Welcome to the Age of Climate Change. Maybe your utility welcomed itself a long time ago. Maybe, like many, the reality of climate change – and being part of the solution yourselves – is a more recent revelation. No matter: WELCOME. We are all in this together.
Of course, the Age has been underway for some time now: melting glaciers, epic storms, and historic droughts are still news but are no longer new. But I sense a tipping point, especially in the United States. The United States has elected an aggressively climate-focused president after four years of equally aggressive climate denial. Climate literacy, especially among the young, is growing by leaps and bounds. And stodgy old General Motors just commandeered our most sacred secular holiday, the Super Bowl, with a brilliant advertisement — for electric vehicles. Rejoining the Paris Agreement is one thing. GM appropriating the year’s biggest television event to sell EVs? That’s Main Street USA joining the climate battle in earnest.
Will Ferrell’s exhortations aside, the United States is still far behind Norway (and the rest of Western Europe for that matter) in realigning its national policies, its commercial and financial drivers, and its popular mindset for the Age of Climate Change. GM first reflexively embraced relaxed (fossil) fuel efficiency targets; now it leads legacy US automakers with a 2035 phase-out of gasoline-powered vehicles. Not soon enough? Probably. But the larger message is clear: these days climate changes everything, even for GM.
GM is giving itself 14 years: two, maybe three production cycles for the auto industry. But what about the other half of the EV equation, electricity? For a century, the electric utility industry has planned and invested in decades. Unlike vehicle manufacturers, the electricity industry is not just transforming a product line. We must transform an incredibly complex, nationwide, $5 trillion system that our economies and societies rely on every single second of every day. That’s not just daunting, its terra incognita: the unknown places on the map that used to be labeled “There Be Dragons.”
So what can we use for a map? By what distant stars can we set our course?
Here are five principles to get us started:
MORE THAN A MAKE-OVER. The electric utility industry will change more in the next decade than it has in the last century. New customer needs, new policy mandates, and new technologies will transform the utility business model – and the electric system itself – in ways we cannot foresee today. In fact, significant disruption is already here: intermittent renewable energy displacing dispatchable fossil resources, increasingly EVs and other electrification, and electricity’s emergence as an economic and societal must-have. That’s an extraordinary challenge to established industry business models. This is especially true for electric utilities, where each aspect of our business – like power supply, distribution, finance, customer service, and marketing – have had limited interaction with one another; as long as each did its part within its own “silo”, the whole took care of itself.
No longer: from renewables to electrification to customer wants and needs, every challenge is now a “post-silo” challenge. For example, EV charging at the local level will become critical to the integrating renewables far upstream on the power grid. Customer programs and rate design, in turn, must serve both customer needs as well as guide behavior – like time-of-use EV charging – in the context of upstream renewable integration and distribution system planning and operations. Distribution systems must be rethought to accommodate customer-side resources (like rooftop solar and energy storage) and new uses like EV charging. All of these outcomes require unprecedented coordination within utilities – and among utilities and customers and other industry players. Climate changes everything, and that includes removing every trace of those old silos.
MEASURE VALUE, NOT COST. For generations, electric utilities have been driven by cost, obsessed with it. Capital costs, operating and maintenance costs, fuel costs, decommissioning costs, incremental costs, decremental costs, marginal costs, the list goes on. The cost of our product was everything, assuming safety, reliability, and customer service stayed within reasonable boundaries. Value, on the other hand, has rarely been discussed: something for the end-user to create with the electricity input, rather than a feature of the electricity itself.
The Age of Climate Change turns that obsession on its head. The linear relationship between utility and customer (“power for money”) is disintermediating into a multi-lateral relationship to serve increasingly complex, specialized, mission-driven, and granular energy needs – with no guaranteed role for incumbent utilities. A monopoly franchise, no matter how time-honored, lives and dies at the stroke of a policymaker’s pen. Whether it’s a clean energy supply or mission-critical reliability or a public and proactive commitment to sustainability, utilities must create and demonstrate value as core business function and not (as has often been the case) as an afterthought. That means knowing customer needs better than ever, whether it’s a multinational corporation with global sustainability goals or a resident who wants to help the environment without breaking the bank. Value, not cost.
SEEK SUSTAINABLE SUSTAINABILITY. GHG-free energy is not enough. Economy- and society-wide EV adoption – from scooters to automobiles to medium- and heavy-duty trucks – requires clear, long-term visibility on abundant, reliable, and cost-effective electricity. To mandate EVs and allow their fuel (electricity) to become unreliable and/or unaffordable is self-defeating and, in the case of affordability, unacceptably regressive. That self-defeat is a defeat not just for utilities and drivers but for the climate itself, leaving transportation’s massive GHG footprint intact. Thus, electricity must be sustainably sustainable, powering economically rational consumer choices and not just climate policy objectives.
COMPROMISE WISELY. All energy is compromise. The compromises inherent in fossil-fueled electricity are abundantly clear, from GHG globally to environmentally disadvantaged communities closer to home. Even GHG-free nuclear power has an intractable waste problem. Yet renewable energy brings its own compromises. The lifecycle social and environmental impacts from mining, processing, and disposing of the rare earth metals (necessary for everything from solar panels and wind turbines to EV-propelling and renewable-integrating lithium ion batteries) are unconscionable. Longer term, the nuclear experience is instructive: we must address the compromises now to avoid similarly unconscionable burdens on tomorrow’s generations. It’s time to reflect lifecycle costs and mitigation measures into procurement and investment decisions. It’s time to compromise wisely.
KNOW THAT WE DON’T KNOW. Like the dawn of the computer age, we can see possibility and promise in the new machine but have no idea where we will take it – and it will take us. Did Jobs and Wozniak look at that first Macintosh prototype back in 1975 and see computer-aided design and manufacturing? Smart phones? Social media? Big data? Enhanced reality? The cloud? No, but they certainly sensed the promise of the machine and its progeny. We are taking the first baby steps in exploring our transformed energy future. Just in time for the Age of Climate Change and the biggest transformation of the electricity industry in a century.
Climate changes everything. That is especially true for our most powerful weapon in climate change mitigation: electricity. At the same time, it won’t be quick or easy. It will be rich with innovation but also heavy with compromise. Electric utilities are the pivot for that transformation. Terra incognita? Yes. Dragons? Maybe. Can we do it? We will and we must.
Climate changes everything. Let’s get started.
