Finding Relevance For Energy Customers

Black & Veatch just released its sixth annual Strategic Directions in the U.S. Electric Utility Industry Report which reflects the opinions of energy utility executives, managers and technicians on a variety of topics.  The report is full of interesting insights but a few of the findings merit special mention for C&I energy customers.   The following highlights some key points then provides a brief discussion of their relevance to C&I companies.

1. For the second year in a row aging infrastructure was a top concern among respondents – Figure 4
2. More than half of survey participants believe rates will rise significantly due to renewables and regulatory compliance – Figure 8
3. Based on a trio of questions it is clear that there is still a huge disconnect between utilities and customers when it comes to the smart grid.
   1. Respondents believe that customers lack of interest and knowledge is the number one impediment to smart grid implementation – Figure 42; which is not surprising because”¦
   2.  Respondents generally agreed that the industry has not made a strong business case for smart grid – Figure 40; perhaps because”¦
   3. Customer-focused utility initiatives ranked second to last as a factor that motivates the industry to invest in new technology – Figure 37.

Aging Infrastructure

While an obsolete grid is not good news on its own, the fact that it ranked as the number one issue two years in a row is hopeful news for C&I energy customers.  Why?  Because it represents a shift toward issues that are of immediate concern to customers.  Most of the time, energy issues related to generation grab the headlines; such as: renewable energy, alternative fuel sources and plant retirements.    These issues are important to be sure but they all have a long term impact and can be anticipated in C&I business planning.  Conversely, catastrophic transmission and distribution outages can arise at any given moment and ongoing T&D bottlenecks already cost the U.S. economy between $25B and $180B annually.  Now that T&D issues rank as the top concern, there is a better chance the industry will feel the urgent need to take action.

Higher Commodity Prices

The prediction that commodity prices will significantly increase is significant for C&I energy customers because it flies in the face of conventional wisdom.  I know some customers who are operating under the impression that energy prices will stay relatively low and point to headlines about the slow economy and reports about abundant natural gas reserves as justification for their position.  I can understand their position because Ive also seen the news reports and blogs that have said as much.  But in my opinion, this interpretation reflects a superficial examination of the trends.  In addition to concerns about incorporating renewables and complying with regulatory issues, I believe there are other structural factors putting upward pressure on prices.

1. Demand Volatility –  While baseline demand may be lower in a slow economy, there is strong evidence that peak demand, the amount of energy required when system-wide usage is at its highest, continues to increase.  Last summer during an equally slow economy, four U.S. grid operators experienced record high levels for peak power demand. Since demand peaks influence about 20% of C&I energy spending, this is a key driver of higher prices.
2. Natural Gas Drilling Technology –  Some estimates indicate that because of new technology we can access enough natural gas to meet our countrys needs for a century.  But the reality is only about 10% of it is accessible with current technology and low prices that make it so attractive also discourage investment.  Developing new technology is costly and the low price of natural gas makes it hard to justify the investment needed to unlock the remaining reserves.

A Grid to Nowhere

In discussions about the smart grid I will sometimes refer to it as the “grid to nowhere.”  Ill save an in-depth exploration of this topic for another post, but Figures 37, 40 and especially 42 underscore why.   Building a smart grid without strong customer involvement is like building a bridge across a river without knowing whats on the opposite shore.  While the information shows some recognition on the part of the industry that they have done a poor job with customers (Figure 40) and that their failings in this area are impeding progress (Figure 42), it also suggests that this does not necessarily mean that they are ready to let this information influence action (Figure 37).

Overall, the points above have more to do with acknowledging rather than solving problems.  But I am an optimist and prefer to see the good news.  I’ve always believed the first step toward a solution is admitting there is a problem in the place. If nothing else these data points suggest that the first step has been taken.