Forbes.com: The Utilities: Under Siege
In the past year, much has been written by various analysts concerning the risk to the utilities of declining sales volumes as a consequence of numerous factors, especially on-site solar. Every time a solar panel goes onto a roof, sales volumes decline. In May, Barclays downgraded the entire U.S. utility sector to underweight, focusing on the threat of on-site solar and the potential for storage as well. The Barclays analysts commented:
In the 100+ year history of the electric utility industry, there has never before been a truly cost-competitive substitute available for grid power. We believe that solar + storage could reconfigure the organization and regulation of the electric power business over the coming decade.
But it’s not just solar power that utilities need to be concerned about. Each time an LED bulb supplants an incandescent, sales volumes for that application of illumination drop by 70 or 80%. A similar dynamic applies with efficient appliances and other measures.
Innovation And Disruption Is The New Normal
To some extent, we are developing a nascent trend of substituting commodities with intelligence and improved technologies. And that is a good thing. As a society, we want that to happen. To some extent, it has to happen if we are to successfully get out of this climate change box we have created and create space on this planet for another three billion souls. It also makes us more economically competitive and frees up capital for other uses.
And yet, if utility sales dry up too quickly and companies go into free-fall, as has happened in Germany where the utilities lost half a trillion Euros in market capitalization, that is not necessarily a good thing. Innovation and disruption may be beneficial, but the pace of change matters.
However, disruption and innovation can also involve shifts that move benefits and losses from one industry to another. And if the electric industry can steal from the petroleum industry by vastly increasing the number of EVs, perhaps everybody wins except for the oil exporters (whom we are generally not so fond of anyway).
Could A Wholesale Shift To Electric Vehicles Save The Day?
The Edison Electric Institute (EEI) just came out with areport extolling the virtues of electric vehicles (EVs), and arguing for their rapid adoption in order to maintain sales volumes and restore health to a threatened industry. EEI states that “electrification is our biggest opportunity.” The Institute comments in the report that 93% of energy in the transportation industry today comes from petroleum, and that electrification of the transportation fleet could benefit the economy and the environment, while offering utilities new opportunities to engage their customers.
Against the backdrop of slowing growth in the electric power industry, bringing electricity to the transportation sector is a huge, albeit long-term opportunity for load growth.”
In one sense, you would think that this is obvious, but you would not know it yet by the actions of the utilities themselves: to date only 1.7% of the vehicles purchased for the utility fleets in the past five years have been electric. So much for eating one’s own dog food.
The good news is that this dynamic can change quickly, if the will is there. EEI comments that over 200,000 plug-in EVs are currently on the road. Last year, approximately 96,000 plug-in EVs were sold in the U.S. and we are on track to increase that number by approximately one-third in 2014. It seems as if every manufacturer is now offering a model: even Mercedes Benz just started taking orders for its S500 model (for $146,000 you get the equivalent of 442 hp equivalent, can accelerate from 0-60 in 5.2 seconds, and reach a top speed of about 155 mph).
It’s not just cars, either. Electric pick-ups and service trucks offer superior performance, while school buses would have distinct advantages over their diesel brethren, according to a recent University of Delaware study.
As far as vehicles specifically dedicated to the service of electric utilities, EEI cites a number of benefits from an electrification, including:
Reduced operating costs over the vehicle lifetime
Extended lives based on mechanical simplicity
Improved crew safety through noise reduction
Extended work hours in areas where noise restrictions would otherwise be a limiting factor
Enhanced brand image
EVs Bring Other Valuable And Capabilities To The Electric Power Grid
And then there is the potential value of being able to use electric batteries to provide services to the grid, such as shifting demand to when it can be best accommodated -usually to off-peak hours – and providing other services which enhance grid reliability (such things as frequency modulation and voltage regulation).
EEI notes that plug in hybrids with a liquid fuel and battery combination (set up in the same way as the Chevy Volt) serve another potentially useful purpose. A utility service vehicle with this type of architecture could provide ‘exportable power.’ That is, they could essentially serve as mobile generators on wheels – providing as much as 125 kilowatts of power which could be delivered right to the distribution grid. The first such ‘Class 5’ vehicle will be in testing by the end of this year, with Pacific Gas & Electric working to develop the appropriate interfaces and protocols relative to safety.
Time To Plug It In And Get Going
U.S. electric utilities need to find new sources for electricity demand. With batteries that can store a day or more of typical household electricity use, (the largest Tesla battery, at 85 kWh, can store the equivalent of four days of average household use) EV’s can clearly suck up a good deal of juice. If adopted in large numbers, EVs could help offset declining power demand.
The utilities also need to find ways to increase adoption of renewable energy sources, particularly solar power. Properly coordinated, and with intelligent and market-aware software, EVs can represent a critical storage component to the grid, facilitating the integration of more renewable energy. Finally, as noted, electric vehicles have numerous advantages that are specifically of value to the utility industry.
U.S. utilities are under a lot of pressure in this new and disruptive world they now find themselves in. If they are suitably forward looking and take advantage of the opportunities, they could become proactive agents of disruption and positive change. They probably don;t have much choice in the matter.
The EEI study puts it bluntly:
The bottom line is that the electric utility industry needs the electrification of the transportation sector to remain viable and sustainable in the long term. While the market has started moving in this direction and the technology has been proven, there is still more to be done. .. Electrifying our own fleets is an important first step in moving the industry forward.
To that end, The Edison Electric Institute is laying down a challenge, asking each of its member utilities to spend 5% of its annual fleet purchases on plug-in vehicles. OPEC’s probably not worried yet. Maybe it should be…
In the past year, much has been written by various analysts concerning the risk to the utilities of declining sales volumes as a consequence of numerous factors, especially on-site solar. Every time a solar panel goes onto a roof, sales volumes decline. In May, Barclays downgraded the entire U.S. utility sector to underweight, focusing on the threat of on-site solar and the potential for storage as well. The Barclays analysts commented:
In the 100+ year history of the electric utility industry, there has never before been a truly cost-competitive substitute available for grid power. We believe that solar + storage could reconfigure the organization and regulation of the electric power business over the coming decade.
But it’s not just solar power that utilities need to be concerned about. Each time an LED bulb supplants an incandescent, sales volumes for that application of illumination drop by 70 or 80%. A similar dynamic applies with efficient appliances and other measures.
Innovation And Disruption Is The New Normal
To some extent, we are developing a nascent trend of substituting commodities with intelligence and improved technologies. And that is a good thing. As a society, we want that to happen. To some extent, it has to happen if we are to successfully get out of this climate change box we have created and create space on this planet for another three billion souls. It also makes us more economically competitive and frees up capital for other uses.
And yet, if utility sales dry up too quickly and companies go into free-fall, as has happened in Germany where the utilities lost half a trillion Euros in market capitalization, that is not necessarily a good thing. Innovation and disruption may be beneficial, but the pace of change matters.
However, disruption and innovation can also involve shifts that move benefits and losses from one industry to another. And if the electric industry can steal from the petroleum industry by vastly increasing the number of EVs, perhaps everybody wins except for the oil exporters (whom we are generally not so fond of anyway).
Could A Wholesale Shift To Electric Vehicles Save The Day?
The Edison Electric Institute (EEI) just came out with areport extolling the virtues of electric vehicles (EVs), and arguing for their rapid adoption in order to maintain sales volumes and restore health to a threatened industry. EEI states that “electrification is our biggest opportunity.” The Institute comments in the report that 93% of energy in the transportation industry today comes from petroleum, and that electrification of the transportation fleet could benefit the economy and the environment, while offering utilities new opportunities to engage their customers.
Against the backdrop of slowing growth in the electric power industry, bringing electricity to the transportation sector is a huge, albeit long-term opportunity for load growth.”
In one sense, you would think that this is obvious, but you would not know it yet by the actions of the utilities themselves: to date only 1.7% of the vehicles purchased for the utility fleets in the past five years have been electric. So much for eating one’s own dog food.
The good news is that this dynamic can change quickly, if the will is there. EEI comments that over 200,000 plug-in EVs are currently on the road. Last year, approximately 96,000 plug-in EVs were sold in the U.S. and we are on track to increase that number by approximately one-third in 2014. It seems as if every manufacturer is now offering a model: even Mercedes Benz just started taking orders for its S500 model (for $146,000 you get the equivalent of 442 hp equivalent, can accelerate from 0-60 in 5.2 seconds, and reach a top speed of about 155 mph).
It’s not just cars, either. Electric pick-ups and service trucks offer superior performance, while school buses would have distinct advantages over their diesel brethren, according to a recent University of Delaware study.
As far as vehicles specifically dedicated to the service of electric utilities, EEI cites a number of benefits from an electrification, including:
Reduced operating costs over the vehicle lifetime
Extended lives based on mechanical simplicity
Improved crew safety through noise reduction
Extended work hours in areas where noise restrictions would otherwise be a limiting factor
Enhanced brand image
EVs Bring Other Valuable And Capabilities To The Electric Power Grid
And then there is the potential value of being able to use electric batteries to provide services to the grid, such as shifting demand to when it can be best accommodated -usually to off-peak hours – and providing other services which enhance grid reliability (such things as frequency modulation and voltage regulation).
EEI notes that plug in hybrids with a liquid fuel and battery combination (set up in the same way as the Chevy Volt) serve another potentially useful purpose. A utility service vehicle with this type of architecture could provide ‘exportable power.’ That is, they could essentially serve as mobile generators on wheels – providing as much as 125 kilowatts of power which could be delivered right to the distribution grid. The first such ‘Class 5’ vehicle will be in testing by the end of this year, with Pacific Gas & Electric working to develop the appropriate interfaces and protocols relative to safety.
Time To Plug It In And Get Going
U.S. electric utilities need to find new sources for electricity demand. With batteries that can store a day or more of typical household electricity use, (the largest Tesla battery, at 85 kWh, can store the equivalent of four days of average household use) EV’s can clearly suck up a good deal of juice. If adopted in large numbers, EVs could help offset declining power demand.
The utilities also need to find ways to increase adoption of renewable energy sources, particularly solar power. Properly coordinated, and with intelligent and market-aware software, EVs can represent a critical storage component to the grid, facilitating the integration of more renewable energy. Finally, as noted, electric vehicles have numerous advantages that are specifically of value to the utility industry.
U.S. utilities are under a lot of pressure in this new and disruptive world they now find themselves in. If they are suitably forward looking and take advantage of the opportunities, they could become proactive agents of disruption and positive change. They probably don;t have much choice in the matter.
The EEI study puts it bluntly:
The bottom line is that the electric utility industry needs the electrification of the transportation sector to remain viable and sustainable in the long term. While the market has started moving in this direction and the technology has been proven, there is still more to be done. .. Electrifying our own fleets is an important first step in moving the industry forward.
To that end, The Edison Electric Institute is laying down a challenge, asking each of its member utilities to spend 5% of its annual fleet purchases on plug-in vehicles. OPEC’s probably not worried yet. Maybe it should be…
