If you look up the mission statement for most electric utilities, you’ll likely find something along the lines of “We provide safe, reliable, and affordable electricity.” This objective has remained much the same throughout most of the industry’s history. Yet, despite this clarity of mission, the electric utility industry is going through significant changes. Utilities have been striving to become the “Utility of the Future,” but the future is here. Utilities that understand the nature of these market changes and respond effectively, will position themselves to effectively compete as a New Age Utility.
What are some of the critical changes disrupting the electric utility industry? First, the industry is undergoing a fundamental shift from a centralized delivery model to a decentralized model. In the past, large central power plants were built to exploit economies of scale and produce electricity that was transmitted and delivered to utility customers (think hub and spoke). This model delivered economic power with decent reliability results. In this new age, incremental electricity generation is far more decentralized. It occurs on a distributed basis closer to the electricity consumers at a much smaller, localized scale. Distributed generation resources focus primarily on serving local load, but can also connect and disconnect from the utility’s distribution system.
Second, in North America most of the growth in incremental electricity generation is shifting from fossil fueled plants to renewables such as wind and solar. These renewables are often supported by energy storage technologies. This trend is driven by sustainability policies intended to lower greenhouse gas emissions and by a dramatic reduction in the $/kWh cost of renewable energy.
Third, utilities have historically focused on the production and delivery of electrons to its customer. In this new digital age utilities find themselves in the business of capturing, analyzing and delivering data. Operation of a utility’s infrastructure is becoming increasingly automated, dependent upon high speed delivery of secure, granular data to inform critical system processes. In this digital world, a premium is placed on reliability. One minute of lost electricity has the potential to disrupt the flow of power to customers for key functions such as heating, cooling, lighting, and mechanical energy, as well as interrupt massive flows of data for mission critical operations. A New Age Utility is now able to deliver standard power to the masses, but they can also offer large users with ala carte energy services. This new capability enhances their financial performance and their ability to serve the greater community.
Utility customers are both drivers and beneficiaries of industry changes and as a result, the electricity market is becoming highly customer-centric. Utilities may have thousands of customers, but most have a set of 100-200 large customers that comprise up to 50% of the utility’s overall demand requirement. These large customers seek electricity that is cost-effective now, and which will remain so over future planning horizons. They require more reliable electricity and quicker recovery from outages. They express preference around how their electricity is produced, with a requirement for higher levels of electricity to be produced from renewable sources. During their quest to achieve these objectives, utility customers are increasingly willing to own, operate or contract for distributed generation resources that are located at their facilities—-many captured within microgrids1.
In future blogs, I’ll dive deeper into why a new age utility should consider pursuing microgrid development opportunities. I’ll also share IPERC’s lessons learned in successfully working with utilities on deployed microgrid projects.
These changes affecting the utility industry are historic. They present great opportunity and challenge to utilities seeking success. Microgrids will surely be a key building block in this new age of the electricity industry.
1 The U.S. Department of Energy defines a microgrid as A group of interconnected loads and distributed energy resources with clearly defined electrical boundaries that acts as a single controllable entity with respect to the grid and can connect and disconnect from the grid to enable it to operate in both grid-connected or island mode