How to Navigate an Uncertain Energy Supply Chain
Every year, utility providers face an increasing number of competing priorities, from the tech disruption of distributed energy resources (DERs) reshaping the grid, to regulatory and legislative requirements designed to support rate-payer needs and global decarbonization efforts. Unfortunately, utilities are also subject to real-world energy supply chain disruptions that pose a serious challenge to grid reliability, rate structures, and continuity of service. In some ways, the energy supply chain presents an unknown quantity to utility providers; the supply chain often exists independent of the utility industry community and is complicated by world events. With that uncertainty, how can the utility industry plan for an uncertain energy supply chain?
The U.S. Energy Supply Chain
The U.S. energy supply chain is split into three functions: generation, transmission, and distribution. Each of these functions represents a place where material needs are required to sustain service. For example, the cost of electricity distribution in the U.S. has gradually increased by a total of 64% between 2000-2019. These costs include power lines, poles and towers, line transformers, meters, and more, the basic infrastructural requirements necessary to safely and efficiently transmit electricity. Some of these costs are defrayed by customers when possible, but still represent a growing expense, and one that is subject to supply and demand.
These material goods aren’t always available within the U.S., leading to our reliance on outside parties to meet our energy supply chain needs. Of course, these material costs pale in comparison to utility spending on fuel sources, which were around $1.3 trillion in total in the U.S. in 2018.
As of 2020, the energy portfolio in the U.S. is still 60.6% reliant on fossil fuels, with 40.5% of the energy consumed provided by natural gas and another 19.3% produced by coal; nuclear energy provides an additional 19.7% of electrical power. At that same time, renewable energies accounted for only 19.8% of electric generation, although that number continues to grow with the proliferation of affordable DER technologies. With solar costs down by 85% over the last decade, the future for renewables is promising, although requires a mass widespread adoption to be fully realized. In the meantime, utilities are taxed with finding affordable fuel and infrastructure resources, some of which are subject to global events.
Expecting the Unexpected Pivot
Forecasting needs are an integral part of any utility operation and influence everything from time-of-use (TOU) rates to program design and beyond. While demand forecasting is a robust tool to gird the utility industry against the uncertainties of load demand, mitigating factors can upset the already delicate balance of day-to-day operations. Often these factors include extreme weather events, like the severe winter storms that caused outages in Texas in winter 2021. In that example, the outages were caused by a grid (ERCOT) that was both inexperienced in attending to severe cold and cut off from the majority of the U.S., which challenged efforts to purchase electricity elsewhere.
More recently, sanctions caused by the Russian incursion into Ukraine, are already felt in the U.S. and abroad. In Hawaii, coal power is scheduled to phase out by September 2022. Ultimately, the plan is to supply electricity through renewable energy sources, which are unfortunately experiencing energy supply chain delays as well. In the meantime, Hawaiian utilities may turn to petroleum to meet short-term needs, ⅓ of which is provided by Russia; if sanctions impact the Hawaiian energy supply chain, everyone involved will pay more.
Problem: Fuel Instability
Fuel shortages have occurred many times in history. These lean times have led to desperate measures to satisfy the energy supply chain, often with innovations paving the way for new paradigms. For example, when public lighting needs exceed available resources, the whaling industry expanded to the extent that sperm whales —the source of the illuminant spermaceti— were hunted almost to extinction. Each successive energy crisis underscores the need for agility in meeting both supply and demand and using transitional technologies to usher in fresh alternatives.
While the global community continues to work toward decarbonization efforts, there will continue to be an overlap between existing resources and futurization. The fossil fuels that supply electricity to many power plants around the world, like natural gas and petroleum, are formed through a similar geological process that takes millions of years to realize. As such, natural gas reserves and petroleum prices are often tied together because of how and where they are mined; the price of one often has a reciprocal relationship with the other. Fortunately, there are technological solutions to soften rising costs.
While distributed energy resources challenge the grid by decentralizing energy production and reshaping electrical demands, they represent an opportunity for utility providers to meet rising needs. With the right distributed energy resource management system (DERMS), utility providers can implement programs that combine these otherwise disparate resources into a communal whole. That means, that individual household energy production can unify to solve grid insecurities relative to fuel shortages. Through participatory member enrollment, utilities can utilize battery power during peak periods to mitigate the reliance on other fuel sources, whether that’s fossil fuels or otherwise. Likewise, utilities can combine DERs into virtual power plants, harnessing extraneous solar energy to power the grid.
Solution: Demand Flexibility
While finding or replacing resources is vital to the energy supply chain, demand flexibility programs present an alternative opportunity: implement a conservation strategy to use less energy overall. Demand response programs utilize a variety of methods including existing BYOD strategies to meet programmatic enrollment and participation goals. As of 2019, demand response programs were responsible for an accumulated 1.1 terawatt-hours of savings, a number that is growing to match program enrollment and technological access.
While reliability and continuity of service are obvious logistical priorities, customer satisfaction is an equally important metric for the success of any utility operation. These various fuel insecurities can decrease customer satisfaction, while concurrently lowering utility revenues; if the power isn’t on, the utility company isn’t earning. There are, however, feature-rich customer enrollment tools that can provide invaluable educational opportunities that utilities can use to reach out to customers to ameliorate some of these concerns.
While customer satisfaction doesn’t solve any immediate energy supply chain need, member outreach is integral to the continued success of any operation. Beyond just the immediate losses to revenue, research indicates that higher customer satisfaction levels are often parallel to utility profits; the lower the satisfaction, the more a utility may suffer. Furthermore, customer engagement tools are useful in building a community of prosumers who can help minimize or, in some cases, supply usage through programmatic enrollment.
Energy Supply Chain Conclusion
Energy supply chain issues are complex and touch on much beyond just the immediate price of fuel or material goods. Even without the impact of political or environmental events challenging the industry, the transition to fuel source alternatives is historically difficult. Fortunately, there are SaaS-model DERMS and DERMS solutions that allow utility providers to carefully select and scale up their operations quickly. Likewise, there are software tools that can minimize the time it takes to connect devices and DERMS, allowing for a quicker, more scalable turnaround time, which is especially useful during any crisis.