Electric Utilities and the Electrical Grid are the Platform to Decarbonize the entire U.S. Economy
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- Oct 29, 2020 9:00 am GMTOct 29, 2020 1:49 am GMT
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Decarbonizing the US economy is no mean task: getting to net-zero carbon emissions will require large scale electrification and rapid and widespread deployment of clean energy resources and massive energy efficiency improvements across all energy-intensive sectors. The best platform for success in this critical endeavor is our nation’s existing electric grid, operated by electric utilities from coast to coast that range in size from behemoth to tiny. By taking the existing regulatory compact for utilities to deliver affordable and reliable electricity, and building it out to allow the grid to be used as the catalyst for decarbonizing the U.S. economy, the utility industry will be “unleashed” to help drive new technologies, products and software across not just the power sector, but also and critically, within the buildings and transportation sectors.
The history of the electric utility industry in the U.S. is one of constant, if largely invisible to the public, change. The transformation has been masked because the utility industry has done a great job of continuing to honor and meet the original, early 20th century compact to provide reliable and affordable electricity to all, while adding to that critical service the ability to meet laws and regulations over the past three decades that compelled utilities to address air pollution emissions from power plants, then to deploy renewable energy resources and energy efficiency to meet electric demand. The evolution of the utility industry since the 1980’s has reaped great benefits to the U.S.; 41 states have decoupled economic growth from growth in energy demand through energy efficiency improvements. Energy efficiency has galvanized U.S. energy productivity -- that is the amount of GDP created by each unit of energy consumed -- to improve by over 100%, pumping $800 billion or more back into our economy. The result of this monumental shift has been a lowering of greenhouse gas emissions and a flattening of electricity use even as the economy has flourished. But now, with the growing number of mandates and commitments to decarbonize the U.S. economy by 2050, which come at a time when technologies and products also are emerging at a head-spinning pace, utilities find themselves in the midst not of an evolution, but one of revolution.
15 states and the District of Columbia, representing 28% of U.S. electricity demand, already have official commitments to reduce carbon emissions by 50% or more. And, 38 of the largest investor-owned utilities have decarbonization commitments in place. But, getting to carbon neutrality requires not only a revolution within the utility industry itself, but also a fundamental transformation of our transportation and buildings, which together represent fully one-half of the greenhouse emissions in the U.S. With the advent of new technologies, products and services, the utility industry’s revolution will make it possible to affect the changes necessary -- electrification of buildings and transportation systems, as well as use of these sectors to generate and/or store electric power cleanly and affordably.
To capture the technical expertise and innovation that are hallmarks of the utility sector and to most efficiently decarbonize, the country will need to move to outcome performance-based regulatory compacts that will allow utilities to create and manage load from both behind and in front of the meter. A hybrid regulatory compact is required: one that continues the original tenet for utilities to provide affordable and reliable electric energy but adds new mechanisms and incentives to drive mass adoption of clean, low-cost and energy-producing and energy-saving technologies and to optimize the power grid to improve its resiliency and security. This is materially different than the current patchwork of state and local regulatory frameworks that require utilities to meet portions of their demand with renewable energy and/or demand response and energy efficiency, thereby limit holistic, integrated approaches to optimizing grid performance while decarbonizing. With decarbonization as an overarching regulatory outcome alongside reliability, affordability and resiliency, we will have the best chance of getting to the “holy grail” of net-zero carbon emissions; without such a hybrid compact, it’s hard to see the path forward to achieving this goal.
New regulatory designs by FERC and various states are moving in this direction. For example, by allowing for the use of Virtual Power Plants (VPPs) to meet electricity demand, buildings no longer will just consume energy, they also can “generate it”. With more than one-half of the homes and commercial buildings in the U.S. having been built before 1980 and this sector representing fully 75% of electricity use, there are enormous opportunities for cutting the energy waste from them and/or using them as distributed energy resources (DER). While there remains some skepticism in the utility industry about VPPs, it relates to operational certainty more than the technology itself. As the lines blur between management of behind the meter and utility-owned assets and between local distribution and the bulk electric system, it is imperative that the future ecosystem allows for utilities to have operational control and coordination across traditional boundaries.
Some utilities already have begun to move from traditional business models to new ones that seek to address customer, policy maker and shareholder demands for greater control, better and more services, and cleaner, cheaper and more reliable energy. For example, a recent survey by Deloitte found that nearly one-half of the utility executives surveyed already have adopted as their top goal the implementation of a holistic digital initiative to allow them to manage the distribution and generation (including DER) optimally.
As utilities move toward grid optimization and embrace carbon reduction goals, it is imperative that the grid be operated as an integrated and interconnected network. Building elastic flexibility into the grid is key to achieving overall system flexibility which is critical to the utility industry’s ability to integrate more large utility-scale and aggregated DER generation; spur large-scale electrification of the buildings and transportation sectors; and, to drive massive energy efficiency. Real time control and optimization of DER generation and energy storage, combined with real time intelligent load management, will allow for dynamic and adaptive site load shaping. Utilities must be able to rely on DER generation, flexible demand management and energy efficiency just as they do on traditional energy assets, both of which need to be managed holistically and cohesively, and in real-time, whether they are behind or in front of the meter.
We are at the front-end of the transformation that is occurring in the utility industry. And, if the industry and its regulators can move quickly from business and operating models that change the focus from disconnected and siloed deployment of renewable energy, and/or energy storage, and/or energy efficiency, and/or electric vehicles and/or demand response, to a focus on integrating and dynamically optimizing all of these resources onto the grid, we can decarbonize the U.S. economy while continuing to have reliable, affordable, secure and resilient electric power for all. Insuring that the industry navigates this future successfully is the key, critical component to staving off the worst impacts of climate change.