Utility roles are changing rapidly, and the utility of the future will need to be ready for a much more diversified, secure, and decentralized grid. That was one message at the Minnesota Utility Investors (MUI) 23rd Annual Meeting in Brooklyn Center, Minn., this week.
MUI is a grassroots organization representing the interests of individuals and business investors who own shares in utility companies operating in Minnesota. According to Annette P. Henkel, president and CEO of MUI, the group is the largest of its kind in the country. Approximately 550 people attended the meeting, but the group reports to have nearly 27,000 members nationwide.
During the meeting, Alan R. Hodnik, chairman, president, and CEO of ALLETE Inc., spoke about his company’s “Energy Forward” resource plan, which will move its generation portfolio from a 95% coal profile to a more balanced energy supply of one-third natural gas, one-third renewables, and one-third coal by 2020. “Being a 95% coal company is probably not where we want to be from either a risk or strategic positioning perspective.”
As part of the plan, ALLETE intends to invest $350 million on a scrubber for the back end of its coal-fired 600-MW Boswell Unit 4. The company intends to continue operating its largest units, Boswell Unit 3 and Unit 4, and over time phase out its small units or convert them to natural gas.
Dr. John Caldwell, director of economics at the Edison Electric Institute, noted that the big issue going forward is the environment. “Our industry is facing an avalanche of environmental regulations, principally from the EPA.” He indicated that New Source Performance Standards make it virtually impossible to build a new coal-fired plant using current technology.
Although dealing with environmental regulations will be difficult, it is far from the only challenge. Electric grid modernization is also a major issue. An overhaul of the grid is necessary for several reasons.
First, power outages have become longer and more frequent due to a combination of things, such as aging infrastructure, the increasing severity of storms, and a more concentrated population, which causes each outage to have wider implications. Second, renewable portfolio standards are driving the development of wind and solar technologies, which are decentralized sources of power. Finally, energy autonomy is leading to more and more individuals and commercial industries that are self-generating. Even the Department of Defense is working on micro-grids, which allows it to cut off the system from the utility for security reasons.
“What all of this is doing,” Caldwell said, “is essentially creating a more multi-nodal grid rather than the traditional central power station grid.” The result is that the utility is moving from an environment where it was the main provider of electricity to a “transactional grid” in which multiple independent sources supply power.
The grid of tomorrow will need to be much more sophisticated, Caldwell explained. It will require significant information technology with powerful computers and advanced communication systems. Along with the increase in technology comes a need for tighter cybersecurity, which is another challenge for the industry.
Replacing and upgrading systems is expensive. The utility industry is projected to invest $75 billion to $100 billion per year through 2028 on transmission and distribution improvements and generation upgrades. Making these expenditures even more difficult is the fact that electricity sales growth has been decreasing for at least the past 60 years, to a sales growth rate of less than 1% today. Caldwell cited some studies that suggested, “If all of the energy efficiency programs are put in place that could be put in place [the industry] could be looking at a flat sales environment or a declining sales environment.”
In Caldwell’s most likely scenario over the next 10 years, “The utility is going to have to redefine its role and its business model. It will have to become something more like a network administrator rather than a central provider.” While this could provide a lot of opportunities for the industry, it will require re-thinking strategies to take advantage of the changes.
In the end, change seemed to be at least part of the theme presented by all of the speakers. Change in environmental standards, change in fuel sources away from coal and toward the cleaner natural gas and renewable sectors, change in the electrical grid, and change in customer preferences and expectations. Time will tell how things play out, but it seems clear that the future will be a time of change for the electric utility industry.
— Aaron Larson, associate editor, (@POWERmagazine, @AaronL_Power)