I presented this webinar on December 2nd. The link to the recording and the slides is here.
Let me know what you think!
When adopting electric vehicles (EV), consumers are now favoring long-range light-duty EVs[1], with nearly all the growth coming from sales of long-range battery electric vehicles rather than short-range EVs or plug-in electric hybrids.[2] Given this development, I focus here on the unique characteristics of long-range light-duty EVs charging. Long-range EVs have three characteristics that differentiate them from other residential electrical loads:
These characteristics—and especially customer behavior—mean that utilities can’t consider EVs like any other loads. Utilities need a new thinking to plan for EV charging and to assess how to best manage it to benefit ratepayers. These characteristics also have impact on public and workplace charging sites, their operators, and the businesses nearby.
Let’s see how different EV charging really is.
Most electrical loads are fixed, like water heaters and clothes driers. Mobile loads, like cell phones, are small. But EVs are unique because they are mobile and large electrical loads. They are indeed large—typically, 4 to 8 kW for a level 2 charger, and often 100 kW or more with a public direct current fast charger (DCFC). And they are mobile: we drive our cars around (obviously) and do not always keep them plugged in when parked. In fact, parked long-range EVs are more often unplugged than plugged.
Compare this to traditional household electrical loads of a comparable magnitude, which are wired in, like water heaters, or permanently plugged, like clothes driers. Industrial loads in the 100-kW range are usually fixed and wired in.
So What?
This means that the EV charging load is less predictable than traditional electrical loads, both in space and time. An EV driver may charge at home with a level 2 charger, on the way to the cottage with a public DCFC, and on a 120-volt wall plug (level 1 charging) once they get there. Over time and with large numbers of EVs on the road, we may learn where and when EVs are being charged, on average, bringing greater predictability to this load. But, until then, we will have to go with some uncertainty. However, understanding what drive EV customer behavior and what drivers can control helps reduce uncertainty.
EV charging is highly price elastic—an economic term meaning that consumers are sensitive to charging price and adjust accordingly. If charging prices at a given time or location rises, the demand for charging then and there should fall. Conversely, lower prices spur usage.
Many studies confirm the high price elasticity of EV charging:
Drivers of gasoline or diesel cars are highly responsive to local petrol prices, shopping around or timing purchases when they can, as well as seeking coupons for cheaper gas.[8] When it comes to price, EV drivers seem to act like drivers of internal combustion vehicles.
So What?
The high price elasticity of EV charging is a strong indication that pricing and monetary incentives may be used to shape the EV charging load curve—at home, at work or in public.
This is not ignored by utilities, as “60 percent of utilities consider activities that would enable them to develop effective rate structures—such as studying EV charging ownership, behavior and rate impacts—to be the most important activity in preparing for increased EV adoption”.[9] For residential charging, driver sensibility toward prices opens the door for gamification programs and is also the main value drivers being considered for vehicle-to-grid pilots. Regarding public charging, Tesla is quietly testing out ways to incentivize its customers to charge their cars when electricity demand isn’t so high or when sites are not congested[10]—I would expect that other charging operators and utilities will also assess time-varying or dynamic pricing for public charging.
Many forms of residential loads, such as air conditioning used when it is hot and ovens at dinner time, are predictable because consumers want or need to turn them on during specific situations or at regular times. EV charging is less predictable because drivers of long-range EVs have much more control on when (and therefore where) to charge. Drivers elect to use various charging patterns, depending on their needs:
In other words, drivers of long-range EVs are flexible and control when and where to charge so that it is best for them, either because it is convenient or less expensive.
So What?
Utilities, charging operators and business owners can leverage this flexibility, knowing the mobility and the price sensibility of EV drivers. Through price signals or promotions, they can nudge drivers to charge where and when it best suits them—to minimize stress on the grid, to balance usage of high-traffic charging sites, or to increase in-store retail sales.
With steep forecasts of the number of light-duty EVs in some areas, many electric utilities are rightly concerned by the impact EV charging may have on their resource plans, both in terms of energy and capacity. Many see managed—or “smart”—charging as a solution to this disruption. Managed charging aims to shift EV charging to times when capacity is available in generation and in the grid. To effect managed charging, utilities may rely on metered rates, unmetered incentives, load control, or, very often, a combination of those approaches. Rates and incentives are behavioral approaches, attempting to nudge customer conduct, while load control works with the loads themselves.
However, utilities are not the only ones trying to influence the charging patterns EV drivers. There are indeed many stakeholders in the EV charging ecosystem: utilities, cities, charging operators, local businesses, real-estate developers, state/provincial governments, federal government, regulators, automakers, charger manufacturers, etc. For example, installation of chargers at commercial sites and their charging rates is primarily driven by business considerations, such as attracting customers (a business owner objective), and not to benefit the grid (a utility objective) or to ensure sufficient coverage or capacity for EV drivers (which are government objectives). Another example: utilities and their regulators may set rates for public charging stations, but charging operators control end-user pricing and service conditions.
Greater collaboration and alignment among these stakeholders, with better understanding of driver behavior, will be essential for the EV charging infrastructure to develop harmoniously.
[1] Long-range electric vehicles (EV) typically have an EPA-rated range of around 250 miles (400 km) or more, with batteries of at least 60 kWh. Examples in 2021 include the Tesla Model 3 and the Kia Niro EV. Shorter range EVs also exist, like some Nissan Leafs, along with plug-in hybrids vehicles, like the Toyota RAV4 Prime.
[2] Long-Term Electric Vehicle Outlook 2020, BloombergNEF, May 19, 2020, page 65.
[3] Charge the North project, Presentation to the Infrastructure and Grid Readiness Working Group by Matt Stevens, FleetCarma, September 2019, page 14.
[4] Beneficial Electrification of Transportation, The Regulatory Assistance Project (RAP), January 2019, p. 66.
[5] Final Evaluation for San Diego Gas & Electric’s Plug?in Electric Vehicle TOU Pricing and Technology Study, Nexant, Inc., February 20, 2014.
[6] Final Evaluation for San Diego Gas & Electric’s Plug?in Electric Vehicle TOU Pricing and Technology Study, Nexant, 2014, p.44.
[7] Employees with free workplace charging get 22% of their charging energy from work, while employees with paid workplace charging get 7% of their charging energy from work. Charge the North project, Presentation to the Infrastructure and Grid Readiness Working Group by Matt Stevens, FleetCarma, September 2019, page 13.
[8] See https://voxeu.org/article/gasoline-demand-more-price-responsive-you-might-have-thought, accessed 20191107.
[9] Black & Veatch 2018 Strategic Directions: Smart Cities & Utilities Report, Black & Veatch, 2018, pages 10.
[10] See https://insideevs.com/features/454482/getting-best-deal-tesla-superchargers, accessed 20210416.
[11] See https://atlaspolicy.com/wp-content/uploads/2020/04/Public-EV-Charging-Business-Models-for-Retail-Site-Hosts.pdf. accessed 20210416.
[12] See https://www.reddit.com/r/teslamotors/comments/jkhdx8/supercharging_discount_this_weekend_in_california/, accessed 20210416.
[13] The Life of the EV: Some Car Stories, Laura McCarty and , Brian Grunkemeyer, FlexCharging, presented at the 33rd Electric Vehicle Symposium (EVS33), Portland , Oregon June 14-17, 2020, page 6.
[14] See, for instance, the recommendations of Hyundai at https://www.greencarreports.com/news/1127732_hyundai-has-5-reminders-for-making-your-ev-battery-last-longer.
[15] Charging frequency of private owned e-cars in Germany 2019, Published by Evgenia Koptyug, Oct 21, 2020, https://www.statista.com/statistics/1180985/electric-cars-charging-frequency-germany/, accessed 20210305.
Real-world experience from utilities with a relatively high penetration of light-duty EVs shows that EV charging brings additional utility revenues that vastly exceed the costs to generate and deliver the additional energy. This may be surprising given the concerns expressed in some industry opinion pieces on the ability of the grid to support EVs. However, in California, with high EV penetration and otherwise relatively low average residential load, only 0.15% of EVs required a service line or distribution system upgrade.[1] At a system level, a Hydro-Quebec study shows that average home charging of an EV draws only 600 watts on peak – a small amount.[2] It is worth noting that these two examples do not even rely on EV load management, which would further lower contribution to peak load.
In practice, many factors contribute to mitigating the impact of unmanaged EV charging on the grid. For instance, many owners of long-range EVs only charge at home once or twice a week, and not necessarily at peak system time. Also, many EV drivers are simply charging off a standard 120 V wall plug – slow but enough in most circumstances. More and more drivers charge at their workplace or at public stations, with diversified load curves. At the local level, distribution transformers used for residential customers are typically loaded at 25% to 30% of their rating; a few hours a year may be above the kVA rating of the transformer, but with little consequence.[3]
If anything, the advent of EVs may get electric utilities growing again: current year-over-year electricity consumption growth (kWh) averages below 1% in North America but was about 2.5% as recently in the 1990s.[4] Perhaps incredibly, yearly growth was about 8% to 10% in the 1950s and 1960s, as a wave of electrification propelled the economy. The ADN of electric utilities includes building the electricity grid and adding capacity.
Looking forward, various forecasts of the electricity use from EV adoption range from a fraction of a percent to perhaps 2% per year[5] – not negligible, but clearly manageable in view of past growth rates.
Overall, grid impacts of light-duty EV load profile over at least the next decade should be relatively modest and net economic benefits from additional utility revenue vastly exceed costs. Those benefits will exert a downward pressure on rates for all utility customers – not just to those driving EVs. For example, Avista estimates that the net present value to ratepayers of a single EV on its system is $1,206 without managed charging.[6] Furthermore, shifting charging to off-peak or high renewable generation periods further improves benefits – up to $1,603 per EV for Avista. Furthermore, EV drivers also gain from lower maintenance and operating costs. And besides, the switch to EVs significantly reduce greenhouse gas and other harmful air pollutant emissions.
This post was initially published at https://chargehub.com/en/blog/index.php/2020/03/25/ev-charging-puts-downward-pressure-on-rates/.
[1] Joint IOU Electric Vehicle Load Research – 7th Report, June 19, 2019.
[2] Public Fast Charging Service for Electric Vehicles, Hydro-Québec, R-4060-2018, HQD-1, document 1.
[3] Electric Power Distribution Handbook, T.A. Short, chapter 5. Some winter-peaking utilities are even planning the overloading of distribution transformer, counting on the low ambient temperature to cool it down.
[4] https://data.nrel.gov/files/90/EFS_71500_figure_data%20(1).xlsx, figure 2.1, for US data.
[5] For examples of forecast electricity use from EV adoption, see:
– Mai et al., Electrification Futures Study, page 82. https://www.nrel.gov/docs/fy18osti/71500.pdf.
– Canadian electric vehicle transition – the difference between evolution and revolution, EY Strategy, October 2019, page 9. https://assets.ey.com/content/dam/ey-sites/ey-com/en_ca/topics/oil-and-gas/canadian-electric-vehicle-transition-the-difference-between-revolution-or-evolution.pdf.
[6] Electric Vehicle Supply Equipment Pilot Final Report, Avista Corp., October 18, 2019.
Yogi Berra famously said that “it’s tough to make predictions, especially about the future.” Electric vehicles do not escape this wisdom. Still, recent trends and forecasts suggest a sustained growth in adoption of light-duty electric vehicles in North America.
There are many reasons to believe that there will be many electric cars in our future.
First, most electric vehicle drivers think that their cars are the best cars they ever had – according to a AAA survey[1], 96% of electric vehicle owners say they would buy or lease one again the next time they are in the market for a new car. Anecdotally, we can confirm this: through the ChargeHub platforms, electric vehicle drivers express their enthusiasm daily toward their cars (but also, unfortunately, their frustrations toward public charging).
Second, more and more car manufacturers are committing to an electric future: global automakers are expected to invest $225 billion on the development of battery-electric vehicles from 2019 to 2023, according to an AlixPartners study[2] — roughly equal to the massive amount that all automakers globally combined spend on capital expenditures and research and development in a year. New electric car plants are being built and internal combustion ones are being converted. There’s no turning back.
Thirdly, many states, provincial and federal governments have policies to reduce greenhouse gas emissions in order to stave off climate change. The transportation sector is the largest contributors to U.S. greenhouse gas emissions, and light-duty vehicles contribute to 59% of transportation emissions[3]. Necessarily, reducing greenhouse gas emission will require us to drive electric light-duty vehicles.
Yet, only about 2% of 2019 new passenger car sales in North America are plug-in electric vehicles.[4]
There are a number of factors to explain the dichotomy between actual and forecast sales of electric vehicles. The first is simply availability: buying a new electric vehicle usually implies waiting months and there are few model options. If you do not happen to live in the few states or provinces that have a zero-emission mandate[5] requiring a minimum percentage of electric light-duty vehicles, you may actually be out of luck: car manufacturers may simply not offer them to you. For example, Subaru stocks the Crosstrek plug-in hybrids in California, nine other states[6] and the Canadian province of Québec[7] that have adopted zero-emission vehicle regulations.
Even in jurisdictions with zero-emission mandates, availability is often limited to regulatory obligations: internal combustion vehicles are currently far more profitable than electric ones, and automakers don’t have enough incentive to move away from internal combustion engine vehicles, especially at current low-volume. However, analysts, like the McKinsey strategic consultancy, expect that EVs have the potential to reach initial cost parity with and become equally—or even more—profitable as internal combustion vehicles around 2025[8]. Combined with already lower operating costs for drivers, this will make building electric vehicles a compelling proposition for automakers and drivers alike.
If investments being made in manufacturing will cure current availability and cost issues, there are still a few more obstacles that need to be removed to hasten the advent of electrical cars. A survey by KSV lists top worries about batteries running out, convenient home charging and how to charge, operate, and maintain electric vehicles. These other concerns primarily point to insufficient consumer knowledge and incomplete public charging infrastructure. While home charging remains the principal means to recharge electric vehicles, charging at workplaces and public stations plays an important role for drivers who cannot charge at home or when traveling away from home. Utilities have a central role in enabling public and workplace charging, through policy-induced subsidies and tariffs. Utilities are also the second-most trusted source of information on EVs, after Consumer Reports – car dealers are last[9]. To succeed, electric utilities need to work with site owners (for public charging) and automakers (for education) – two types of stakeholders with which utilities do not have relevant business relationships.
This was initially published at https://chargehub.com/en/blog/index.php/2020/03/05/the-electric-cars-in-the-future-of-utilities/.
[1] https://www.oregon.aaa.com/content/uploads/2020/01/True-Cost-of-EV-Ownership-Fact-Sheet-FINAL-1-9-20.pdf, accessed 2020-03-05.
[2] https://www.alixpartners.com/media-center/press-releases/alixpartners-global-automotive-industry-outlook-2019/, accessed 2020-03-05.
[3] https://www.epa.gov/greenvehicles/fast-facts-transportation-greenhouse-gas-emissions, accessed 2020-03-05.
[4] https://en.wikipedia.org/wiki/Electric_car_use_by_country, accessed 2020-03-05.
[5] https://electricautonomy.ca/2020/02/04/industry-divided-on-the-merits-of-a-national-zev-mandate-as-federal-budget-nears/, accessed 2020-03-05.
[6] https://www.autonews.com/article/20181124/RETAIL01/181129954/subaru-goes-greener-plugs-in-the-crosstrek, accessed 2020-03-05.
[7] https://plus.lapresse.ca/screens/1ee08d4e-e711-4ece-ba8d-8599239ff27a__7C___0.html.
[8] https://www.mckinsey.com/industries/automotive-and-assembly/our-insights/making-electric-vehicles-profitable, accessed 2020-03-05.
[9] https://www.eei.org/issuesandpolicy/electrictransportation/FleetVehicles/Documents/EEI_UtilityFleetsLeadingTheCharge.pdf, accessed 2020-03-05.
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.
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?
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.
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.
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?
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.
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.
EV charging is a new type of load for electric utilities – probably the first new type of large electrical load since air conditioning over 50 years ago. A lot is being written about the perils that charging a large number of EV batteries could bring to the grid, but also how shifting EV charging off peak could offset decline in utility revenues.
However, filling up a car with energy is not new for utility customers. In fact, they are already quite passionate about it. They’ll drive out of their ways to pay less, fueling up on days when price is lower, or driving some distance to get to a cheaper gas station. Multiple apps allow motorists to share tips. Gas station chains offer loyalty program and grocery coupons. Gas stations have become minimarts. Clearly, motorists are deeply engaged with those providers.
Electric utilities are trying really hard to get their customers to be more engaged. They rightfully see customer engagement as the key to entice customers to participate in energy efficiency and demand management (or response) programs. The problem is that customers generally have no idea how much electricity they use for lighting, entertaining, cooling, heating, cooking, showering, cleaning dishes… This makes customers little responsive and unengaged, especially since these activities have very low emotional appeal for electricity (unless there is an outage during a hockey game). To tell you how bad the situation is, utilities regularly go to conferences presenting EE or DM/DR programs considered to be highly successful with only single-digit percentage of the customer base participating…
With EV charging, utilities have the opportunity to reset customer engagement – especially as owning and driving a car has much more emotional appeal than, say, cleaning dishes. This is especially true since drivers are used to see how much fuel they use at the pump – there is a direct feedback every few days. We also know that drivers are responding strongly to fuel price signals.
While much of the discussion on EV charging has revolved around grid-centric issues like peak management and electricity sales, EV charging is also a time-limited opportunity to get their customer more engaged. If electricity distributors are not seizing the opportunity, other players will, and they will fall back to being what they have traditionally been – utility service providers serving passive subscribers.
I think that electricity distributors can be much, much more, especially in the context of the energy industry transition that we are going through.
For a while now, I have been saying that we are entering a world where energy (kWh) is cheap, thanks to dropping solar and wind costs, but power (kW) is expensive, needed as it is to balance renewables and peaking new uses, such as electric vehicle charging.[i]
There are not a lot of empirical evidence of this phenomenon, but Ontario offers one.
In 2005, Ontario decided to move to a “hybrid” deregulated generation market, with a “Global Adjustment” (GA) charge on customer electricity bill that is used to cover the difference between the energy market price (¢/kWh) and rates paid to regulated and contracted generators for providing capacity (kW). The energy market price was intended to reflect the marginal cost of production, with contracts meant to compensate fixed capacity costs. Over time, as contract volumes increased, more and more of the costs of generation became charged through capacity contracting rather than through energy market revenues. In addition, a significant number of zero marginal cost bidders (essentially renewables) were built, further depressing market revenues. As the chart below indicates, a growing portion of generator payments shifted from the energy market onto capacity contracts, which were then charged to customers through the Global Adjustment.[ii]
This is for Ontario, with its peculiar market structure. However, with the advent of renewables and increasing electrification of the economy, we will see the same trend across the world: the capacity-driven cost of the grid will be exposed. The underlying trend is:
Energy, in kWh or MWh, will get very cheap.
Power, in kW or MW, will be very valuable.
For stakeholders in the industry, it means that economic value will be created with services and tools that help manage power, such as shifting peaks. If you own a generation source with non-zero marginal costs and cannot play on a capacity market, you’re in trouble.
If you think that this is sort of crazy, think about what happened in the telecom market over the last couple of decades. It used to be that local phone connections were relatively cheap, but long-distance phone calls were extremely expensive (dollars per minute for some international calls). Nowadays, long-distance calls are effectively free, thanks to Skype and FaceTime, with video as a bonus. However, Internet access is expensive.
How will this affect your business?
[i] See my 2018 posts, http://benoit.marcoux.ca/blog/cea-tigers-den-workshop/and http://benoit.marcoux.ca/blog/a-perspective-on-canadas-electricity-industry-in-2030/.
[ii] Data for this chart was extracted from http://www.ieso.ca/en/Corporate-IESO/Media/Year-End-Data. Contact me is you want the underlying numbers.
Last month, I chaired the Digital Utility of the Future Conference in Toronto (http://ikonnect.world/DigitalUtilitiesoftheFuture2/). Based on feedback from many participants, the event was a clear success and I am looking forward to the 2020 edition. Having mostly been out of the country on business since then, I would now like to share some reflections on the event.
First, the multiple presentations highlighted the extent to which digital technologies now permeate the utility world. The energy transition adds tremendous sophistication to the electricity distribution network, relies on renewed engagement by customers, and brings many new regulatory and environmental constraints. As the transformation of other industries have shown, such complexity can only be dealt with through better management of corporate resources, especially information.
Second, adapting to the energy transition and leveraging information a big task. The rule book is still being written. Many innovations were presented. In a few years, we will look back at some of these ideas and admire the foresight of their promoters; other ideas will be dead ends. However, it is clear now that the future of the utility industry will depend on innovations to a much greater extent than was the case a few years ago.
Third, participants were a mix of utility and vendor representatives, with many presentations being made by representative from both. I think that the best combination. Utilities know their business but may be insulated behind a regulatory wall. Vendors see multiple clients, inside and outside the energy industry, but may not understand all the subtilities of a regulated business. Having both can get sparks flying (in a good way).
Finally, I would like to thank all participants, sponsors and presenters. I think that we all had a great time debating what the digital future of utilities may look like.
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
This mouthful title was the title of my presentation today at the Smart Grid Canada conference in Montréal.
As usual, it is written in my somewhat funky style and provocative, but was well received.
Let me know what you think!
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.
Insight from this post:
Our reliance on historical concepts and dated utility business models has masked the shift in the primary driving force for renewable generation, from policy obligations to least-cost generation. As a result, past forecasts have systematically underestimated the penetration of low-cost wind and solar PV. Yet, 2016 was the first year in which solar and wind net additions worldwide exceeded coal and gas.
Solar power was once so costly it only made economic sense on a spaceship. As costs went down, volumes went up, attracting innovation and driving costs further down, which drove volume further up, which caused more innovation and drove costs further down… and so on. The spaceship has come down and has now landed on Earth — no wonder that this new reality seems alien to many. Close to earth, installed capacity of wind turbine farms is even larger than solar and follows a similar virtuous cyclone, albeit at a more moderate pace, and the latest purchase agreements show that it is still the cost leader (but barely).
Worldwide photovoltaic solar generation (in terawatt-hours) has increased tenfold since 2010, following an exponential growth curve (see Figure 1). Wind increased even more in absolute numbers, almost quadrupling since 2010.
Figure 1 Exponential progression of worldwide electricity generation from wind and solar photovoltaic.
While this growth in renewable capacity is impressive, it masks that renewables are still relatively small. Half of electricity generation worldwide is from coal, oil and natural gas, and another 10% is from nuclear[i]. The share of the electricity generation was in 2017 only about 4.4% for wind and 1.5% for solar. From a small base, those percentages are, however, increasing quite rapidly: 2016 was the first year in which the net capacity additions of solar and wind net exceeded coal and gas.[ii]
While residential solar PV has attracted a lot of attention, utility-scale solar generation is far larger. In the United States, utility-scale solar PV represented 60% of the installed capacity and 69% of the electricity generation in 2017.[iii] In Ontario, 80% of the solar PV capacity resides in MW-scale systems, while residential capacity (from MicroFIT contracts) is only 8% and commercial capacity (from FIT contracts) is another 12%.[iv]
The existence of a virtuous cycle driven by innovation and industry investments rather than government policies has not always been recognized, but it is becoming clearer. For example, the International Energy Agency (IEA) publishes a yearly World Energy Outlook (WEO), forecasting, among other things, electricity generation for the next 20 or 30 years. The Outlooks implicitly assume that government policies are the main drivers of the evolving generation mix in the Outlooks. For example, WEO2010 states that the “future of renewables hinges critically on strong government” and that “the scale of government support [for renewables] is set to expand as their contribution to the global energy mix increases.”[v] Policies certainly have had a major influence in the European Union and in other areas, like Ontario, that subsidized renewables with instruments such as favorable feed-in tariffs. However, the IEA assumption that policies are the driving force may have contributed to a lag in recognizing the rise of technology and business innovation and the resulting cost reductions as the new driving forces, like what we are seeing now in renewables. As a result, past IEA generation Outlooks broadly diverged from actual wind and solar PV generation (see Figure 2). Until 2010, IEA wind Outlooks and actual generation diverged steeply. Starting with WEO2010, as wind generation reached 300-400 TWh, IEA Outlooks got less inaccurate. As for solar PV, WEO2017 still shows some divergence. However, solar generation is now at the same level as wind was in 2010 – perhaps this is a sign that the current solar PV outlook is getting more realistic.
Figure 2 IEA World Energy Outlooks consistently underestimated the future energy generation from wind and Solar PV.
The IEA is not alone in having poorly forecast the rise of wind and solar generation:
Traditional wisdom is a poor guide in forecasting during a technology shift, as the case now with wind and solar power. Forecasters relying on historical policies and industry practices remain oblivious to the confluence of performance improvements, supply chain efficiencies and business innovations that arise during a technology shift. They assume that the latest deviation from past trends is just an exception and they are surprised when costs fall quickly and volume increase faster than expected.
It is not to say that policies are not important. In fact, policies have been the driving force behind the renewable growth in pioneering European countries (see Figure 3) at a time when wind and solar PV were considerably more expensive than coal and nuclear generation (more on costs of wind and solar PV later). However, the USA also saw significant growth without consistent policies at the federal level.
Government policies may also dictate the types of renewable plants being built. For instance, public tenders will tend to favor large corporations and cement the market power of oligopolies, while feed-in tariffs favor private investors, energy cooperatives and small businesses.[ix] However, while public tenders may be justified on the basis that utility-scale plants are currently more cost-effective than distributed systems, such a policy could decrease public support and ultimately slow down adoption of renewable generation in the long run.
Furthermore, some governments have policies, including direct and indirect subsidies, regarding generation from fossil sources, and those policies are delaying the tipping point when renewables become cost effective in those jurisdictions.
[i] International Energy Agency, World energy Outlook 2017, New Policies Scenario, p.650.
[ii] International Energy Agency, World energy Outlook 2017, Figure 6.1, p.231.
[iii] U.S. Energy Information Administration, Short Term Energy Outlook, table 8b, U.S. Renewable Electricity Generation and Capacity.
[iv] IESO Contracts and Contract Capacity, Progress Report on Contracted Electricity Supply: Q3-2017, Table 6.
[v] International Energy Agency, World energy Outlook 2010, p.51.
[vi] U.S. Solar Photovoltaic System Cost Benchmark: Q1 2017, National Renewable Energy Laboratory, p. viii.
[vii] Vers un mix électrique 100% renouvelable en 2050, Agence de l’Environnement et de la Maîtrise de l’Énergie, Figure 7 p. 16.
[viii] Canada’s Energy Future 2017, Energy supply and Demand Projections to 2040, National Energy Board, 2017, page 49.
[ix] Hans-Josef Fell, “The shift from feed-in-tariffs to tenders is hindering the transformation of the global energy supply to renewable energies“, Policy paper for IRENA, July 2017.
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:
[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.
With low-cost renewables, many customers become power producers, and it will transform the relationship of utilities with them.
You saw that in media and telecom. My grandchildren loves to watch amateur baby video on YouTube. This one has been viewed 178 million times.
Every time, there is an ad and the daddy or mommy who produced the video gets a bit of money. Overall, videos that people put on YouTube generate $15 billion a year in advertising revenue.
In the electric utility industry, low cost solar means that many customers will generate power, with or without incentives or net metering. It will just make sense. They may just take the free electrons when they can, and wasting them if they can’t neither use nor sell them.
And by the way, we have cut down on our cable TV subscription. Customer-owned generation will have a similar effect on utilities. Many will have solar panels and they will buy less from utilities.
In essence, for the first time, utilities will see competition from their own customers.
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!
Low-cost renewable energy and energy storage are reshaping the Canadian electricity industry (see http://benoit.marcoux.ca/blog/canadas-electricity-industry-in-2030/). Along the way, new regulatory frameworks, energy choice, and competition from new energy service providers will transform the relationships between utilities and their customers. If what happened in other industries that went through similar transformations is any indication, such as airlines and telecoms, those relationships could be strained. Utilities should learn and apply lessons from those industries, hopefully not making the same mistakes again.
Twenty years ago, an Angus-Reid survey put Bell Canada #2 among most admired corporations in Canada. In 2017, Bell Canada ranked #291 in a University of Victoria brand trust survey. People love their Apple or Samsung phones, are addicted to Facebook to stay in touch with friends, and use Microsoft Skype to see remote family members, but they mostly hate their phone company.
The transformation of the telephone industry in Canada really started in the 1980s with businesses being able to lease high-capacity dedicated lines from other providers, such as CNCP Communications. Businesses were clamoring for more, and the Canadian regulator, the CRTC, allowed resale of telephone companies services, first dedicated lines and then local phone services. Canadian long-distance market developed slowly until 1992, when Canada unbundled local and long-distance telephone services and allowing competitor entry into long-distance services. When cellular service became more popular around the year 2000, it also offered an alternative to local services. However, if competition in residential long-distance services is seen as a milestone, the fact is that it all started with businesses leasing high-capacity lines from competitive providers — businesses were already resenting being coerced by phone companies. Later, when residential customers got choice, they too got dissatisfied.
It is still early, but we may be seeing the same unfortunate trend with electric utilities. When listening to renewable energy developers or commercial businesses, you already hear an undercurrent of dissatisfaction, although the reality is that there is not much they can do. With low-cost renewable energy, energy storage and microgrids, businesses will start to see alternatives. Eventually, the same will happen with residential customers. Unbundling of the wire business from energy retail will bring more choices. You can readily see a parallel with telecoms .
This is a very real risk for utilities: in 2030, there will be many more potential friction points between utilities and customers than there are now. In addition to traditional transactions such as new connects, outage reporting, energy efficiency and bill payment, there will be multiple demand response schemes, EV charging and energy sales, bringing new expectations along. Even if customer satisfaction surveys are good now, they may not stay that way.
I have worked in the telecom industry as head of marketing, in customer care and as a business consultant — I have seen what happened there. 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, here is what I have to offer to electric utilities in improving their chances to maintain healthy customer relationships as the industry is transforming:
Even with all the talk from consultants about customers wanting more participation, the fact is that electricity will never have the emotional content of communicating with friends and family, would it be telephone or Facebook. This only makes it harder to ensure that electric utilities can maintain healthy customer relationship. Still, it can be done.
Are you up to the challenge?
The cost of solar and wind energy and energy storage have been coming down at double-digit rate per year for many years. Every year. Double-digit percentages. Again. It continues. Tirelessly. No end in sight. Capitalism and innovation at their best. No government regulation nor corporate ego will stop it. And it will reshape – no, it is reshaping – the power industry in Canada.
By 2030, renewables will be so inexpensive that they will have upended the traditional economics of the industry. But we can see this transformation to its logical conclusions, based on how the power industry is evolving elsewhere in the world and how other industries went through similar transformations.
If ever lower-cost renewables and energy storage triggered the reshaping of the electricity industry, other factors tint how industry stakeholders: the impacts of climate change, our increased dependence on reliable electricity, and the higher cybersecurity threats. Each of these factors helps define how utilities, customers, regulators, policy makers and product and service vendors react to or take advantage of the situation, sometimes trying to accelerate change, sometimes attempting to slow down. However, if broad conclusions can be drawn, we need to be mindful that local specificities in resource availability, cost structure and ownership will mean that the end game will not exactly be the same everywhere.
Wind, solar and storage are not only becoming increasingly cost effective, but doing so at a much smaller size than traditional generation. By 2030, customers will be installing solar panels on their side of the electricity meter, on rooftops and backyard, even in absence of incentives or net metering, taking whatever “free electrons” they can and wasting what they will not be able to use or sell. If wasting electricity seems heresy, think about the iPhone in your pocket: it has more computing power than a supercomputer of a generation ago, and yet it is idling most of the time, its vast computing power wasted. Yet, the iPhone has transformed our daily relationship to computing. Similarly, inexpensive renewables and storage will transform our relationship to electricity.
Even with this abundance of distributed generation, grid defection will be the exception, as customers keep the utility connection as a last resort and because space constraints and the low energy intensity of solar and energy storage make it impractical to generate all the energy needed in urban areas. Nevertheless, abundance will cause energy (kWh) price to plummet, especially since electricity consumption has plateaued in Canada, taking traditional utility revenue along.
Commercial and industrial customers, as well as some residential customers, will take this a step further by having energy storage as well. By adding storage, customers can arbitrage time-of-day rates or peak demand charges, shifting consumption at other times to reduce costs. Having local generation and storage also turns a customer site into a microgrid able to maintain power during grid disturbance or outage, maintaining production for businesses and food stuff cold for consumers. Some smart communities and campuses will also become microgrids regrouping multiple customers and utility-scale resources for better resiliency and efficiency.
Given how low-cost renewables and storage are advancing, by 2030, if not before, the traditional, centralized grid will have been transformed into a digital grid of microgrids integrated to distributed renewable energy resources. This will have repercussions across the industry, transforming competition, energy markets, regulation, grid architecture and utility operations.
Retail Unbundling and Competition
Having so much customer-owned distributed generation will put pressure on policy makers and regulators to allow retail competition, so that distributed generators may sell surpluses on open markets. With retail competition, customers have more choices in what energy they use, what energy they sell, and how they use it, including sophisticated demand response programs to support energy balancing on the grid.
The retail arm of utilities and the wire business will be unbundled (as it is already the case in Alberta), allowing energy service providers to compete in energy retail, perhaps along with utilities’ unregulated subsidiaries. This will also expose the capacity-driven cost of the distribution grid, now charged separately. This is similar to long-distance telephone service unbundling in the 1990s. With competition forcing energy market players to keep price low, energy price regulation will be lightened, just like telephone regulations are much lighter now than they were 25 years ago.
Renewed Energy Markets
Today’s energy markets were not designed for the large number of players distributed across the grid with varying capabilities that we will have in 2030. Energy markets will evolve to improve the way electricity is priced, scheduled and procured in order to ensure reliability, transparency, efficiency and at the lowest cost. Through the energy market, distributed energy storage systems will accumulate electricity when the sun is shining or the wind blowing, releasing it at time of use. Demand management will shape the load curve to better match availability of inexpensive renewable resources. Electric vehicles will be charged during the day, and give power back to the grid if needed.
New transactional technologies, such as blockchain, may be required to deal with the sheer volume of automated transactions. Market intermediaries to act on behalf of distributed asset owners, simplifying the process and offering financing.
Performance-Based Regulation
In the traditional Canadian rate-of-return regulatory framework, electric utilities earn a return on investments based on the depreciated cost of past capital expenditures approved by the regulator. This model will no longer be suitable in 2030 to regulate the wire business of utilities because of its “capital bias”, its insensitivity toward grid reliability, its inhibition of innovation, and its short-termism. The regulatory regime will evolve to incentivize lower total costs (including incentives to use non-wire alternatives such as third-party energy storage) and better reliability (to avoid momentary service interruptions that trip distributed generators offline), with utilities freed to implement innovative solutions without regulators and interveners second-guessing investment in technology. Multi-year incentive plans will allow utilities to plan ahead better. Similar approaches already exist, as in Great Britain, where the regulator developed its RIIO (Revenue = Incentives + Innovation + Outputs) 8-year model.
High-Availability Distribution Grid?
By 2030, we will obviously not have replaced all poles, conduits and wires that make up the legacy grid – nor should we try to. Utilities, however, will have transformed this critical infrastructure to make it resilient (especially against the impacts of climate change) and reliable (to keep now-essential distributed energy resources online).
We will more storm-proofing of critical feeders, including undergrounding of mainlines, with intelligent protection devices on laterals, near customers and distributed energy resources to minimize disturbance while faults are being cleared on overhead lines. Protection devices, switches and sensors will be automated to the best extent possible and remotely operated, from a control room or from a truck, freeing operators and crew to better manage and repair outages. Remote control will allow protection settings to be more sensitive to limit the risk of forest fires caused by the electrical grid.
New Operating Model in Distribution
In a technology-intensive environment in constant innovation and with ever-increasing cybersecurity threats, utilities will develop new skills and will learn to leverage partnerships with vendors. This is very different than traditional distribution grid operation, still largely relying on physical work and manual switching.
In their new high-tech and fast-changing environment, utilities will implement new business process and organizational structures to take advantage of the latest technology innovations. At the same, new skills technology skills are required, including cybersecurity. Rather than doing things internally, as they are often used to, utilities will partner with technology vendors that have the scale and the expertise to provide better products and professional services at a lower cost. Essentially, utilities will follow the path already taken by telecom network operators.
New business models in the industry
New businesses will cater to energy customers, distributed generators and microgrid owners, removing complexity and turning energy into services.
Energy customers, distributed generators, and microgrid owners will be supported by an ecosystem of third-party vendors and unregulated utility subsidiaries. Vendors will support customers with low-cost financing and technology to optimize the use of distributed assets on energy markets, lowering costs. For utilities, this is a clear growth opportunity, not limited to traditional territories. With transportation electrification, the electric industry will essentially replace the petroleum industry, with new businesses supporting public charging of electric vehicles – a welcome development as it could prevent further reduction in electricity consumption.
Conclusion
This new, distributed and digital-enabled electrical grid will be more resilient and sustainable. Its resiliency is based on multiple and alternate energy local sources and paths, with reduced reliance on large infrastructure. This new resilience is welcomed given the growing importance of electricity in energy use, as residential and industrial customers are dependent on electricity to power our modern life in smart communities and with the advent of electrical transportation. The new grid will also be more sustainable, reducing the environmental impact of communities and improving quality of life – while being financially affordable.
Preparing for the future is essential for Canadian electric utilities and new players. In an industry traditionally defined by centralized generation and rigid geographic boundaries between utilities, new linkages need to occur: utilities and customers, vendors and entrepreneurs, cities and businesses, ensuring that all see the opportunities that didn’t exist before and have the support they need to get their ideas to market quickly. The structure of the industry will emerge transformed, with Canadian-owned service providers offering novel energy solutions in Canada, backed by a web of hardware, software, and professional service vendors. Realizing this vision will increase opportunities for Canadians to export their energy, their expertise, and the fruit of their labor.
On September 27, 2017, I presented at the Utilities Technology Council of Canada. I have attached the presentation, and here is the abstract.
Abstract: The telecom industry has seen tremendous changes, replacing in just a few short years the Plain Old Telephone System that took over a century to build with the Internet and cellular networks. Since telecom and electric utilities have a lot in common, like linear assets, large customer base and territory, and technology-driven culture, what can we learn from the transformation of telecom to better manage the ongoing technological changes in electric utilities?
Now is a time of innovation in the electric industry, like no other since Thomas Edison.
Now is the time when wealth can be created as we use our resources and our brains to ensure a resilient and sustainable energy future for all.
Potential wealth creation stems from the fundamental changes occurring in the electricity sector:
Innovation and wealth creation opportunities are everywhere in this context. Technical innovation is what drives the decreasing costs of renewable sources for energy users. Vendors need to invent new commercial solutions to balance the new distributed grid and ensure that customers stay powered up. Increasing energy efficiency means that we can do more with less. Utilities and entrepreneurs adopt new business models to better serve customer segments. In particular, utilities, previously defined by their geographic territories, are morphing into energy service providers, often competing with offerings from new entrants, or even competing with each other like never before, driving cost down for Canadian consumers and businesses. The digitalization of the electrical grid creates large quantities of data that new software applications can leverage to increase efficiency and create commercial opportunities. Canadian customers, now with the power of choice, can no longer be taken for granted and demand more.
What is even more dramatic is that the changes affecting the electric industry are shaking a pillar of the Canadian economy. The electric industry touches every home and business in Canada and reliable power is an essential ingredient for the competitiveness of our economy. Electric power generation, transmission and distribution utilities contribute almost $30 billion to the Canadian economy, with electrical equipment manufacturers contributing another $4 billion. This industry employs over 100,000 Canadians, but the Conference Board has estimated that 156,000 workers will be needed to carry out the renewal of Canada’s electricity infrastructure. Canada’s net exports of electricity and electrical products amount to billions of dollars every year. The Canadian electricity system is in need of massive infrastructure renewal. The Conference Board of Canada estimates that by 2030, close to $350 billion in new investment will be required just to maintain existing electricity capacity, with most of Canada’s non-hydro assets needing renewal or replacement by 2050. The importance of the electric industry scales up the potential of wealth creation, but also underlines the perils that we are facing: should the Canadian electric industry fail to renew itself for the challenges of the 21st century, the entire economy of Canada would suffer, with foreign service providers taking control and energy exports dwindling.
In conclusion, accelerating the transformation of the Canadian electric industry is essential. In an industry traditionally defined by centralized generation and rigid geographic boundaries between utilities, new linkages need to occur: utilities and customers, vendors and entrepreneurs, cities and businesses, ensuring that all see the opportunities that didn’t exist before and have the support they need to get their ideas to market quickly. The transformation of the electric industry will ensure that Canadians benefit from the billions of dollars to be invested in the electricity system. The structure of the industry will emerge transformed, with Canadian-owned service providers offering novel energy solutions, backed by a web of hardware, software, and professional service vendors. This will increase the opportunities for Canadians to export their energy, their expertise, and the fruit of their labor.
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