Utilities! Diversify Your Energy Portfolio Now!
In the fight to mitigate the effects of climate change, world leaders have committed to ambitious decarbonization efforts that have in many instances led to regulatory mandates. While some companies have failed to meet decarbonization initiatives as quickly as hoped, the global consensus has shifted to stricter regulatory mitigations designed to further encourage any business falling behind. In 2021, global energy-related CO2 emissions rose to 36.3 gigatonnes, a 6% increase from 2020. In the utility industry, these emissions are driven largely by fossil fuels like coal or natural gas, which are, unfortunately, also the two most common and abundant fuel sources. While it is unlikely and untenable to omit these fuel sources during the global energy transition, utilities that diversify their energy portfolio now by employing renewables, community energy, or conservation efforts will be left with high energy costs and less energy security than ever.
The Current Global Energy Portfolio
Per the International Energy Agency, a massive 80.9% of all generated electricity was produced from fossil fuels in 2019. Of that mix, 23.2% is natural gas, 30.9% is oil, and 26.8% is coal, all fuel sources that the utility industry relies on to meet public demand. While renewable energy usage is on the rise, only 19.1% of reported energy usage can be attributed to nuclear, biofuel, or sustainable/clean energy resources. Fortunately, the rate of renewable energy adoption is rising, although perhaps now rapidly enough to both meet demand and satisfy global regulatory decarbonization initiatives.
Around the world, China used a reported 6,875.1 terawatt-hours of annual electric consumption in 2020, followed distantly by the U.S., which used 3843.8 terawatt-hours during the same time period. For both China and the U.S., two centers of global manufacturing and commerce with geographical access to fossil fuels, high-carbon fuels dominated the energy market. In order to minimize climate change and enhance the quality of life for all of our global neighbors, utilities must diversify their energy portfolio which can minimize energy spending during high times of demand while enhancing grid resiliency.
The U.S. Energy Portfolio
In 2021, nearly 61% of all generated electricity in the U.S. was from fossil fuels. Over time, while fossil fuels have long dominated the electricity market, renewables and low-carbon alternatives are on the rise. These renewable energy sources include prosumer-driven distributed energy resources (DERs), virtual power plants, and conservation initiatives like demand response or other demand flexibility programs.
The Case Against Coal/Fossil Fuels
Fossil fuels, particularly coal, rose to prominence because these fuel sources have historically been abundant and readily obtainable. For example, the U.S. has the largest recoverable volume of coal reserves, making it an attractive, if ultimately destructive option for supplying the country’s electric needs. Still, while coal is an abundant and useful nonrenewable resource, its effects on human and environmental health are legion. The mining and production of coal can have many adverse effects on human respiratory and cardiovascular systems while releasing harmful toxins into the atmosphere, of which carbon emissions are only one.
Compared to coal, natural gas is cleaner than other fossil fuels like coal or petroleum, producing only about 117 pounds of CO2 as compared to the 200 pounds that coal produces. Because natural gas is primarily composed of methane, a potent greenhouse gas, it can lead to adverse climate and health impacts as well. For people, that means similar respiratory and cardiovascular health concerns, hazards in the transportation of natural gas that can lead to environmentally harmful (and potentially toxic) leaks, and higher degrees of carbon emissions than from renewable energy sources. While it’s unrealistic to entirely avoid fossil fuels, a diversified energy portfolio can minimize these dangers, while helping utilities satisfy decarbonization goals.
What the Energy Market Tells Us
A recent report shows that the distributed energy generation market is expected to reach $580.8b in market size by 2027. Likewise, the electric vehicle (EV) market is expected to soar to an astounding $823.75b by 2030. Both instances illustrate a growing public and private demand for renewable energy technologies that do not require fossil fuels to operate. Fortunately, while these technologies further complicate the grid, they in turn provide opportunities for enterprising utilities to diversify their energy portfolio in a holistic, if ad hoc way, by working with the community to meet all needs. These investments perfectly underscore the paradigm shift that all utilities are facing now.
The Future is Here
While there are many factors involved in the just energy transition from fossil fuels to a diversified energy portfolio that emphasizes renewable energy, there are some important regulations driving industry change.
- Clean Power Plan – Announced by the Obama administration in 2015, the Clean Power Act is the precursor to many decarbonization efforts in the U.S. and was designed to minimize carbon emissions. While this was challenged by SCOTUS in the summer of 2022, the CPA has still encouraged greater adoption of green technologies.
- The Inflation Reduction Act – An Act designed to address infrastructural challenges in the U.S., the IRA is an attempt to tackle our current infrastructure needs with an eye to the future, which includes updated EV charging infrastructure, and more.
- Automotive Manufacturing Mandates – Recently, the Biden administration set caps on the volume of combustion-powered vehicles, with EVs accounting for 50% of all manufactured vehicles by 2030.
- Decarbonization Initiatives – Of several similar examples, in the U.S. the Biden Administration has committed to reducing greenhouse gas pollution by 50-52% by 2030
These represent only a few of the national climate change initiatives in the U.S. that directly impact the utility industry. And these are all current, active initiatives that will present a challenge to any utility that fails to expand its existing energy portfolio. Fortunately, there are options to keep the grid balanced and energy security for the people who need it the most: your customers.
Balancing the Modern Grid
Last summer saw significant difficulties in grid resiliency and high energy spending in an effort to meet rising demand, and this winter promises more of the same. Not only does high demand lead to potential outages, but it also increases energy spending, specifically during peak times of demand. While implementing alternative power sources like wind, biofuels, nuclear or geothermal into your energy portfolio may prove unrealistic or infeasible in many instances, there are community assets and cloud-based software solutions that utilities can employ right now to satisfy regulations while keeping the lights on and customers happy. Let’s take a look at a few.
While demand forecasting may not provide an immediate solution to energy insecurity, it can help utility program managers prepare today for the challenges of tomorrow. With demand forecasting, utility managers can use real-time and historical data to assess what energy needs may arise. These forecasting tools can minimize energy costs, and inform any changes to your energy portfolio needs. Furthermore, with demand forecasting, utilities can better plan for their conversation needs. But more on that shortly.
As we all know, distributed energy resources (DERs) come in all shapes and sizes, from photovoltaic rooftop solar to battery storage and beyond, all potential assets in your developing energy portfolio. For example, with the right distributed energy resource management system (DERMS), utility programs can implement virtual power plants—a manufactured group of DERs that combine to use excess energy to resupply the grid cleanly. And home EV charging setups are primed for managed and V2G reciprocal charging programs that allow utilities to access the ambient power in battery storage either to conserve energy during peak times of usage or help resupply the grid.
Demand Flexibility Programs
While DER initiatives seek clean, alternative energy as a means of meeting demand, demand flexibility programs are conservation efforts to minimize overall usage. Although demand flexibility may not seem like an asset for your energy portfolio, it represents a dip in usage that can defray high energy costs and enhance grid resilience. The most common type of demand flexibility program is demand response, which curtails over-usage by simply turning off high-consumption appliances (like HVAC units or water heaters) for a set period of time. Demand flexibility also includes rate design initiatives like time-of-use rates to discourage high usage during peak demand.
Diversify Your Energy Portfolio Conclusion
By investing in a diversified energy portfolio now, utilities can mitigate headaches to come, from high energy costs to grid insecurity. With recent legislative moves to back utilities, the industry is poised now to begin the long transition away from fossil fuels to build a better, more equitable tomorrow. These policies are already helping utilities to make the hard choice to shift away from known and reliable resources to something cleaner and healthier. Is your operation ready to meet rising demand in an increasingly electrified world?