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LLEWELLYN KING: Utilities see alternative energy threat

by lking@kingpublishing.com on June 22, 2013 10:50 AM

If you are reading this by electric light, you are connected to the electric grid — unless you are one of an infinitesimal number of home owners who installed solar panels.

The penetration of solar panels may be statistically insignificant today, but to the electric industry these panels, and other self-generating schemes, are like dry rot: a threat to the whole edifice.

It is not just those panels that are beginning to disrupt the electrical grid, but the whole panoply of alternative technology. Wind, geothermal heat, micro-hydro turbines and scattered natural gas turbines all fit into a new category of electric generation known as “distributed generation.”

The change is so threatening to the investor-owned electric utilities and their not-for-profit colleagues in the public power sector that it has begun to dominate discussions on the Web and wherever utility executives gather.

Early this year the Edison Electric Institute (EEI), which represents the investor-owned utilities that provide 70 percent of U.S. electricity, issued a white paper discussing the changes that are beginning to threaten the old electric paradigm. The theme of change also dominated the EEI annual convention in San Francisco earlier this month, with CEOs talking about a “new business model,” although they were hard put to say what this will be.

The root cause of the problem is that the new entrants into generating treat the grid as kind of open marriage: It’s there when it suits them.

A homeowner might be self-sufficient in electricity, and even generate enough to sell a small portion back to the grid 90 percent of the time. But during prolonged bad weather, or if the home system is down for maintenance, that homeowner expects to flip a switch and go back on the grid. The local utility, all the while, has been standing by hoping to sell that homeowner a few watts until the home system returns to power.

This applies even more so to large users of electricity, including factories and big retailers. Many of the factory customers generate nearly all of their own electricity already and big retailers are getting in the game. Walmart is covering its store roofs with solar cells. McDonalds has eyed self-generating for years, but not without the comforting assurance that the grid will always be there.

All of this distorts the financial as well as the physical infrastructure of the utility industry and produces social problems as well. Ted Craver, CEO of Edison International, the parent company of Southern California Edison, told the EEI conference that as California is “ground zero” for rooftop solar, you have to ask, “Are you creating a system of those who have means for self- generating and shifting the burden to the have-nots? It is a social fairness question.”

The system is also skewed, Craver noted, by subsidies for alternative generation. He called for a flexible system that allows for these new realities.

Another threat, according to Tom Fanning, CEO of the giant Southern Company, comes to the ability of utilities — one of the most capital-intensive industries is the world — to raise money. “Our industry raises about $90 billion a year and we need policies that support that,” he said.

There are other problems facing the electricity industry, which are cataloged in an amusing and readable book by economist Steven Mitnick, “Lines Down.” While Mitnick is more optimistic about the future of the grid than many, he says it needs fixing. It has been starved of investment and needs upgrading, particularly hardening against storm outages.

The future of the grid is not in the hands of the utilities alone, but also the federal and state regulators and politicians.

That means that the new paradigm may be a long time in coming, while another aspect of the U.S. infrastructure deteriorates.

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June 22, 2013 10:49 AM
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