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How electric utilities could revive their sagging fortunes and decarbonize the country

It’s all about electrification.

A new day for electric utilities.

These are gloomy times for electric utilities. After more than a century of fairly steady and predictable growth, they have entered stagnant waters. Demand for electricity is sluggish. Distributed energy resources (solar panels, batteries, etc.) are chipping away at their market share. Climate activists are always yelling at them for burning so many fossil fuels. It’s no fun.

Despite the industry’s much-hyped “death spiral” — in which customers abandon utilities for distributed energy, prices rise on remaining customers, more customers leave, etc. — these troubles are probably not fatal. Even under aggressive projections, most electricity will come from utility-scale power plants through the middle of the century. Utilities will still be needed. But they do seem to be heading inexorably toward a much-diminished role, with much-diminished profits.

Still, buck up, utility execs, all is not lost! There is a possible future in which utilities become bigger and more important than ever. What’s more, it is a future in which they take the lead in decarbonizing the country.

They could be heroes.

That is the good news in a recent paper from research consultancy The Brattle Group. It outlines a scenario in which utilities thrive, greenhouse gas emissions decline, and everyone joins hands in song.

The key to everything (coincidentally, my long-time obsession) is electrification.

Utilities are headed for stagnation

US utilities, as readers of my primer on utilities know, make money by spending money. Specifically, their profits come from return on capital investments made in new electricity infrastructure. (They don’t make money selling electricity itself; for that, they only recover costs.)

If they’re not investing in new electricity infrastructure, they’re not earning returns, and they’re not happy.

And it doesn’t look like much investment will be needed in coming years. It’s not just that distributed energy is chipping away at the need for those investments. It’s that demand for electricity is forecast to rise very slowly, if at all.

The US Energy Information Administration’s Annual Energy Outlook (AEO) for 2015 projects that between 2016 and 2040, US electricity demand will grow by an average annual rate of 0.6 percent — as compared with an average of 1.3 percent over the past 25 years.

And that’s using some fairly pessimistic projections for the growth of solar rooftop power. According to the EIA, just 7 percent of total US capacity for rooftop solar power (as calculated by the National Renewable Energy Laboratory) will be developed by 2050.

The Brattle authors calculate the impact on electricity demand if 50 or 100 percent of that capacity were developed:

brattle on electricity demand (Brattle)

As you can see, if rooftop solar really goes nuts, total US electricity demand could theoretically decline in coming decades. That would not be good for utility profits.

But here’s the thing. Even if the US maxed out rooftop solar, it still wouldn’t get close to the long-term greenhouse gas targets it needs to hit to avoid dangerous climate change:

brattle on electricity demand (Brattle)

And that’s not all. Even if everything went right and the electricity sector completely decarbonized, the US still wouldn’t be close to the greenhouse gas targets it needs to hit:

brattle on electricity demand an emissions (Brattle)

That’s because electricity sector emissions are only about a third of the US total.

What to do, what to do?

Electrify everything

There is a clear and fairly well-understood path to zero carbon for electricity. The same cannot be said of energy services that run on liquid fuels — think gasoline for transportation and natural gas for heating. Efficiency can reduce those fossil fuel emissions, but it can’t eliminate them, and no economical zero-carbon liquid-based alternatives have emerged.

“An alternative path toward significant decarbonization of these sectors,” the Brattle authors write, “is to aggressively pursue electrification of transportation and heating.”

As I wrote in detail in a post last year, that’s a great idea!

To test what the shift could do for electricity sales, the researchers modeled “a steady conversion of transportation vehicles and residential and commercial heating devices away from burning fossil fuels and towards electric-powered alternatives, such that both sectors are fully electrified by 2050.”

Doing so, they conclude, “could lead to an increase of 3,560 TWh of new electricity demand by 2050 relative to the non-electrification [business as usual].”

brattle on new electricity demand (Brattle)

Overall, electrifying transportation and heating could lead to 105 percent growth in electricity demand from 2015 levels by 2050.

brattle electricity demand growth (Brattle)

Needless to say, that trend would stop any diminution of utility size and profits. They would become bigger, more profitable, and more necessary than ever.

And finally, the coup de grace. Total electrification of transportation and heating in the US would yield a 72 percent reduction in greenhouse gases from energy, almost enough to meet our long-term target. (The remaining emissions would mostly involve industrial applications — high-heat furnaces, etc.)

brattle on electrification and emissions (Brattle)

In short, there is a possible future in which utilities thrive, their business more than doubles, and the US achieves deep decarbonization. Wins all around! (Well, except for fossil fuel industries, which are likely to battle electrification tooth and nail.)

Self-driving complications

An interesting side note: One factor that could complicate these projections is the development of autonomous vehicles and vehicle fleets.

Projections of transportation sector energy use are tied to projections of vehicle miles traveled (VMT). Most such projections assume a continuation of the current transportation paradigm, dominated by private, single-owner vehicles, parked most of the time at homes or businesses.

If substantial transportation demand shifts to shared fleets of autonomous electric vehicles — as many, including me, expect — then electricity demand from the transportation sector could change. For one thing, it could rise more than expected (some forecasts expect VMT to rise sharply when vehicles become autonomous). It could also change in location (more likely to be a central charging hub for fleets) and timing (fast charging during peak driving hours rather than slow charging at home/work).

All of that could complicate matters for utilities.

Utilities can help shape their own future

The Brattle authors emphasize repeatedly that this electrified future is not a fait accompli. It is one path to decarbonization, but not the only one (transportation could theoretically focus on hydrogen, or biofuels). And of course there’s no guarantee the US will seriously decarbonize at all.

If utilities want large-scale electrification — as they, and we, and the whole world should! — they are going to have to play a proactive role in pursuing it. Here are Brattle’s recommendations for them:

brattle on utilities and electrification (Brattle)

I won’t burden you with the wonky details of this strategy — there’s a short discussion of each element in the report — but the overall message is that utilities are not passive bystanders here. They can help determine their own fate.

Too often, utilities have found themselves acting as spoilers, battling clean energy advocates, attempting to slow the growth of rooftop solar, fighting to keep dirty coal plants open, and generally playing the role of climate bad guy. That’s not much fun, and what’s more, it’s a doomed, rear-guard fight.

Utilities should wake up to the opportunity Brattle describes, an electrified future in which they are the heroes of the decarbonization fight rather than the villains, with a vital role at the heart of America’s energy economy. Doesn’t that sound like more fun?