy Outlook expects growth of just 0.6 percent annually between 2015 and 2040, relative to 1.3 percent growth the previous 25 years. And even that could be overstating the case — as Brattle notes, the EIA uses fairly conservative projections for rooftop solar. Other analysts, like those at Bloomberg New Energy Finance, expect much faster growth (with consequent suppression of demand).

But what would happen if we moved cars and trucks over to run on electricity? What if we got rid of all our natural gas boilers and replaced them with electric heat pumps?
According to Brattle, if US heating and transportation were fully electrified, it would add “3,000 TWh to U.S. electricity demand by 2050, nearly doubling 2015 electric load.” Instead of farting around at 0.6 percent growth, electricity demand would grow 2 percent a year through 2050.

As a happy bonus, such a strategy, in conjunction with the greening of the grid, would also produce “economy-wide emissions reductions of over 70% relative to 2015,” helping US states and cities reach their ambitious goals.

Of course, heating and transportation are unlikely to be completely electrified anytime soon (plug-in electric vehicles were just 1.13 percent of new vehicle sales in the US in 2017), and it will take a while to green the grid. But the point remains: Aggressive decarbonization could mean more business for utilities!

EIA has projections for electrification of transportation and heating built into its model, but they are extremely modest, gradual projections. Things would have to progress much more quickly to get demand rising at a good clip. Given multiple converging trends (urbanization, shared autonomous vehicles, etc.), Brattle says that could happen.

Apple and Alphabet (Google’s parent company), which are investing heavily in autonomous vehicles, together have a market cap more than double the entire auto industry’s. They see an opportunity for disruption. At the very least, there is “the possibility of a more radical transformation of transportation, particularly in urban areas, that would require an equally radical re-thinking of our assumptions about the future impact of transportation electrification on the power system.”

The rapid transformation of transportation in the US is still an open question, a real-but-uncertain possibility; utilities should not be neutral on the subject.

Electrification would help utilities integrate renewable energy

One of the challenges of integrating variable renewable energy (wind and solar) into the grid is that it can’t be controlled or dispatched. It comes and goes with the weather; it must be accommodated. That requires a more flexible grid.

Natural gas has been providing most of that flexibility, but as decarbonization proceeds, utilities will need zero-carbon sources. The leading candidate is energy storage.

As it happens, each EV comes with a big battery. If EVs can communicate and exchange energy with the grid — through vehicle-to-grid (V2G) technology — they can be coordinated and deployed as one enormous, distributed storage reservoir.

“Future EVs may have storage capability on the order of 50 to 100 kWh each,” Brattle writes. “Aggregated across one million EVs — less than 0.5% of the current vehicle stock in the United States — this amounts to 50 to 100 GWh of storage capability, or the equivalent of 5 to 15 GW of pumped storage facilities.”

That’s a lot! Of course, those EVs will be coming on and off the grid at different times, with different capacities, so the total storage will never be available at once, but it’s still a potentially huge flexibility resource.

Electrified heating also offers a (somewhat less sexy) source of flexibility, in the form of the humble water heater. There are 50 million electric-resistance water heaters out there in America — “representing 40% of all household water heaters and 9% of total residential electricity consumption” — and they can potentially be controlled.

The idea is that it takes more energy to heat up water than to store it and keep it hot. So water heaters could be told to heat their water overnight, when power is cheap, rather than during the day when it’s more expensive. Several utilities are testing programs that allow them to control behind-the-meter heaters. (Dibs on the band name.)

“Assuming each water heater provides 2 kW of controllable load,” Brattle writes, “these electric water heaters alone, at current penetration levels, could provide 100 GW of flexible load.” And that’s to say nothing of what would happen if the other 60 percent of water heaters were electrified. (To be clear, that is not currently happening at any kind of scale; natural gas remains cheap and reliable.)

Other electrical devices and appliances will also communicate with the grid eventually. The more diverse and distributed the load connected to the grid, the more flexibility grid managers have to draw on.

In short, electrification could bring all kinds of new flexibility resources online, as storage and controllable loads, providing a much-needed buffer for more renewable energy integration.

Utilities should be champing at the bit for electrification

An America wherein a substantial portion of transportation, heating, and cooling has been electrified is one with lower carbon emissions, more tools in the utility toolbox, greater demand for electricity, and, crucially, a central role for power utilities.

“Overall,” Brattle writes, “this presents 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 enhanced role for electricity network infrastructure and controls.”

Here’s the thing, though. Large-scale electrification won’t just happen. It will require policy support from lawmakers. It will require state regulators willing to reenvision the utility business model. It will require organizing and advocacy to overcome fossil fuel resistance.

If utilities want America to choose electrification, they need to get off their asses and help make it happen.

How can they do that? Brattle offers an extensive list, which gets a bit wonky (if you work at a utility, read it!), but here’s the CliffsNotes version:

  1. Make a strategy. Figure out the potential of, and business case for, electrification.
  2. Launch programs. Test things out. Do pilot projects. Figure out what kinds of incentives work.
  3. Plan better. Use credible projections of technology curves and adoption rates.
  4. Use rates. Different kinds of rate design could help incentivize (or slow) electrification.
  5. Talk to regulators. Anything utilities do has to go through state regulators, so they need to be briefed on the benefits of electrification.
  6. Talk to stakeholders. Electrification will require coordination across sectors (e.g., utilities and transportation) that have not typically coordinated; start talking now.
  7. Build infrastructure. EVs will need fast charging stations; utilities can help coordinate and accelerate that.

As far as I am aware, US utilities have no other plan for how to deal with the slow dissolution of their business model (beyond mergers, unnecessary investments, and lobbying for subsidies).

Electrifying everything is a plan. It’s a way for utilities to be climate change champions while boosting demand for their own product.

A few are grasping the opportunity — Southern California Edison, which serves 15 million ratepayers, recently released an ambitious plan to get 7 million EVs on the road and a third of customer heating systems converted to electricity by 2030 — but there is nothing like a unified industry message on the subject. As the realities of the changing energy system sink in, I suspect that will change.

source: https://www.vox.com/energy-and-environment/2018/3/13/17108590/utilities-electrify-everything

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