Electric Utilities Struggle With New Expectations

Independent heating oil dealers are not the only energy providers struggling to master new expectations and preferences; electric utilities also are severely challenged by the unprecedented demands they face.

Five energy experts discussed the sweeping changes that are overtaking the power industry during a panel discussion at the recent Forum 20/20 event in Boston, sponsored by the Massachusetts Clean Energy Center. They said utilities are struggling to juggle expectations around renewable energy, emissions reduction and consumer choice while adapting to new economic realities.

Philip Giudice, CEO of Ambri Inc., a developer of electricity storage solutions for the grid, cited the example of the Hawaiian Electric Co. (HECO), the utility in Hawaii, which has had to restrict private use of wind and solar power installations because the grid became dangerously overwhelmed. Ratepayers have been choosing solar photovoltaics (SPV) to avoid HECO’s high rates and feeding their excess solar electricity into the grid, but the grid is not properly engineered to handle the heavy input from distributed generation (DG).

Traditional grids are one-way systems designed to distribute centrally generated power to end users, but utilities are now expected to re-engineer their systems to accommodate DG and net metering, so that customers can upload power they generate.

Companies like Ambri are developing new large-scale energy storage systems that would make DG from solar and wind more manageable by storing the energy for use later. Lacking storage, electricity must be used immediately or wasted.

Giudice said that very few utility executives are embracing the new energy models. Instead they speak of “utility death spirals” and a loss of easy financing due to reduced growth and cash flow. Utilities now have a huge opportunity to work out new solutions for the grid, but they do not yet have the necessary incentives to embrace new business models, he said.

David Malkin, Director of Government Affairs and Policy for GE Energy Management, said utilities are facing three major types of challenges: new regulations regarding cyber security, resiliency and cleaner power generation; a change in generation supply mix as natural gas and DG replace coal and nuclear; and changing investment dynamics based on destruction of ratepayer demand. Customers and policymakers alike expect utilities to equip customers to participate more actively through net metering and demand response, and the utilities have to decide whether to shoulder the responsibilities themselves or allow third parties to participate, he said.

“The utility of the future will be defined by its capability in managing these challenges,” Malkin added. He identified four primary areas where utilities must perform: managing the complexity of DG; improving visualization, situational awareness and response to outages; optimizing performance of existing generation assets and minimizing investment in new assets; and engaging customers in their electricity use and management. Like the utilities, Malkin added, regulators must figure out how to encourage timely investment and help utilities and third parties create a more advanced energy sector.

Janet Besser, Vice President of Policy and Government Affairs for the New England Clean Energy Council (NECEC), said utilities need to adapt their cultures and business models, because customers are changing how they create and use electricity.

Regulators also need to change the regulatory frameworks to help utilities recover costs, compensate for generation and implement innovative solutions, according to Besser. Policy responsibilities are split between state and federal authorities, with the states regulating distribution and the feds managing transmission policies. She said federal transmission policy is essential, because it governs interstate transmission, such as how load reduction in Maine can benefit ratepayers in Connecticut.

Ambri’s Giudice said that a lack of federal energy policy inhibits utilities and other parties from making the necessary improvements, and GE’s Malkin said the U.S. Department of Energy (DOE) has a great opportunity to create new metrics for evaluating and guiding utility performance. Jim Kapsis, Vice President of Policy and Regulatory Affairs for Opower Inc., said utilities will adapt to change more effectively as regulators improve the structures and incentives that govern them.

U.S. utilities and regulators can learn lessons from Germany, which has dramatically overhauled its electric policies to drive an increase in solar, wind and other renewables. Malkin called the German model “a failure,” saying that utilities are writing off billions of dollars in generation assets while consumers are paying 45 percent more for electricity. Germany’s policy and the implementation are both flawed, due to a lack of planning, he said, adding, “Hopefully we can learn some lessons from the failed policy in Germany.” Giudice agreed that there are problems, such as a 50 percent loss in market capitalization by European utilities, but said it is too soon to fully evaluate the German model.

The good news about the German experiment is that it shows renewable energy can be used at utility scale, according to Besser. The German approach has been messy, but the U.S. can learn from it and figure out how to support innovation and enable utilities to recover costs, she said.

Malkin said it is vital for both utility executives and regulators to face up to change and develop business models and regulatory frameworks that that make grid operations consistent with distributed generation.

Lisa Frantzis, Senior Vice President for Strategy and Corporate Development at Advanced Energy Economy, said Massachusetts, New York and Hawaii have emerged as leaders who can drive new partnerships that show the way for the other states. Utilities need to stop resisting change and start sharing information with regulators and policymakers so they can develop policies that advance clean energy goals, she said.

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