The bad news – there are big, big challenges looming for the electric utility industry. The good news – agencies and regulators are increasingly aware of these painful truths and, therefore, increasingly willing to discuss solutions. That was the message from Federal Energy Regulatory Commission Chairman Jon Wellinghoff during a briefing on Capitol Hill this week.
1. Falling load growth. Wellinghoff cited a recent study from the Brattle Group that confirms a 30-year trend of falling growth in energy usage. Today, the average growth is roughly 1% per year, down from the 5-10% common in the middle of the last century. And no, today’s anemic growth is not due just to the recession. It is an unstoppable result of our march to energy efficiency, as evidenced by LED lights, Net Zero buildings, variable speed motors, and more.
Most utilities make money by selling electrons. If they won’t be selling more electrons each year, they will have to figure out other ways to recover their fixed costs and finance operations and upgrades.
2. The Internet of Everything. You may prefer to call it Machine-to-Machine or you may prefer GE’s term, the Industrial Internet. But under any name the trend is sweeping over the electric power industry. We are embedding sensors, monitors and meters up and down the value chain, creating an end-to-end network where every device – including those on the customer side of the meter – is communicating. As a result, utilities are being forced to bring more IT skills and personnel to the OT (operational technology) side of the house.
3. Distributed generation. Wellinghoff told the story of vaunted venture capitalist Vinod Khosla, who recently stated he now only invests in “drop-in” power systems – that is, generation technology that can be installed on the customer side of the meter. (Examples include solar PV, co-generation and micro-turbines.) Wellinghoff also said that over the last six months, 41% of all new generation was from renewables, much of that distributed.
In short, Wellinghoff sees the Internet of Things and distributed generation as unstoppable trends that will require major readjustments by utilities. But, as we saw in point #1 above, they will have to find new ways to finance it without relying on load growth.