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Key Industry Trends for 2016
by Bob Shively, Enerdynamics President and Lead Instructor
In future years, we likely will look back on 2016 as a transformational year in the electric industry. Here a four key trends that in the coming year may move the industry toward a very different future:
1. Markets, regulators, and utilities get real about decarbonization of the power sector
In an unprecedented switch, the last several months of 2015 showed more generation in the U.S. fueled by natural gas than coal.
With numerous coal retirements and all indicators pointing to a long period of low-priced natural gas supply, it appears this will be a permanent shift. While natural gas is not a no-carbon source of electricity, it does reduce greenhouse gas emissions by at least 50% per MWh compared to coal. Meanwhile, output of non-hydro renewable sources continues to set records in the U.S., and this too will be an ongoing trend.
In 2016, we likely will see the first new nuclear reactor go into service in 20 years as TVA’s Watts Bar Unit 2 goes online. Construction will continue on four units (two in Georgia and two in South Carolina) although it will be 2019 before they begin coming online. And despite ongoing political posturing and court filings, most states are already working with utilities and interest groups to prepare initial plans to reduce power plant greenhouse gas emissions under the Clean Power Plan rules issued in 2015 by the Environmental Protection Agency (EPA). A likely outcome will be many states creating multi-state carbon cap-and-trade programs like the current Regional Greenhouse Gas Initiative (RGGI) and California/Quebec program. Once there is money to be made in decarbonizing generation, we're likely to see a new wave of innovation regardless of what happens with the current EPA rules.
2. Utilities can no longer ignore distributed resources
Distributed energy resources (DER) including distributed generation (DG), demand-side management (DSM), and distributed storage are poised for rapid growth. According to EIA data, distributed solar output through September 2015 grew by 29% over output to that point in 2014.
General Electric estimated that in 2012 39% of new capacity additions worldwide were distributed generation (DG). Meanwhile controllable loads have become an important resource and, according to the North American Electric Reliability Corporation (NERC), make up 5% of reliability capacity in the U.S. Distributed storage is also hitting the mainstream, most notably through a highly publicized announcement by Tesla but also with quieter roll-outs from other companies.
These resources will only grow as technologies become more advanced. In 2016 the cloud-connected smart home will see advances with new products rolled out by companies like Google and Apple, and others such as Microsoft and Amazon are not far behind.
While electric vehicles might be considered new demand, we include them as a resource because their ability to charge when power is most available makes them a new controllable load. In 2016, Chevy will introduce the Bolt with a 200-mile range and a $30,000 price point. Nissan will offer a new Leaf, and Tesla and other European manufacturers are expected to make additional announcements about lower-cost and longer-range vehicles. Even with low gasoline prices, government support in locations like car-heavy California will likely continue to boost EV growth.
Given these advancements in various technologies, all utilities will need to restructure their distribution planning to assume very different usage/production patterns by customers and rates will likely need to be redesigned to give the right signals to consumers.
3. Importance of rate cases and resource plans will increase
In many states, rate cases have not been required on regular intervals, and utilities have contently maintained current rate structures and levels. But with ongoing concerns about distributed resources coupled with capital needs for distribution modernization, most utilities will see the need to file rate cases if they haven’t already.
Meanwhile, utilities have historically considered only centralized resources in their resource plans and have treated distributed resources (DR) as a reduction in load. With the growth in DR, this likely won't result in optimal planning outcomes. Given the many issues associated with flat load growth, the need for capital spending, concerns about equity associated with distributed resources, and some regulators beginning to question the current utility business model, outcomes of current rate cases and resource plan filings may determine the future of business for many utilities.
4. Inexorable growth of competitive markets
An important yet little-known fact is that the amount of power bought and sold under competitive markets has continued to grow significantly in recent years. On the wholesale side, organized competitive markets have grown significantly through:
- MISO’s expansion into Arkansas, Louisiana, Mississippi, and eastern Texas, which brought an additional 50,000 MW of generation into MISO’s markets
- SPP’s expansion into six upper Midwest states that added 5,000 MW into SPP’s markets
- the growth of the Energy Imbalance Market in the west, which allows over 26,000 MW across eight states to participate in a real-time market run by the California ISO
Meanwhile usage by end-use customers buying their power directly from marketers has grown from less than 5% to close to 25% of total U.S. usage over the last decade. And in many regions, large customers continue to push for the rights to contract for their own power supply. Many non-traditional companies such as Google, Apple, Comcast, and AT&T are developing customer-focused services that chip away at the concept of utilities as the provider of energy services. Utilities must plan a business future that clearly defines a successful role for utilities in a world of multiple competing service providers.
So what does all this mean for the big picture of the industry?
In a recent publication, the Edison Foundation identified three long-term trends that they believe will drive a utility transformation:
- The transition to a clean energy future
- A more digital and distributed grid
- Individualized customer services
We agree, and we believe that the trends we've identified for 2016 will make it the year that a complete redefinition of the electric utility and its role begin to take shape.
Footnotes and references:
 Brandon Owens, The Rise of Distributed Power, available at: https://www.ge.com/sites/default/files/2014%2002%20Rise%20of%20Distributed%20Power.pdf
 http://www.nerc.com/pa/RAPA/ra/Reliability%20Assessments%20DL/2014LTRA_ERATTA.pdf calculated by going through each reliability council and totaling peak demand and demand response values
 See Key Trends Driving Change in the Electric Power Industry at http://www.edisonfoundation.net/iei/Documents/IEI_KeyTrendsDrivingChange_FINAL.pdf