Embracing utility transformation to achieve carbon reduction

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In the next decades, clean energy needs to become “what we do” rather than “something else we need to do”, argues SEPA President and CEO Julia Hamm.

For more than a century, electric utilities in the US have kept the lights on, powered our economy and created an engineering marvel in the US electric grid. Now, the electric utility industry is changing at a pace never seen before.

Looking back to the year 2000, the electric utility industry was very different from today’s industry. No meaningful grid-connected solar existed in the US, and a handful of players were conducting demonstration projects supported by grant funding. A 50kW solar project was considered massive in size, and the average cost for a residential system was $10 per watt. Renewable energy didn’t even make it into the EIA pie chart for US electricity generation sources.

Today, large-scale solar and wind are the lowest-cost resources in many states. Energy storage is a viable option in many applications, and technology advancements are allowing customers to take control of their electricity supply and demand. The overall US electricity generation portfolio is significantly cleaner, with coal usage dropping precipitously and carbon-free energy increasing to 40%. Electric utilities must take action to be ready for the next century. Falling clean energy costs, climate change concerns, extreme weather events, mounting pressure from investors, public policy, technology advancements, broader electrification, and evolving customer preferences are driving an industry-wide transformation to a more modern and carbon-free energy system. The COVID-19 pandemic has further accelerated the transformation by underscoring the need for stronger resilience and flexibility.

In response, utilities are reassessing longtime operational practices, shuffling their generation portfolios, increasing supply diversity and strengthening resilience measures. While this progress is promising and the technology advancements that have enabled it are impressive, most exciting is the wave of utility commitments to achieve 100% clean or carbon-free energy within the next two to three decades. We have crossed the tipping point for the utility transformation to clean energy.

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The US utility sector progresses towards clean and modern

Going beyond targets

Electric utilities are among the highest-profile, and highest-impact organisations setting carbon reduction targets, with the earliest commitments dating back over 15 years. According to the SEPA Utility Carbon Reduction Tracker, over 70 electric utilities and electric utility parent companies have adopted targets to reduce or eliminate carbon or GHG emissions by 2050 or sooner, representing 71% of metered US electric customers. While monitoring these commitments is important, of more interest is determining how organisations are progressing and what actions they should take to accelerate progress over the coming years.

To lead this effort, the Smart Electric Power Alliance (SEPA) recently completed a comprehensive, honest assessment of electric utilities’ progress on the path to a modern, carbon-free energy system. We call this project The Utility Transformation Challenge. SEPA conducted detailed surveys of over 130 US electric utilities to identify and analyse key differentiators between the leaders and all other participating utilities, as well as areas where significant improvement is needed.

Source: SEPA

Comprehensive transformation

What did SEPA learn? The journey to a clean and modern grid is challenging, complex and, in most cases, not fully charted. The transformation goes beyond clean energy resources. Utilities will need a comprehensive approach that touches all elements of their business and operations. Transformation to a clean and modern grid requires rethinking conventional perspectives of the generation supply mix.

The industry is reconsidering the strict delineation of resources into traditional baseload, intermediate and peaking buckets, in favour of a new view of enhanced grid flexibility. While conventional baseload generation is commonly associated with reliability, emerging evidence suggests that a portfolio of system resources ensures reliability. Customer side resources, including energy efficiency, demand response, DERs and other flexible technologies, will help maximise the scale and diversity of clean energy resources connected to the grid. Increased digitisation, automation and coordination will be key to cultivating a more interconnected, data-driven grid with expanded functionalities. As customer-sited DER penetration rises, utilities must confront the choice between incorporating those resources efficiently to benefit the grid, or losing access to the value provided by integrating, aggregating and optimising customer-sited DERs.

The industry is also expanding traditional transmission and distribution system planning by considering or incorporating non-wires alternatives, which can increase grid flexibility as a whole, while also delivering benefits to customers. Transportation electrification will be a massive opportunity for utilities, many of whom are planning and acting accordingly. Nearly all utilities have developed, or are developing, a strategic plan for transportation electrification. While some utilities view electric vehicles (EVs) solely as a means of boosting flat or declining electricity sales, this understates the potential of EVs and EV charging to balance an energy supply that is increasingly diverse, distributed and intermittent.

Customers will be increasingly at the forefront of the clean energy transition, with more opportunities to participate. Digital platforms allow for greater access and convenience for utility-customer interaction. Utilities are also updating traditional planning and strategy processes to include more proactive and comprehensive forms of stakeholder engagement around clean energy, grid modernisation, IRP and distribution planning, electrification, and regulatory models.

Utilities will need the support of a wide spectrum of stakeholders, including regulatory and governing authorities, customers, communities, advocacy and special-interest organisations, employees, suppliers and investors. Utilities are uniquely equipped to help all stakeholders fulfil their roles in realising the transformation throughout the grid, and ultimately throughout the economy.

Recommendations for Utilities as They Pursue Their Transformation. Source: SEPA

Culture is key

To succeed in this transformation, utilities need to make clean energy a visible, core element of their mission. Historically, utilities have focused on providing affordable, reliable, safe electricity for their customers and communities. Adding clean to this list of attributes is essential to integrating clean energy efforts into the mission, as well as the culture of the organisation, and orienting employees, customers and other stakeholders around clean energy goals Instilling clean energy focus throughout the utility culture aligns employees and increases the likelihood of reaching carbon reduction goals. If done successfully, carbon reduction efforts and organisational focus are much more likely to survive changes in corporate leadership, board governance or short-term crisis situations, such as a pandemic. The mission and culture of a utility, or most any company, are persistent and resilient.

How can utilities embrace the clean energy transformation as a core element of their mission and culture? Start by aligning executive incentive compensation with achievement of carbon reduction targets, and incorporate clean energy into individual and organizational goals, as appropriate, at every level and in each part of the team.

For utilities, clean energy needs to become “what we do” rather than “something else we need to do”.

The path forward

As exciting as the last 20 years have been in this industry, I am even more excited about what is yet to come. The electric grid has been named the greatest engineering achievement of the 20th century. I believe we will look back and name the transition to a carbon-free energy system the greatest transformation of the 21st century. Yet the world does not have the luxury of time on carbon reduction. We need to move quickly. For utilities, it starts with embracing change, and key to that change is anchoring their mission and culture in clean energy. As Bill Gates says, we always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten. So, will it take us until 2050 to get to a modern, carbon-free energy system? Only time will tell.

For more details about the SEPA Utility Transformation Challenge, visit: www.sepapower.org

About the author

Julia Hamm is a non-profit leader at the centre of the transformation underway in the electric power sector to a clean and modern energy future. For the past 20 years, she has been advising and collaborating with utilities, solution providers and government agencies on business models, grid modernization, and clean energy policies, strategies and programmes.