Monday, June 30, 2014

The Future is not what it used to be

Early in April, I was appointed by the City Council of my town to the Generation Resource Planning Task Force. We met every week for 14 weeks and are about to publish our report.

Here is a little bit of it.


Austin Energy is one of the premier electric utilities in the country.  It is known for its leadership in energy efficiency, renewables, and green building.  By reaching the 35%  renewable energy goal  by 2016, and by being on track to reach our 1600 MW efficiency goal on schedule by 2020, it is a leader in clean, affordable, and reliable energy.

But these are demanding, challenging times for the Electric Utility Industry and for Austin Energy.

Just last month in Barrons, they reported that “Barclays has downgraded the entire electric sector of the US high-grade bond market, largely over evidence that solar and other disruptive energy technologies are proving to be increasingly viable competition.

They are not the first people to say this. The former Duke Energy CEO says he'd want to work in solar if he was starting out today. Some utilities are making decisive moves away from fossil fuels, and financial giants ranging from Norway's sovereign wealth fund to the Bank of England are hearing murmerings about a potential "carbon bubble".

As Barclay's credit strategy team emphasizes, this is less about solar alone, and more about a confluence of technologies—most notably solar and battery storage combined—which have the potential to fundamentally reshape how energy is produced, distributed and used (or not used):

“In the 100+ year history of the electric utility industry, there has never before been a truly cost-competitive substitute available for grid power. We believe that solar + storage could reconfigure the organization and regulation of the electric power business over the coming decade. We see near-term risks to credit from regulators and utilities falling behind the solar + storage adoption curve and long-term risks from a comprehensive re-imagining of the role utilities play in providing electric power.”

In a world where some of the utilities' most profitable corporate customers—from Apple to Ikea to Mars—are investing massively in their own electricity generation capacity (and imposing carbon prices on themselves); where smart home technology promises to cut bills, even for those folks who can't be bothered in programming their thermostat; where LEDs are becoming so cheap they are a no-brainer, even for the anti-environmental crowd; where solar prices keep dropping dramatically and battery-storage innovation is just ramping up, there's good reason for investors to consider alternative options to traditionally "safe" investment in utilities.”

The marker for a safe investment or bond rating is moving away from the former conventional wisdom.

Just as denial of climate science does not change the physics of climate change, denial of the coming reality where demand response and zero energy structures begin to weather away growth, will not change the reality of coming reduced profits.

Austin Energy must face these challenges and see the opportunities that reside within them.

As the transportation sector becomes more and more fueled by the product that AE sells, there will be opportunities that fall outside of the traditional utility model. As distributed solar penetration moves from 3,000 structures to 100,000 structures, and panels become roof toppings, building siding, and fenestration, there will be opportunities for the utility to provide service and/or capital.

Some of these new opportunities will require regulatory or statutory fixes or  third party workarounds.

Austin and its citizens deserve a community utility that can meet the challenges of the future with intelligence and creativity.

The  Austin Generation Resource Planning Task Force offers this report to the City Council and the Citizens of Austin in that spirit.

As Paul Valery, the French poet and philosopher said in his 1937 essay “Notre Destin et Les Lettres”,

“The future is not what it used to be.”


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