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5 ways utilities can lead on climate goals

Electric utilities have the potential to be the catalyst in driving the rest of the sector toward carbon reductions — if they make some serious changes first.

The energy supply sector — and primarily businesses related to electricity generation — was responsible for about 17 gigatons of carbon dioxide emissions in 2010, or about 35 percent of the global total.

According to the Intergovernmental Panel on Climate Change (PDF download), this figure could double or even triple by 2050 unless much greater decarbonization of the sector is achieved. Renewable energy, energy efficiency and behavioral change all have been identified as critical pathways leading to required decarbonization.

Although fossil fuels continue to be used to meet rising energy demand resulting from both population growth and economic expansion, exciting developments in the electricity sector indicate that this trend can be reversed and that decarbonization is feasible.

The agents behind these developments are private, public and also span public-private partnerships, reinforcing the notion that no one entity — and certainly not the much-vaunted utility — has the capacity or the responsibility to bear the brunt of reform.

To reach a higher-order magnitude of change, the entire electricity ecosystem has to work together. As identified in my previous article, Utility 2.0, the entire ecosystem of stakeholders — and not just the distribution utility — must evolve from its previous avatar.

Indeed, four changes that successful utility ecosystems already have begun to implement need to continue at a larger scale and a faster pace to ensure that the utility sector is part of the solution to meeting our energy needs and climate goals:

1. Deepening customer engagement

Utilities have begun to look at their customers as more than just rate-payers. This realization has been motivated and accelerated by challenges such as the emergence of emissions standards, affordable distributed generation, increased focus on energy efficiency and anemic economic growth in the case of matured economies.

This has led to an increasing degree of customer engagement, with a view to establishing a relationship that goes beyond selling electrons to being a “trusted energy adviser.”

This transformation is being enabled by customer engagement software platforms and smart devices that allow utilities to peek behind the meter into their customers’ lives. For example, using advanced meter-readings (such as data mining), utilities are able to guide customers at an individualized level regarding their energy usage.

Through a combination of behavioral science, demand-response techniques and infrastructure upgrades, utilities are then able to help add value to customers’ lives by allowing them to achieve a lower utility bill or a more comfortable home or both.

This business model is still evolving, and companies are trying to use Big Data concepts to increase their effectiveness — on the one hand, helping utilities retain customers and reducing their cost of business, and on the other, helping customers make smarter usage-related choices and better investment decisions.

While seemingly innocuous, these developments are being valued highly by the marketplace, and the sector is seeing a proliferation of products and services being offered by an entire gamut of companies.

According to one study by GTM Research, the global utility data analytics market is expected to generate revenues of about $20 billion between 2013 and 2020. This growth is expected to occur as the volume of data captured as well as the incentive to convert those in to usable information increases.

2. Increasing engagement with community

It doesn’t take a management guru to understand that an economically constrained society does not augur well for the utility business. Hence, utilities are only doing themselves a favor by participating in efforts to maintain economic vitality and resilience in their territories.

A great example of this is the emerging community solar movement, in which retail users use their aggregate demand and a virtual net metering infrastructure to purchase electricity from a remotely located distributed generator.

For example, a warehouse with a large suitable rooftop space can install a large photovoltaic array that generates more energy than it needs, and can sell the excess energy to interested retail consumers who purchase “shares” in the project, either through an upfront payment or a pay-as-you-go arrangement.

One obvious benefit of this model is that consumers who do not have adequate or appropriate rooftop space can participate in the solar energy revolution. Moreover, larger projects lead to economies of scale, which makes the resulting solar energy more affordable than small individual residential rooftop systems.

The community aspect of this business model is obvious if one considers that this opens up the possibility of allowing low-income residents and small-scale businesses to access such low-cost clean energy.

Such a mechanism can be used to ensure that large commercial buildings in residential neighborhoods can give back to the community. It can do this by providing solar energy produced on its rooftops to residents or small businesses situated around it affected by its construction and operations. 

France, Germany and Canada, for example, already have regulations promoting green roofs. Community solar could be a great way for commercial and industrial facilities to share their wealth with the most vulnerable parts of the communities they operate in. Community solar also reinforces two trends in resource management — the sharing economy and democratization — which have begun to revolutionize our lives in myriad ways.

3. Acting as incubator

Utilities have demonstrated that they can respond to clear policy signals and regulatory changes and become part of the solution to diverse societal challenges, from local pollution to global climate change.

For example, we already have witnessed a proliferation of policies that have enabled investments in clean energy, such that 30 percent of the global electricity supply now comes from renewables.

However, governments can go beyond that and create a space for fostering technological innovation rather than just adjusting the market for commercialized technologies. This might not sound like what governments are typically equipped to do, but it could be a powerful tool to increase the uptake of far-reaching technologies and shorten their commercialization life-cycle.

For example, recent procurement requests for battery storage established by state regulatory authorities such as New Jersey and California are creating the required enabling environment for battery storage companies to increase their production capacity. The ultimate goal would be reducing production costs to a point that might make 100 percent renewable energy a reality.

These innovative technologies must be introduced without compromising on overall grid resiliency and stability, so any such policy framework has to be designed on the basis of a robust technical analysis.

4. Decoupling

Regulatory agencies have begun to realize that sometimes, the biggest barrier between consumers, producers and service providers on the one hand and sustainable energy on the other are archaic regulations.

The most obvious example, and an unfortunate outcome, is that energy efficiency is incompatible with most regulated utilities’ revenue model, because most utilities get compensated for the volume of electricity sold, while efficiency aims to reduce the same. This is a real challenge for climate policy, as efficiency has been proven to be the least-cost component negative marginal abatement cost (PDF) of most low-emission development strategies.

One way to solve this conundrum is to create another version of regulated utilities, called energy efficiency utilities (EEUs), that focuses only on providing end-users with efficiency solutions and technologies.

This has been achieved in a few U.S. states — Colorado, Ohio and Vermont, as well as in Washington, D.C. — where regulators have created the space for such utilities or public-private partnerships, and the results clearly have demonstrated the positive impact of such a strategy.

Another exciting development, where the utility sector is being completely transformed, is taking place in the state of New York.

The “Reforming the Energy Vision” (REV) Order, passed in early 2015, aims to push market transformation to achieve ambitious goals in technology innovation, de-carbonization, decoupling and resiliency of the state’s electricity markets.

While transformative in many ways, the REV Order sees utilities remaining responsible for grid reliability, noting that “the functions needed to enable distributed markets are integrally bound to the functions needed to ensure reliability.”

The REV Order is preparing the state’s utility ecosystem to meet the wave of customer-sited resources coming on to the grid, such as a rooftop solar, demand response and electric vehicles.

The utility’s role is being viewed as the air-traffic controller of the grid, where they aren’t necessarily expected to build new assets or bring in new supply, but foremost are required to better optimize the supplies that are out there. Hence, the REV order is a conscious move to turn the utility sector from being a barrier to an enabler of a smarter and cleaner grid.

This article originally appeared on the Worldwatch Institute's blog.

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