Category Archives: Energy Storage

How Not-to-Succeed in the Next Decade of Energy Transition

The 2020s promise to be a momentous time for the electricity industry, and I wanted to take some time to reflect on what businesses might need to succeed through the energy industry transition. I might have a privileged perspective on this, having worked with utilities, vendors and investors, first in the IT and telecom industries as they went through their transitions, and then mostly in the electricity industry for the last 20 years. This does not mean that I can’t be wrong (I know – I’ve been wrong many times), but perhaps my views will help others be right. 

I’ve structured this post as a series of “don’ts”, based in part on actual IT and telecom examples that I’ve lived through – I’ve put these examples in italic, but I left the names out to protect the innocents. I found that many businesses have short-term views that lead them down dead-end paths, and I might be more useful in showing known pitfalls than trying to predict the future. 

Don’t Fight a Declining Cost Curve

The IT, telecom and, now, electricity industries are all seeing declining cost curves. The best known one is Moore’s Law, the observation that the density of integrated circuits (and hence the cost of computing) halves every 2 years. Moore’s Law is nearly 60 years old and still strong. It gave us iPhones more powerful now than supercomputers of a generation ago, even though my iPhone ends up in my pocket most of the time, doing nothing. These days, the electricity industry sees the cost of wind and solar energy as well as that of electricity storage dropping at a rate of 10% to 20% per year, with no end in sight.[i]

In IT, telecom and, now, electricity, this also leads toward zero marginal cost, the situation where producing an additional unit (a Google search, a FaceTime call or a kWh) costs nothing (or almost nothing). 

During the IT and telecom transitions, many startups proposed solutions to optimize the use of (still) expensive information processing assets. Some sought to extend the life of previous generations of equipment (like a PBX) by adding some intelligence to it (a virtual attendant), while others were dependent on a price point (like dollars per minutes for overseas calls) that simply collapsed (calls are essentially free now). 

If your business case depends on the cost of energy or the cost of storage remaining where they are, ask yourself, what if the cost goes down 50%? That’s only 3 years of decline at 20%/year. After 10 years, costs will be only 10% of what they are now. Can you survive with near-zero marginal costs? If your solution aims to optimize capital costs, will it matter in a few years? Or, will people just do as they do now, with a do-nothing iPhone supercomputer in their pocket?

Don’t Think That Transition Will Go 2% a Year Over 50 Years

Phone companies were depreciating their copper wires and switches over decades. Phone utilities were highly regarded companies, imbued with a duty for public service and providing lifelong employment to their loyal employees. Service was considered inflexible, but everyone could afford a local line, which was cross subsidized by expensive long-distance calls and business lines. Things were simple and predictable.

In 1980, McKinsey & Company was commissioned by AT&T (whose Bell Labs had invented cellular telephony) to forecast cell phone penetration in the U.S. by 2000. The consultant predicted 900,000 cell phone subscribers in 2000 – the actual figure is 109,000,000. Based on this legendary mistake, AT&T decided there was not much future to these toys. A decade later, AT&T had to acquire McCaw Cellular for $12.6 Billion.[ii]

In 1998, I was operating the largest international IP telephony network in the world, although it was bleeding edge and tiny in comparison to AT&T and other large traditional carriers. Traditional carriers were waiting for IP telephony to fail, as the sound quality was poor, it was not efficiently using the available bandwidth, it was illegal in many countries, etc. The history did not play out as expected. In 2003, Skype was launched, the iPhone, in 2006. Today, you can’t make a phone call anymore that is not IP somewhere along its path. 

I’m seeing the same lack of vision in energy industry. For example, the International Energy Agency (IEA) is famous for being wrong, year after year, in lowballing the rise of solar and wind energy in its scenarios.[iii]

Another example is the rise of electric vehicles. There are about 77 million light-duty vehicles sold in the world, and this number is flat or slightly declining.[iv] Of these, about 2 million electric vehicles were sold in 2019, but the number of EVs sold in increasing 50% every year.[v] In other words, the number of internal combustion vehicles is clearly decreasing and the growth is only coming from EVs. Looking at their dashboards, car manufacturers are quickly reducing their investment in developing internal combustion vehicles, especially engines.[vi] Disinvestment in upstream activity means that internal combustion vehicles will fall behind newer EVs and become less and less appealing. It won’t take 50 years for most light-duty vehicles to be electric – a decade, perhaps.

Don’t Count on Regulatory Barriers for Protection

Telecom carriers fought deregulation and competition, teeth and nails. Back in the 1950s, AT&T went to the US supreme court to prevent customer from using a plastic attachment on the mouthpiece of telephones to increase call privacy – it was called Hush-A-Phone. AT&T owned the telephones and forbid customers from using Hush-A-Phone. However, AT&T lost the court battle, and Hush-A-Phone was sold legally from then on. This landmark decision is seen as the start of telecom deregulation in North America.

The IP telephony network that I mentioned earlier was indeed illegal in some of the countries we operated in. It didn’t matter. We had plenty of partners willing to bypass local monopolies, even if illegal in their countries, and customers willing to make cheaper international calls, even if the quality was not always so great. 

Regulatory barriers are only as strong as policy-makers make them. When constituents see an opportunity to save money or simply have choice, they pressure the policy-makers to change the rules – or elect new ones more attuned to moods of consumers. It’s just a matter of time. 

Don’t Take Customers Nor Suppliers for Granted

In 1997, at a time when cellular phones were still a luxury and the Internet was still a novelty, an Angus-Reid survey of the Canadian public put Bell Canada #2 among most admired corporations in Canada[vii], and it had been among the most trusted companies in Canada for decades. Yet, in 2017, Bell Canada ranked #291 in a University of Victoria brand trust survey[viii]. People love their Apple or Samsung phones, are addicted to Facebook to stay in touch with friends, naturally turn to Google for any question, and use Microsoft Skype to see remote family members, but they now mostly hate their phone company. 

Obviously, Bell is still around and making money, but one can only wonder how things could have been if Bell had played its hand differently. (In 1997, none of iPhones, Facebook, Google and Skype existed).

Suppliers to electric utilities should also listen to this lesson. Northern Telecom (Nortel), AT&T Bell Labs and Alcatel were among the large traditional equipment vendors to telephone utilities. However, a startup was founded in 1984, designing routing equipment for IT networks used in university networks. Over the years, it expanded into all sorts of datacom and telecom equipment – all telecom companies eventually standardized on this new vendor. Northern Telecom and the others went bankrupt or were merged and acquired to the point they could not be recognized. In the process, some telephone companies were left with unserviceable hardware. 

This startup company is called Cisco Systems and is now the largest telecom vendor in the world. 

The same pattern is playing out in electricity. On one hand, you have many utilities that do not understand that many customers want choice. On the other hand, you have vendors, like GE and ABB, that are in turmoil. 

Will you be the future Google or Cisco of electricity? Or the next Nortel?

Don’t Follow the Herd

Full disclosure: I’m a career business consultant. Caveat Emptor. 

The reason for this disclosure is that consultants are great at announcing bold trends that often do not pan out. There is a great herd mentality among consultants, and it carries over to their customers. 

Twenty years ago, one of my clients was one of the early Application Service Providers, a business concept where small businesses could access shared personal computer applications over the Internet. The idea was to reduce the cost of maintaining software installed in PCs and to reduce the hardware requirements of PCs. This client was unknowingly fighting the declining cost curve of computers. It went bankrupt (and my last invoices were not paid). 

The concept of application service providers was heavily promoted by consultancies like Gartner, who presented it as the future of business computing. I guess that Microsoft disagreed. 

I see similar fast-fashion concepts going through the electricity industry. Walking the floor at the Distributech Conference in 2018, it was all about microgrids. In 2019, it was distributed energy resources. We will see what will be fashionable in January 2020. 

My recommendation when you hear the same concept over and over again is asking yourself: is this a real trend or am I in an echo chamber? With many new consultants flocking to the electric utility industry – I call them tourists – , you can hear many concepts that are taken for truth but really too complex to be implemented or unlikely in the fragmented regulatory environment that we have. 

Closing Thoughts

In the end, keep cool: sound engineering, good economics and great customer service will always win.

Which leads me to offer you this quote:

If I’ve heard correctly, all of you can see ahead to what the future holds but your knowledge of the present is not clear.
—DANTE, Inferno, Canto X

All this being said, have a great Holiday season and see you soon in 2020!


[i]                 See this previous blog posts, http://benoit.marcoux.ca/blog/lower-and-lower-energy-prices-from-wind-and-solar-pv/, for an in-depth discussion of cost decline in wind and solar energy, accessed 20191220. 

[ii]                See https://skeptics.stackexchange.com/questions/38716/did-mckinsey-co-tell-att-there-was-no-market-for-mobile-phones, accessed 20191220. 

[iii]               See this previous blog post, http://benoit.marcoux.ca/blog/wind-and-solar-pv-defied-expectations/, for a chart of how wrong the IEA has been, accessed 20191220. 

[iv]                See https://www.statista.com/statistics/200002/international-car-sales-since-1990/, accessed 20191220. 

[v]                 See https://www.iea.org/reports/global-ev-outlook-2019 and http://www.ev-volumes.com/country/total-world-plug-in-vehicle-volumes/, accessed 20191220. 

[vi]                See https://www.linkedin.com/posts/bmarcoux_daimler-stops-developing-internal-combustion-activity-6580481304071065600-vRK8, accessed 20191220. 

[vii]               The Fourth Annual “Canada’s Most Respected Corporations” Survey, Angus Reid Group, Inc., 1998, page 5.

[viii]              The Gustavson Brand Trust Index, Peter B. Gustavson School of Business, University of Victoria, 2017. 

“The Shocking Business of Electricity”: A Short Lecture to McGill Business Students

Today, I am grateful to have been able to present some aspects of the electricity business to business students at McGill University, where I did my MBA many years ago. It was great fun.

Here is the short deck that I presented.

Mcgill University 20190227

A Perspective on Canada’s Electricity Industry in 2030

I wrote this piece with my friend Denis Chartrand as a companion document for my CEA presentation back in February 2018 (See http://benoit.marcoux.ca/blog/cea-tigers-den-workshop/) but I now realize that I never published it. So, here it is!

Canada Electricity Industry 2030 20180221

CEA Tigers’ Den Workshop

On February 21, 2018, I presented at the annual T&D Corporate Sponsors meeting of the Canadian Electricity Association. This year, the formula what similar to the “dragons” TV program, with presenters facing “tigers” from utilities. They asked me to go first, so I didn’t know what to expect, but it went well. Or, at least, the tigers didn’t eat me alive.

The theme was a continuation of my 2017 presentation, this time focusing on what changes utilities need to effect at a time of low-cost renewable energy.

I’ve attached the presentation, which was again largely hand-drawn: CEA 20180221 BMarcoux.

Coal, Crude Oil and Natural Gas Are Really Forms of Sun Energy

It may sound strange, but coal, crude oil and natural gas are really forms of sun energy. Millions of years old sun energy trapped in chemical bonds by plant photosynthesis and animals that eat them…

Coal originates from dense forests in low-lying wetland areas, mostly from the Carboniferous Period, around 300 million years ago. Some of the vegetation got trapped underneath soil due to natural events such as flooding. As more and more soil deposited over the remains of the forests, they were compressed, with temperature rising naturally. Under high pressure and high temperature, dead vegetation was slowly converted to coal.

Oil is usually younger, from the Mesozoic Era, about a hundred to 2 hundred million years ago. The formation of oil begins in warm, shallow oceans that were then present on Earth. In these oceans, small animals called zooplankton and plants called phytoplankton died and felt to the floor of the ocean. As they got buried by sediments, they were transformed into shale. As pressure and temperature increase, the shale transformed into oil and, if the temperature was high enough, into natural gas.

I used to tell by children that petroleum is really “dinosaur oil.” This is not technically exact, but a nice metaphor.

Today’s solar energy obviously also comes from the sun. But it’s brand new energy, not hundreds of millions of years old stuff. Essentially, we are now building a society that bypass hundreds of millions of years of dead history long buried in the ground. Somehow, I find this refreshing.

 

Utilities Should Lead the Change

I have worked in the telecom industry as head of marketing, in customer care and as a business consultant — I saw what happened there. More recently, I have also seen some of the best and the worst of stakeholder communications at electric utilities — including while I directed a large smart meter deployment, a very challenging activity for customer relationships. Beyond the obvious like using social media, online self-support, and efficient call center operations, There is one thing that electric utilities should do to improve their chances to maintain healthy customer relationships as the industry is transforming: lead the change.

“Someone’s going to cannibalize our business — it may as well be us. Someone’s going to eat our lunch. They’re lining up to do it.”

That was Alectra Utilities CEO, Brian Bentz, speaking at the Energy Storage North America in 2017.[i]

Utilities have a choice: lead change or have change done to them. The latter might hurt customer satisfaction more than the former.

Like telephone companies of the past, electric utilities could try to forestall the coming change, or even to reverse it, hoping to get back to the good old days. In fact, this is rather easy, as there is a lot of inertia built in a utility, often for good reasons: public and worker safety, lifelong employment culture, good-paying unionized jobs, prudency of the regulated investment process, long-lasting assets, highly customized equipment and systems, public procurement process, dividends to maintain for shareholders, etc. For utility executives, effecting change is never easy.

In the end, however, resisting change is futile. Customers are able to start bypassing utilities by installing solar panels and storage behind meters, keeping the utility connection as a last resort. It is just a matter of time before the economics become good enough for many industrial, commercial and residential customers, with or without net metering. Customers will do it, grudgingly, but they’ll do it. This will also leave fewer customers to pay for the grid, sending costs up and stranding assets, therefore increasing rates for customer unable to soften the blow by having their own generation, further antagonizing the public… A death spiral of customer satisfaction.

So, what should utilities do? Here are three examples of utilities that have embraced change and made it easy for their customers to adopt change:

  • Green Mountain Power (GMP) in Vermont helps customers go off the grid. Combining solar and battery storage, the Off-Grid package provides GMP customers with the option to generate and store clean power for their home that would otherwise come from the grid.  The Off-Grid package is customized for each customer and includes: an energy efficiency audit, solar array, battery storage, home automation controls, and a generator for backup. Customers pay a flat monthly fee for their energy.[ii]
  • GMP is also deploying up to 2,000 Tesla Powerwall batteries to homeowners. Homeowners who receive a Powerwall receive backup power to their home for US$15 a month or a US$1,500 one-time fee, which is significantly less expensive the US$7,000 cost of the device with the installation. In return, GMP uses the energy in the pack to support its grid, dispatching energy when it is needed most.[iii] Not surprisingly, results of a recent GMP customer satisfaction survey showed that customer satisfaction continues to rise.[iv]
  • ENMAX proposed to use performance-based regulation to the Alberta Utility Commission (AUC). The AUC set the regime in 2009. performance-based regulation has since then been expanded to other Alberta utilities. ENMAX stated that a number of efficiency improvements and cost-minimizing measures were realized as a result of its transition to a regulatory regime with stronger efficiency incentives. ENMAX indicated that it would not have undertaken these productivity initiatives under a traditional cost of service regulation.[v]
  • PG&E selected EDF Renewable Energy for behind-the-meter energy storage. The contract allows EDF RE to assist selected PG&E customers to lower their utility bills by reducing demand charges, maximizing consumption during off-peak hours, and collecting revenue from wholesale market participation. [vi]

References:

[i]         As reported by UtilityDIVE, https://www.utilitydive.com/news/alectra-utilities-ceo-someones-going-to-cannibalize-our-business-it-ma/504934/, accessed 20180102.

[ii]        See https://www.greenmountainpower.com/press/green-mountain-power-first-utility-help-customers-go-off-grid-new-product-offering/, retrieved 20171229.

[iii]        See https://www.tesla.com/blog/next-step-in-energy-storage-aggregation, retrieved 20171230.

[iv]       see https://www.greenmountainpower.com/press/green-mountain-power-survey-shows-customer-satisfaction-continues-rise/, retrieved 20171230

[v]        Performance Based Regulation, A Review of Design Options as Background for the Review of PBR for Hydro-Québec Distribution and Transmission Divisions, Elenchus Research Associates, Inc., January 2015, page A-25.

[vi]       See http://www.energystoragenetworks.com/pge-selects-edf-behind-meter-energy-storage-contract/, retrieved 20171230.

An “iPhone Moment” for Electric Utilities in 2018?

In 1977, I worked as an electric meter reader, before going to university to earn my Electrical Engineering degrees at Polytechnique Montréal. In 2012, I was directing the largest smart meter deployment in Canada, replacing some of the same meters that I had read three and a half decades earlier. In between, I worked for 20 years in telecoms, living the Internet and wireless revolutions, and then mostly with electric utilities for the last 15 years.

As this year gets to a close, I would like to reflect on the changes that technology has brought – or could bring – to utilities and what it may mean for the future.

In 1987, telephone and electric utilities were both in the wire business – perhaps 20 AWG for telephone and 4/0 for electric, but mostly copper hanging on wood poles and serviced by a fleet of bucket trucks. Telecom companies were then telephone companies, just experimenting with wireless (the first cellular call in Canada had occurred just 2 years earlier) and the Internet was still primarily a military research technology (commercial service only started in 1989). Phone and electric utilities were highly regarded companies, imbued with a duty for public service and providing lifelong employment to their loyal employees.

By 1997, I owned a cell phone and I was running what was then the largest Internet telephony network (but tiny in comparison to today), competing with international telephone carriers. However, phone companies were in denial on the Internet, seeing us as a temporary nuisance, and trying to control user experience on cellular phones, like they had been doing for a century with rotary phones on landlines.

In 2007 the iPhone was launched. Not only did it merged the Internet and wireless phone, but it profoundly changed the business of the telecom companies. Before the iPhone, the wireless carriers were subsidizing cheap handsets to get customers to lock in for 3-year contracts and using the carrier’s proprietary and closed services. But the iPhone upsets that balance of power. Apple kept control on the user interface, given choice to consumers to buy the best apps from developers. However, by fostering more innovation, the carriers’ networks got more (not less) valuable through this change. People spent – or wasted – more time on their smart phones, generating more revenue for carriers and hardware manufacturers as network capacity expanded through successive generations of technology.

In the meantime, not that much has changed in the electricity business – my father, who worked as a dispatcher at Hydro-Québec until the 1970s, would probably recognize the network today, although he would certainly envy dispatchers using electronic maps rather than the paper ones he used.

However, 2017 has seen the rise of inexpensive solar energy and energy storage. Could 2018 have an “iPhone moment” for electric utilities? After all, the Internet brought us on-demand access to information, like energy storage is bringing us on-demand power. Wireless phones allowed us to cut the cord, and so may be distributed solar energy, at least to some extent. The parallel is striking.

Now who will be the next Steve Jobs? Elon Musk, perhaps?

All my best wishes for 2018!

Strategic Electricity Inter-ties Committee of the House of Commons

On October 25, I appeared before the Standing Committee on Natural Resources discussing Strategic Electricity Inter-ties. The Standing Committee on Natural Resources studies bills, government activities and expenditures, and issues related to Canada’s energy, forest, minerals and metals, and earth sciences sectors.

The idea behind strategic electricity inter-ties is to improve power exchanges between provinces by increasing tie capacity with new transmission lines. The brief that I wrote  and my testimony argued that that energy storage may be a better alternative in light of the long time frame to build new transmission lines (15-20 years is typical), the current state of the art in storage, and expected growth in performance and cost decline of the technology.

It was my first experience of appearing before such a committee, and I like the experience. I was impressed by the questions that the members of parliament asked. They also seemed to like my arguments, as many came to me afterward to thank me.

Here is the brief that was presented: S&C Brief Standing Committee RNNR 20171024.

The Sun for a Penny

I recently presented at the Canadian Electricity Association (CEA) on the future of the industry. What would happen to the power industry if the cost to generate solar electricity reached 1¢/kWh? What could be the impact of a carbon tax? What are the business opportunities arising from the need for reliable power? While electric utilities have seen tremendous transitions during the 125-year history of the CEA, the current rate of development is unprecedented. To paraphrase a famous quote by Wayne Gretzky, utilities need to “skate to where the puck is going to be, not where it has been.” This presentation tried to provide power utilities with some insights into the future direction of the puck! See the presentation here: The Sun for a Penny 20170225a

The New Grid Needs to Be a Lot More Complicated

The Old Grid used to be relatively simple, with generation following load:

Old Grid

It is now a lot more complicated:

New Grid

The grid is transforming and getting more complicated.

  • We are decommissioning fossil plants to reduce GHG emission and nuclear plants because of safety concerns.
  • There is only so many rivers, so the solution of building new hydro plants is not sufficient.
  • We are then replacing fossil and nuclear base load plants with renewables that are intermittent.
  • To compound the problem of balancing the grid, loads are also becoming peakier, with reduced load factor. Interestingly, many energy conservation initiatives actually increase power peaks.
  • To connect the new renewable generation, we then need to build more transmission. The transmission network also allows network operators to spread generation and load over more customers – geographic spread helps smooth out generation and load.
  • Building new transmission lines face local opposition and takes a decade. The only other alternatives to balance the grid are storage … and Demand Management.
  • Another issue is that we are far more dependent on the grid that we used to be. With electrical cars, an outage during the night may mean that you can’t go to work in the morning. So, we see more and more attention to resiliency, with faster distribution restoration using networked distribution feeders as well as microgrids for critical loads during sustained outages.
  • Renewable generation and storage can more effectively be distributed to the distribution network, although small scale generation and storage are much more expansive than community generation and storage.
  • With distributed generation, distributed storage and a networked distribution grid, energy flow on the distribution grid becomes two-way. This requires additional investments into the distribution grid and a new attention to electrical protection (remember the screwdriver).

All of this costs money and forces the utilities to adopt new technologies at a pace that has not been seen in a hundred years. The new technology is expensive, and renewable generation, combined with the cost of storage, increases energy costs. There is increasing attention to reduction of operating costs and optimization of assets.

Evolution of Energy Generation and Distribution in Canada’s Smart Power Grid – Innovation 360 Conference Panel

On September 29, I was asked to participate on a panel titled “Evolution of Energy Generation and Distribution in Canada’s Smart Power Grid” at the Innovation 360 conference in Gatineau, Québec (http://innovation360.ca). Here is the essence of what I contributed.

By definition, in an electricity network, energy consumption plus losses equal electricity generation. This must be true at any point in time, or protection systems will shed load or trip generators.

There are 4 ways to balance load and generation:

1) Traditionally, dispatchable generators that can easily ramp up or down were tasked to follow the load. Big hydro plants and natural gas generators are particularly good at this. However, we are running of big hydro opportunities, and natural gas are sources of greenhouse gas emission, contributing to global warming.

2) Another way to balance load and generation is to interconnect with neighboring network that may not have the same load profile. Today, all of North America is interconnected in some way. However, building transmission lines is a lengthy process that typically faces major local opposition. As a result, most transmission lines run at capacity during peaks, weakening the bulk transmission system as the Northeast blackout of 2003 demonstrated.

3) In the last couple of decades, we have started to control load, like turning off air conditioning units by pager or getting large industrial like smelters to go offline for a couple of hours during a major peak. Time-of-use or market pricing are also attempts to have loads better follow available generation capacity. However, much of the conservation focus thus far has been on energy efficiency, not peak load reduction.

4) Very recently, energy storage has been getting attention. Traditionally, the only utility-scale storage technology available was pump-storage, like the Sir Adam Beck plant in Niagara, but few of those plants are possible, and they are not efficient. Going forward, batteries, either utility-scale or distributed storage, will grow, although for now utility-scale batteries are MW-class, when hundreds of MW or GW are needed.

Balancing load and generation is also becoming more and more difficult. On one hand, consumption is getting peakier, partly due to side effects of some energy saving programs, like turning down thermostats at night in the winter, and then turning them back up in early morning, just in time for the morning peak. On the other hand, wind and solar generators are replacing fossil generators, adding unpredictability to generation and taking away controllability, thus requiring even more balancing resources.

Integrating renewable into the grid is not only causing balancing problems. It also creates voltage management and protection problems. Those are solvable, but significant, engineering problems that require expensive upgrades to the electricity grid.

Ultimately, load and generation balancing, voltage management and grid protection adds costs that are ultimately born by subscribers. It therefore quickly becomes a political issue.

As a society, we have been subsidizing fossil fuels. Clearly, going forward, we will need to greatly invest in the grid if we want to limit the predicaments of global warming for our children and grand-children.