Utilities: Focus on Capacity Not Generation

It is time that the utility focuses on capacity instead of generation.
Published: Mon 09 Jun 2014

The industry is going through tremendous transformation and needs to adapt to that change. This is according to Stephen Berberich, President & CEO at California ISO, who spoke to Engerati in an exclusive interview.

Recognizing change

Distributed generation and smart grids are going to be a part of our future and energy storage will be a critical part of it. Mr Berberich says that this transformation will fundamentally change the way consumers procure and control their energy and the industry will need to adapt to that trend.

Many consumers are turning to distributed generation whether it’s fuel cells or solar roof panels. Once energy storage is added, consumers will have everything they need.

“I don’t think people will be clipping their wires anytime soon so utilities have the challenge of figuring out how they are going to charge for this service and exactly what these services are going to be and how they will operate in that world. They will be asking themselves whether they want to be selling that distributed energy, for instance." Utilities will be literally re-evaluating their current business models in order to remain viable in the power industry. Renewable energy is certainly becoming cheaper- it costs more to build a gas plant than to install solar photovoltaic. Although that is without considering integration costs. Mr Berberich is quick to point out that he has concerns about feed-in tariffs as it distorts markets.

Many large power users are going off-grid as they aim to generate the majority of their power consumption. Since the utility’s revenue base is diminishing, they will be thinking about a new model for charging for their services. Mr Berberich says that utilities could participate in distributed generation by installing rooftop solar since utilities in the US have a cheap cost of capital. Because of this cheap cost of capital, utilities should be competitive in this space, he says.

However, utilities may not be reacting fast enough to the energy transformation. While companies and residences are not completely cutting ties (quite yet), utilities need to charge for the services they offer and recover their costs. “Utilities may need to be agnostic about what their customers are doing and to charge accordingly," explains Mr Berberich.

Energy storage tipping point-not for a while

Energy storage is very expensive. However, the cost will be driven downwards in the years to come. He points to Tesla which plans to double the global output of batteries and reduce battery costs substantially.

Mr Berberich says that the cost of energy storage will only drop considerably if someone comes up with a cost-effective energy storage breakthrough within the next 3 years. The solution will then still need another ten years to succeed in the market. Based on these figures, energy storage disruption will only occur between 2020 and 2030 when it could become truly disruptive.

So while renewables are the future, utilities need to find a way to “fill in around them” since the wind doesn’t always blow and the sun does not always shine. Conventional resources are therefore critical-Germany has its coal plants and California, its gas plants.

Mr Berberich believes that energy is no longer the utility’s major product. Capacity and capability are being prioritized instead.

“The ability to stop-start and ramp is more important now and generators will need to be compensated for that instead of just electric energy. The generator's ability to ramp will be recognized by some sort of market design, he explains.

Mr Berberich will be speaking at the European Utility Week 2014 where he will expand on the transition of the energy industry and how utilities should adapt in order to survive (and even prosper.)