There’s been a lot of talk in the past couple of years about “disruption” to the long-established status quo in the electric utility and power generation sector. But I would argue that both terms in this latest “battle” are inflated.
Whether the issue is central station versus distributed generation (DG) or renewables versus fossil fuels, the future likely won’t declare clear winners and losers but something closer to frenemies (Google it).
The Status Quo Is Short-Lived
Even in the “traditional” utility industry, business and technology have seen major shifts over the past century. Technology and fuel availability are often the disruptive forces, as they are today with new and cheaper sources of both natural gas and renewable generation—plus all the digital tools that enable smarter grids and microgrids. But overall, on a capacity basis, nuclear energy was the most momentous fuel/technology change in the past 100 years.
Policy can also change how and where power is generated. The deluge of new and pending federal environmental regulations may seem unprecedented, but previous policies also had notable, sometimes widely swinging, consequences: The 1920 Federal Water Power Act encouraged hydropower development, while the 1978 Power Plant and Industrial Fuel Act (repealed in 1987) put restrictions on new plants fueled by oil or natural gas (because of concerns about national energy security) and encouraged those fueled by coal, nuclear, and alternative fuels. Today we take for granted that the U.S. is fully electrified, but that’s only because of the 1936 Rural Electrification Act, which provided federal loans (yes, they’ve been around that long) to encourage the building of distribution systems in rural areas.
Disruption Will Be Less Dramatic Than Billed
Industry outsiders (entrepreneurs and their venture capitalist pals) and minority players (including renewable energy developers) have reason to claim that their technologies and business models will end the stranglehold of familiar generation behemoths and distribution companies. It’s how they get attention for their ideas. Similarly, media and consulting companies promote in-person and virtual events to discuss disruption in the industry. Is all the noise about the D word just marketing hype? No.
Though knowledgeable people may disagree about the degree and speed of change ahead, there’s no question that the industry is already changing, so if it takes a bit of hyperbole to get everyone focused on what their future roles might be, that’s a good thing.
This issue of POWER has multiple articles on technologies, including new and cheaper modes of energy storage, that promise to change how electricity is generated and delivered. Also in this issue, Contributing Editor Kennedy Maize offers an article titled “David Crane and the Coming Utility Apocalypse” that looks at the hype and reality of increasing amounts of DG. As I was preparing that piece for production, I was struck by an irony buried in the now-familiar story of DG overtaking the traditional utility.
DG is typically thought of as small-scale, usually renewable generation that is under the control of the owner of a residential, commercial, or industrial site or—as is becoming more common—an aggregator or lessor of that generation. NRG CEO David Crane predicts a future in which these distributed energy resources (DER) partner with onsite natural gas–powered fuel cells for greater customer independence. However, he also envisions a super-utility—not a traditional utility, but nevertheless, one that he controls. Unlike most current scenarios that frame DG as something the utility doesn’t own, Crane wants NRG to own and control this DG. So, ultimately, he isn’t anti-utility; he has his eyes set on creating a new-fangled monster utility—albeit a distributed one.
To control DER, NRG (or like-minded utilities) would still need access to some sort of communications line—the gas pipeline won’t suffice—so a smart grid, or at least microgrid, infrastructure will still be essential.
In the meantime, NRG is building scale the old-fashioned way: On Apr. 1, with the acquisition of Edison Mission Energy and Dominion’s competitive retail electricity business, NRG became not only the largest U.S. independent power producer but also the second-largest generator overall, with a total of 53,000 MW of capacity. (That same week, other NRG executives were speaking at the ELECTRIC POWER Conference in New Orleans. See our coverage of that event in the next issue.)
As the articles on efforts in the United Kingdom and India to advance a low-carbon economy demonstrate, achieving that goal isn’t easy or fast, even with the latest technology innovations and aggressive policy support. Consequently, industry leaders globally agree that fossil fuels will continue to play a critical role in delivering reliable, affordable electrons for at least the next few decades.
Nevertheless, the nature and extent of change on both business model and generation source fronts is likely to be greater than what you might call incremental. And really, if you don’t expect your industry—any industry—to be affected by the larger shifts in technology and culture, you’re in denial. Google seems to announce some new digital device or service nearly every month, and in the space of a decade, Elon Musk (cofounder of the ambitious all-electric car maverick Tesla) has taken SpaceX from fantasy to reality and is now the only U.S. entity to send rockets into space (NASA is using SpaceX rockets to send astronauts to the International Space Station).
The question is whether today’s utilities and regulators will be sufficiently proactive to avoid being largely overtaken by young upstarts. It may be time to embrace the concept of frenemies. ■
— Gail Reitenbach, PhD is POWER’s editor (@GailReit, @POWERmagazine).