The energy industry is going through a tremendous transformation. We used to have a pretty good idea of what future needs would be. We would build assets that would last decades and that would be sure to cover those needs. That world has ended. Our strategy is now centered around agility and flexibility, based on our inability to predict or prescribe what our customers are going to want.‖
That is what Steve Holliday, CEO of National Grid, the company that operates the gas and power transmission networks in the UK and in the northeastern US, said in an interview with World Energy Focus. Not particularly new.
But then he went on to say that he believes the idea of using large coal-fired or nuclear power stations for baseload power is ―outdated.
―From a consumer’s point of view, the solar on the rooftop is going to be the baseload. Centralized power stations will be increasingly used to provide peak demand.‖
Warning against people who think they can predict the future, he said,
―Some people think they have the answer, whatever it may be. But I believe there will be different answers for different places, rural and cities, and for different customers. That’s why flexibility and agility are key.‖
Contradicting his own words, he added,
―Nevertheless certain trends that are currently taking place are unmistakable,‖ adding, ―The world is clearly moving towards much more distributed electricity production and towards microgrids. The pace of that development is uncertain. That depends on political decisions, regulatory incentives, consumer preferences, technological developments. But the direction is clear.‖
Holliday rhetorically asks, ―What is the future of baseload generation in such a system?‖ His answer,
“That’s asking the wrong question. The idea of baseload power is already outdated. I think you should look at this the other way around. From a consumer’s point of view, baseload is what I am producing myself. The solar on my rooftop, my heat pump – that’s the baseload. Those are the electrons that are free at the margin. The point is: this is an industry that was based on meeting demand.
“An extraordinary amount of capital was tied up for an unusual set of circumstances: to ensure supply at any moment. This is now turned on its head. The future will be much more driven by availability of supply: by demand side response and management, which will enable the market to balance price of supply and of demand. It’s how we balance these things that will determine the future shape of our business.”
Utility executives around the world are grappling to respond to changes taking place around them – faster in some markets than others. In case of Germany, incumbent power companies are especially in a bind. In September 2015, Energie Baden-Wuerttemberg (EnBW), Germany’s 3rd largest generator, announced it was selling assets to transform itself into a new enterprise focused on renewable energy and operating grids.
EnBW, which historically generated more than half of its output from nuclear plants, unveiled a strategy in 2013 to more-than-double the share of renewables in its power mix to 40% of its installed capacity by the end of the decade.
Germany’s biggest utility E.ON, also announced last year to realign its business to focus on renewables and to become more consumer centric. E.ON is spinning its conventional power business as well as energy trading, exploration and production into a new company called Uniper – some pundits refer to the new company as E.OFF. It projects a net loss for 2015 from write-downs prompted by this decision.
NRG Energy Inc., the largest US independent power producer (IPP), was once regarded immune to many of the woes facing regulated utilities. The company, however, has recently hit a number of unexpected bumps. In September, CEO David Crane said he was scaling back its ambitious renewable energy strategy to focus on its traditional power generation business.
Crane said he plans to spin off NRG’s renewable unit, called GreenCo, which is also engaged in residential solar installation and electric vehicle charging business. NRG shares have dropped by a third in 2015, suggesting whatever Mr. Crane was doing did not pan out as planned.
In case of Australia, decentralized solar is more real and imminent than anywhere else in the world. Queensland’s Distributor, Energex, not huge by international standards, has over 1GW of it already on customers’ roofs, with 3,000 customers going solar each month, give or take a little, and with or without any subsidies.
Graph below, courtesy of Mike Swanston, formerly with Energex, shows that distributed solar in several Australian states now ranks among the top 30 generators in the country.
Queensland with 1.45 GW of distributed solar, is the 11th largest in terms of installed capacity, behind large coal generators.
New SouthWales,Victoria and South Australia are also among the top 30 generators, as is wind in South Australia, Victoria and NSW. Times are indeed changing.
Perry Sioshansi is president of Menlo Energy Economics, a consultancy based in San Francisco, CA and editor/publisher of EEnergy Informer, a monthly newsletter with international circulation. He can be reached at [email protected]