COMPASS MAGAZINE #10
COMPASS MAGAZINE #10

ENERGY, PROCESS & UTILITIES FAST MOVING ENERGY : Market trends force the slow-moving energy industry to accelerate its pace

Critics have long predicted that pollution, resource depletion or a major nuclear accident would lead to the extinction of power generated with coal, oil, natural gas and uranium.

To date, those predictions have not come true. Instead, market forces are edging out fossil fuel and nuclear-powered plants, which take too long to site, permit and build in a rapidly evolving energy market.

Johannes Teyssen believes a Bavarian farmer should be able to store excess solar power in the battery of his electric BMW and sell it back to the grid when prices are high, or set his electric washing machine to do laundry when information from the Internet of Everything tells it that power prices are low.

Which helps explain why Teyssen, chief executive of E.ON, Germany’s largest utility company, announced a bold plan in November 2014 to spin off the utility’s core nuclear and fossil fuels power generation and distribution businesses. The divestiture didn’t come because these power sources are dangerous or polluting, which critics have long predicted would be their undoing, but because they are no longer competitive in a fast-moving energy market. With the revenues generated by the sales, Teyssen is focusing instead on “customer solutions” – smart meters, consulting services and renewable energy distribution.

DISTRIBUTED GENERATION

Analysts call it the “distribution edge,” the interface between electrical distribution systems operated by utilities and a growing array of control systems and energy management technologies controlled by consumers. E.ON calls it the best place to compete in a fast-changing energy market.

“It’s a very dynamic time in an industry not known for its dynamism,” said Andrew Spitzer, a capital and acquisitions advisor at US-based Harris Williams & Company. “How utilities react to that is going to be really interesting to watch. The power industry until now has been fairly stodgy and slow to adjust.”

“It’s a very dynamic time in an industry not known for its dynamism.”

ANDREW SPITZER CAPITAL AND ACQUISITIONS ADVISOR, HARRIS WILLIAMS & COMPANY

But a slow-moving energy industry is a trend that is rapidly changing. Improving distributed-energy technologies, carbon regulation, Internet-linked smart grids and shifting global investment strategies that favor renewable energy sources have changed the playing field for established fossil- and nuclear-fuel utility companies.

So has the entry of high-profile new players like Google and Apple, high-tech companies that are moving to monetize megawatts. In 2014, for example, Google purchased Nest Labs, which makes home thermostats that connect to the Internet to manage energy usage. Boston-based EnerNOC, an energy intelligence software company, purchased Canadian startup Pulse Energy to help customers save power by analyzing usage data. Apple’s Home Kit targets energy-demand management in homes and businesses.

THE NEW ENERGY PLAYBOOK

Rules that govern energy markets also are changing in response to new players trading in new commodities. These rules cover protocols, legal rights and pricing terms as well as objective, clearly defined cost allocations. As the rules change, utilities and regulators are beginning to experiment with novel business models and market platforms.

Pilot programs in Denmark and the Netherlands, for example, are demonstrating peer-based energy grids that transact through local energy markets in near-real time. Programs in both countries leverage micro combined heat and power (CHP) equipment, smart appliances, smart meters, electric vehicles and rooftop solar arrays. A market platform software system balances supply and demand in distributed clusters.

In Germany, the United Kingdom and New Zealand, meanwhile, regulators are experimenting with new forms of pricing and incentives to lower distribution-system costs. The US city of Austin, Texas, adopted a solar tariff designed to reflect the net value of distributing solar power to the grid, including impacts on line losses, generation capacity, transmission and distribution capacity and environmental benefits.

While many Europeans have been able to shop different electric suppliers for years, competitive power is a relatively new phenomenon in the United States, where more than 13 million electricity customers – from a total US population of 320 million – in 24 states are now served in regulated but competitive retail power markets. Those markets, according to the Rocky Mountain Institute, a nonprofit research and educational foundation that aims to foster efficient and sustainable use of resources, “could provide the platform for distributed resources to conduct value-based transactions over the grid, given appropriate regulatory incentives.” In other words, a system that allows information, power and transactions to flow in many directions among several actors with different roles, all of which influence power generation, delivery, consumption, energy prices, power quality, and grid reliability – assuming governments balance costs among all parties through new rate policies, regulations and incentives.

NEW KIDS ON THE BLOCK

For now, observers admit, alternative energies are getting some benefit just for being new.

“What’s not being priced into the cost of energy is a strong backbone, the infrastructure for reliable power when the clouds come and the wind stops blowing,” said Andrew Sowder, senior technical leader in the Advanced Nuclear Technology Program of the non-profit US-based Electric Power Research Institute (EPRI). “With renewable energy, you still have to be concerned about the quality of power, and that gets to storage technology – batteries. Fuel cell and battery technology are improving. It’s reasonable to expect that will continue over time, and that’s what investors have to gamble on. Maybe you’re betting on that, but what if that doesn’t happen?”

“What’s not being priced into the cost of energy is a strong backbone, the infrastructure for reliable power when the clouds come and the wind stops blowing.”

ANDREW SOWDER SENIOR TECHNICAL LEADER, ADVANCED NUCLEAR TECHNOLOGY PROGRAM, ELECTRIC POWER RESEARCH INSTITUTE

In such a scenario, Sowder said, traditional utilities such as nuclear and coal could serve as a hedge against volatility in renewable energy generation.

The bigger challenge for utilities in today’s rapidly transforming energy industry goes beyond technology, Sowder said; utilities must step up to lead the energy transformation – or stand by as the markets do it without them. “The challenge is getting interest from the right people with the right risk appetite,” he said. “There has to be the pull from the commercial side. That’s a business case for utilities.”

by Dan Headrick Back to top