Utilities are an essential part of our clean energy future. Whether the future grid sees a rise in interconnected microgrids or centralized solar/wind/battery farms or a combination of both, the utilities’ wires and infrastructure are foundations upon which much of it will be built.
Navigating the fastest path to clean energy requires the active, engaged participation the world’s utilities. So, it is essential that we understand their constraints, their opportunities, and how they view the future.
Here in the Southeast, there are few better people to provide these insights than Paul Bowers. As the Chairman and CEO of Georgia Power, he is one of the most visible leaders in the power industry, both in the region and in the country. Paul joined Georgia Power’s parent, Southern Company, early in his career and has worked in a number of critical roles, including the overall CFO role for Southern Company.
When I asked Paul to help me understand how utilities like Georgia Power see the future of the grid and the electricity industry, he graciously offered to share his perspectives on some of the most strategic questions facing the industry today.
Bill: What do power companies look like in the next 20-25 years?
Paul: In the next 20-25 years, I envision the electric utility of the future to look much like the gas industry does, today, in the United States. That industry has been segmented and diversified by exploration and production, intra and interstate pipelines, local distribution, and end-use marketing. Through governmental deregulation, parts of our country’s electric grid resemble those segments, but those segments challenge the low-cost, reliable utility model by shifting risk and reward among the utility, the customer and third parties.
To drill down deeper, we know that two basic tenets of the electric business are perpetual: a kilowatt-hour is a fungible commodity and delivery is a utility service.
Today, utilities dominate the generation and delivery of this commodity. It is likely, however, that ownership, location, size and type of generation will morph significantly in the future. Therefore, it’s almost certain that smaller distributed generation units will play a significant role whether owned by customers or third-parties.
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The deregulated energy model of power generation and supply suffers when resource planning indicates incremental, large-scale, highly capital intensive, baseload generation is required. This is because long lead development and assurance of fixed costs recovery are requisites. For the most part, customers are essentially indifferent to generation ownership and, therefore, the traditional regulated utility has a vital future role in the development, ownership, and operation of “mega” generation plants. Those plants ensure reliability and price stability.
The delivery or “wires” business should also remain a utility service in future industry models. Any other model encourages duplicate facilities, which increases costs or stranded investment.
Additionally, as customers’ home and business buildouts increase in electrification needs, behind-the-meter services offer opportunities for utilities and third parties to generate future growth. From a customer’s perspective, the utility of the future may appear as a home services company, offering maintenance, repairs, security, leases and warranties, among other products and services.
I think we all know that customers enjoy options. As such, no longer is a kilowatt-hour at an average-delivered-price adequate or going to sustain the industry. Customers now choose from among traditional rates, time-of-use, off-peak/weekend, community solar, budget bill, flat bill, pay-by-day, and even flat pay-by-day options to secure electric services. Simply, utilities must transform to meet the changing needs of their customers.
(Paul and his team sent along this paper that outlines Southern Company’s strategy to address industry challenges.)
Bill: How will emerging technologies like solar, wind, batteries and distributed generation impact the grid?
Paul: The grid will continue to be the mainstay of electric service; it was designed for one-way energy flow from central station generation. However, utilities, customers, and third parties are now interconnecting distributed resources. Therefore, the grid must modernize to handle the resulting two-way, intermittent, decentralized network.
Enhanced communication, sensors, and edge-of-grid visualization capabilities must be incorporated for the grid to operate safely and reliably in the future. Additionally, distributed Energy Resource Management Systems will be required, and all system costs and benefits of future resources need to be evaluated during generation procurement.
Georgia Power and the Georgia Public Service Commission (PSC) recently adopted industry leading Behind-the-Meter Cost/Benefit Frameworks to ensure lowest cost resource additions. The particulars of this framework can be found on the PSC website.
Bill: What is needed to accelerate the smart grid and other digital technologies in the power industry?
Paul: Market value eventually decides technology winners. Fortunately, the power industry invests in research and development to accelerate the adoption of innovation, while allowing natural market forces to prevail. Hence, smart grid technologies should warrant innovative investment and constructive regulation.
Bill: How do we increase resiliency to avoid situations like Superstorm Sandy and Puerto Rico?
Paul: Mother Nature will always have the upper hand, so we must ask ourselves how can the industry better the odds?
In looking at the attached Commonwealth of Puerto Rico Energy Commission Resolution and Order dated October 27, 2017, which requested public comment on the utilization of distributed generation and microgrids to strengthen electric service, it’s suggested to localize generation to mitigate reliance on central station generation via long-range transmission.
Some may ask: why not install underground service? The issues with that suggestion are the infeasible cost and susceptibleness to storm surges. Again, better options than that are to have robust assets, vegetation management, investments in storm hardening where harsh weather exposure exists and grid automation enhancements that increase grid reliability and resiliency.
In addition to the above, a system with a resilient storm design, as well as proper storm planning, preparation, and disaster relief execution are the ways in which to ensure efficient and fast disaster recovery.
Bill: What are the benefits and challenges of the vertically integrated power company/business/regulatory model?
Paul: The regulated, publicly owned utility is the ideal entity for providing reliable electrical service to all customers at just and reasonable rates. Regulations exist to ensure costs are prudently incurred, customers pay appropriate costs for services rendered and that utilities remain financially viable. The 100-year electrification of America is the testament of this model’s superb performance.
The only facsimile in this capital-intensive industry is a government-owned entity; however, I argue that the inherent tensions in an investor owned, regulated utility creates – or incentivizes – the most efficient, reliable service. In such a model, all stake holders benefit: the utility by a franchise area and recovery of prudently incurred costs; the consumer by the utility’s obligation to serve, having a public voice in regulation and purchasing of a product based on cost versus value or market; and the investor by an acceptable risk adjusted return.
Certainly, challenges to any of these models – publically or governmentally owned – include long-range planning, which is dependent on load growth projections, fuel forecasts and technology advancements; access to capital markets; regulation evolution; and cultural ideological shifts.
I can’t thank Paul enough for taking the time to share his perspectives. It’s clear that Georgia Power sees the power industry landscape changing and they are very thoughtful about the roles that utilities can play in the coming decades.
Paul – what is your fact base for the benefits of mega generation listed in the following statement ” the traditional regulated utility has a vital future role in the development, ownership, and operation of “mega” generation plants. Those plants ensure reliability and price stability”?