Electric power expert talks about the changing business model of utilities

In this age of smart grids and electrified transportation, the role of electric utilities is going through widespread change. Two news stories on major utilities this month offer a look at the new landscape. Pacific Gas & Electric (PG&E) submitted a proposal to the California Public Utilities Commission asking for permission to build 25,000 new charging stations for electric vehicles in its Northern California territory. Duke Energy has made a $225 million investment in REC Solaelectric power generation at nightr for a majority stake in the commercial solar company.

What’s behind these moves? Green Auto Market spoke with utility expert Dr. Peter Fox-Penner, author of Smart Power: Climate Change, the Smart Grid, and the Future of Electric Utilities, for more perspectives on these issues. Dr. Fox-Penner, principal of The Brattle Group, has also served as a senior official in the U.S. Department of Energy and the White House Office of Science and Technology Policy.

Economic conditions are changing for utilities with much of it based on two market factors, Fox-Penner said. While electricity prices went up in recent years, utility bills are stabilizing. Supporting energy efficiency (and producing less electricity) is becoming common now for utilities as well. Investing in new segments such as charging stations and solar power would also offer additional revenue streams and profit centers for utilities. All of this means that utilities are looking at new channels for growth – and not all of it will be as tightly regulated by public utility commissions, he said.

Areas of growth for utilities include offering more energy efficiency services, demand response services, and development of smart grids, Fox-Penner said. “Grid resilience” is now a buzzword in the industry, he said, with demand response offering users more stability in pricing during periods of peak demand; or at other times when reliability of the grid is threatened – with Hurricane Sandy offering an example of how volatile conditions can become.

Smart grid systems allow end users to have more control of energy use in their homes and commercial properties. That can come through new technologies like measurement sensors, computing, micro-generation, and geothermal heat pumps, Fox-Penner said. Converting over to the smart grid will take quite a few years, he said. The Eastern US has quite a lot of decades-old copper wire that does need to be replaced. There are also several aging distribution systems in the US that will take decades to replace, he said.

Generating electricity through renewable energy sources like solar, wind, and hydro, is a big part of the environment shaping the future of utilities. California and other states have ambitious targets in place. Renewables do benefit from having access to energy storage through electric vehicle batteries and stationary storage units to address intermittent conditions – but they’re not necessary for renewables to succeed. “Certain standards can be met even without battery storage by integrating traditional energy with renewables,” Fox-Penner said. “Europe is doing it without much battery storage.”

Concern over climate change is helping renewable energy see growth, he said. “There’s been enormous growth in wind power, and coal has trended downward,” Fox-Penner said.  Not long ago, coal powered 55% of US electricity and lately it’s hovered around 45%. Natural gas is the other fastest growing source of power with wind.

Solar still doesn’t make up much of the total supply, but it is “growing at a healthy clip,” he said. Nuclear makes up about 20% of electricity produced in the US with that coming from aging plants. We could see nuclear go away in the next 10-to-20 years, Fox-Penner said.