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Hot Enough for You? Utilities Need to Transform to Address Climate Goals

July 22, 2019

As the United States swelters from yet another heat wave, much greater utility transformation — with energy efficiency at its core — will be needed to address the rise in extreme weather events and other factors linked to climate change. Yet state efforts to develop the utility of the future seem to be falling short.

Many US states and industry experts have been discussing and promoting the concept of the ‘utility of the future’—envisioned as a paradigm shift in the way electricity is produced and delivered. I recently presented research on this topic at the European Council for an Energy-Efficient Economy Summer Study in early June. While some states are adopting bold new clean energy and climate policies, the utility-of-the-future efforts have not generally been driven by climate objectives, and not at all by energy efficiency objectives.

An industry in flux

The electric utility industry in the United States is facing many challenges. These include: aging infrastructure needing major investment; economic pressure from slow demand growth; the need to integrate new technology; competitive pressures from alternative suppliers and customer-sited resources; and societal obligations from environmental, equity, and other policy objectives. As the industry faces major transformation, several leading states have begun to develop a utility of the future that addresses those challenges.  

Overlaying this context is a growing awareness of the urgency of addressing climate change.  The recent United Nations’ Intergovernmental Panel on Climate Change report tells us that we have barely a decade to make dramatic changes. This highlights the critical importance of what emerges from utility-of-the-future efforts in the United States. To achieve the necessary greenhouse gas (GHG) emissions reductions, the United States needs the full-fledged participation, and indeed leadership, by our utility companies in promoting energy efficiency.

How much has climate policy driven power sector transformation?

To examine the intersection of these two pressing priorities (utility reform and the climate crisis), I reviewed regulatory orders, project reports, and other key documents for seven states that the trade press identified as leaders in examining the utility of the future. Those states include: Hawaii, Illinois, Massachusetts, New York, Ohio, Minnesota and Rhode Island. This review focused on two key areas: the extent to which their discussions were motivated by climate concerns; and the extent to which their efforts have emphasized energy efficiency. I also reviewed a dozen recent reports and articles on the subject of the utility of the future by key organizations and industry experts, to examine the prevailing thinking on this subject in the United States today.

To briefly summarize: states rarely mentioned concern about climate change as a major motivation for discussing the utility of the future. Rather, the motivating factors identified are much more traditional. By far the leading factors, mentioned prominently by all seven states, were: the aging infrastructure and the need for investment to maintain a reliable and affordable electricity grid; the need to integrate new technologies (e.g., advanced metering; smart communication technologies and distributed resources); and the drive to empower customers.

Many of the states and industry experts emphasize integrating renewable energy into the grid (although not necessarily with an explicit climate connection). Also, some states have other initiatives demonstrating their leadership on tackling climate change (our recent blog post offers examples of states adopting aggressive clean energy policies). But with few exceptions, climate change has generally not been articulated as a driver for the utility-of-the-future discussions.

Energy efficiency, a clean energy workhorse, is too often missing from the conversation

Most disappointing was the fact that these discussions had almost no focus on the role of utilities in expanding energy efficiency. In several of the states there was a casual acknowledgement that utilities would continue to comply with other existing policy requirements for energy efficiency, (and on at least one occasion an effort to scale up efficiency). Indeed, several of these states are leaders in our State Energy Efficiency Scorecard. However, given the large opportunity and need to find a way to scale up efficiency investments in the utility sector, it was surprising and concerning that none of the states identified expanding energy efficiency as a driver for the discussion of the need for a utility of the future.

During the past century, the fundamental goal of the US electric system has been to bring “reliable, affordable electricity” to everyone. While those traditional factors are worthy objectives in discussing the utility of the future, they essentially ignore what arguably should be a—perhaps ‘the’—primary objective of energy utilities going forward: being leaders in the effort to mitigate climate change. We need our utilities to play a central role in reducing GHG emissions, and energy efficiency needs to be a major component of that effort.

Transatlantic learning on energy efficiency in the power sector

This highlights what is a striking difference between the European and the US approaches to utility sector energy efficiency. In Europe, climate-related objectives (reducing GHG emissions) are the driving motivation for energy efficiency policy, with almost no focus on the value of energy efficiency as a utility system resource. In the United States, the framing is exactly the opposite, with exhaustive focus on energy efficiency as a cost-effective utility system resource, and GHG reduction only occasionally mentioned, typically as an ancillary benefit. Each side could benefit from a better appreciation of the other’s perspective.

Greater transformation needed

Unfortunately, what one sees so far in US utility-of-the-future discussions is primarily the application of new 21st century tools (e.g., smart grid, integration of distributed energy resources, expansion of customer choice, etc.) to pursue the same old 20th century objectives (e.g., reliability, lower costs, shave peaks and achieve high system load factor, etc.). Given that greatly expanded energy efficiency must be an essential component of any feasible strategy to tackle climate change, its absence in these current discussions is a serious missed opportunity.  Reducing GHG emissions needs to be a defining mission for utilities in the 21st century, and much greater utility sector transformation is needed to adequately utilize energy efficiency to achieve that mission. 

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Utility Business Models Energy Efficiency as a Resource 
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