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The future is tech enabled: Can utilities pivot?

Can the U.S. really become energy independent? Amy Myers Jaffe explains how and delves into three enabling technologies — battery storage, individual load management software, and voice activation programming — that will drive the future. An expert on global energy policy, Jaffe joins a lineup of visionary keynote speakers at the American Public Power Association's National Conference, June 16—21 in Orlando, Florida.

Can the U.S. really become energy independent? What will it take?

I do think we can become energy independent, and we have a lot of different ways we could accomplish that. We're probably already energy independent, come to think of it. We have so many resources, whether it's natural gas, coal, or renewables — so on the power side it's easy.

The challenge comes from our automotive industry. We have 350 million passenger cars in the U.S. and that doesn't even include the freight trucking fleet. What do we do to have to be 100 percent domestic? Or at least what we call "net domestic."

We're still importing 6—7 million barrels a day. Can we really eliminate that? Yes! There are some expectations that crude oil production rates in the U.S. from shale will continue to go up, especially with this new Administration trying to be pro-industry with an encouraging economic and regulatory environment.

It also helps that demand has been falling as our automobiles get more efficient, people in cities use ride sharing and we have new technologies. We can further prevent the growth in demand through technology and policy.

What role will electric vehicles play?

Use of EVs helps us lower oil demand. Because natural gas prices are so low — and are expected to stay low or even fall — and because the cost for renewables has also been dropping steadily through technology improvement and efficiency gains, over time the cost to the consumer of switching to electricity for their vehicle is going to fall. Batteries are getting cheaper, and solar energy is getting cheaper — there's a lot of momentum in that direction.

If you start to have self-driving vehicles, it's easier for those vehicles to be electric as they can go and charge themselves and come back, and no worries about what the driver does for 20 minutes while the vehicle is charging.

There's a lot of enabling technology that's going to move us in that direction. Having a very strong climate policy, like a carbon tax, could be supportive, but even without that I think there's enough technology drivers that make this a growth market.

Should electricity generation move away from traditional sources and look to newer technologies?

For utilities, the old idea where you had baseload supply that was inflexible — that couldn't go up and down — is not going to meet customer demand over time. Utilities are increasingly looking for more flexible generation. They're thinking about how to integrate renewables. They're exploring the rule for picking natural gas vs. say, battery storage. They're considering the role of software in optimizing time-of-day pricing.

You have these enabling technologies, but the regulation is lagging. Same thing with the self-driving cars and with electrification of vehicles. You'll be asking "Is my vehicle going to be part of my electricity solution for my home or my business? What am I going to do with those batteries that are in my car when I'm not driving around?"

How does the utility manage this extra load that's going to come from charging these vehicles, and what time of day are we going to do that, and how are we going to manage all that on top of the fact that the wind's only blowing at night, and so on and so forth.

There's a lot of change coming. There's been a lot of denying the idea that change is coming. "It's too complicated to think through, so we're just not going to think it through." But these enabling technologies, they're out there. And I think utilities are finding more and more that they're having to respond to these technologies, whether customers put them in their homes, or whether one state is changing regulation and now a neighboring state is interested in the same thing. Many states have renewable energy that they can't accommodate at certain times of day and might find it more efficient to trade electricity across state lines. So this idea that every state has its own regulations is starting to become kind of unwieldy.

There are many issues that need to be addressed. Saying, "Well no, we have to stay exactly as we were and we're just not going to use any of these new technologies or let any of our customers use these new technologies" does not seem like a plausible outcome.

What enabling technologies are you most excited about?

I think there will be three big technologies.

Battery storage is going to be big — at some point, if it starts to look economically competitive with natural gas peaking, that could be pretty game changing. If storage projects succeed, and the costs come down, the cost of revving up and revving down plants could be contained.

The second big enabling technology will be a software system to manage your individual load — to tell you when to take from the grid, when not to take from the grid. How to not have half of your building be too hot and half too cold.

The third big technology is voice activation programming at the residential level.

Is the new Administration poised to help us leverage enabling technologies?

It's an evolving thing, not just for this new Administration, but across the country for different state regulators and even businesses. For the first time in maybe the 30 years, industry is actually ahead of government. Industry is seeing these interesting opportunities for change.

The question is how do we find a balance between protecting the ratepayer, catering to these advances in technology, and thinking about how to have a stable and reliable grid infrastructure, not just two but ten years from now. We're still feeling our way.

This Administration is rightly putting a lot of emphasis on infrastructure, but it's important that we put in the right infrastructure and remain competitive with other economies like China and the EU that are putting forward advanced technologies.

Who are the innovative industry players?

It's across the board. We see some very innovative utilities. We see companies — whether automotive or energy — that are doing innovative things both on the finance side and on the product side. There are many different players today. You even see some fossil fuel companies doing innovative things. And, there are still many traditional utilities that don't want to see any changes and that are pushing for regulations that keep everything the same. But there's a lot of momentum pulling in different directions.

Look at Walmart. Who would've predicted 10 years ago that Walmart would announce they're going 100 percent renewable, and that they're trying to eliminate packaging waste? So it's not just fancy Google data centers, it's also middle America brands that are changing energy use.

Utilities talk about costs. And that's smart, because customers are focused on cost. But on the other hand, no one is looking to go back to a land line to lower their telephone bill. If you say, "Hey listen, I can get you out of your $700 smartphone bill and put a wire to your house and lower your telephone bill to $25 a month," how many people would take you up on that? I'm not saying everybody can afford a smartphone. But there are many customers out there that are desensitized to the price of having a smartphone because it's a superior technology that offers a lot of services.

And I think that when we look at mobility services — ride sharing, urban electric vehicles, Zipcars, cars that I can plug into my house, cars that run both on electricity and gasoline — they are all so convenient. Battery storage so I can have a solar panel on my house and store the electricity. Even if they're not cheaper than centralized coal-generated electricity, they're interesting because I get appealing services. And these things will become more affordable. The market is in a transition that's more complicated than all the players recognize.

Will customers as prosumers influence our being able to become energy independent?

I call it the "democratization of energy." In the market, ratepayers are looking for the lowest cost solutions.

But there are other kinds of services that are interesting people. For example, it's hard to set time-of-day pricing with the traditional thermostat, which is pretty hard to reprogram. But if you could walk into your house and tell your voice activated Amazon product, "Oh, change the temperature of this," and it could just do it, then people would turn their heat up and down a lot more. And you could say, "I'm going to bed. I'm setting my alarm for 6 am. Turn the heat up at 5:30."

I'm not going to use my television in the same way, so I'm not going to use my thermostat in the same way. There are all kinds of changes that could come at the household level.

We're getting leading indicators from the private sector, and as the technologies and software become available, people are going to want to use them. Those technologies are not political. They're being adopted in other markets and once they're perfected, they'll be launched in the U.S., regardless of what the political orientations are.

In Europe, they're saving two-thirds of electricity cost because they have a light bulb that actually collects light from the outside and pipes it into the interior of a building. Why wouldn't you adopt that? Why would you want to pay more for electricity?

In this greater push for independence, what is the role of the electric utility?

As consumers become more aware of what technologies are available to them, they will cease to be rate payers and they will become customers. It could be a long process. But it's going to change the industry over time.

Do customers see their utility as a go-to source for enabling technologies?

I think that people think that their utility is the problem, not the solution. People think about their utility when there's a storm and service stops. And then some other business comes to the customer and says, "We can solve this problem for you by giving you this other thing."

Are the utilities going to get out ahead of these businesses or not? Some utilities are thinking there might be an advantage to adventuring with some of these technology companies, and to treating their customers as customers and not as ratepayers.

Just like the music and movie industries — a movie made by Amazon won an Academy Award this year — who you're competing with in energy is dramatically changing. Suppliers are the competition. GE has Current, and utilities have to worry about what car companies are doing.

Do you see a future for utilities? What might their role be in this evolving scenario?

I don't know. Even here in California where we keep trying to tinker at the edge of the rules, I see the utilities are unable to pivot. They're having trouble pivoting. New players are going to sort of siphon off some profitable new markets, and the utility is going to be left with lost sales.

Many energy companies have been slow to adapt. I saw a presentation on fossil fuels and was struck by how a certain oil company was completely wrong with their forecasts on solar energy adoption for ten years but did not change how they were doing things! When you're wrong that many years in a row, when do you start to say "I'm not analyzing this correctly."

So it's hard for me to anticipate who those players are that are going to be able to step out and say, "My business model is not working so I'm going to a different model."

It's so far proven to be difficult for the leadership in most utilities to not only recognize what changes are coming, but to grapple with what the pivot would be to respond to them.

You have some players that don't even recognize that things are changing or that these technologies will hit. And then you have other players that maybe recognize that, but they're just really at a loss for how to respond. And nothing's happening quickly.

Utilities think it'll be business as usual because people still need to be connected to the grid. But you have all these new products coming out and all these capabilities evolving, and the grid is unable to respond.