Independent power producers (IPP), distributed generation (DG), and net metering are among the factors that will most significantly alter the electricity generation landscape in the coming years, this according to Black & Veatch’s ninth annual report on the electric industry released today.
The report, Strategic Directions: U.S. Electric Industry, says “The traditional utility model faces a perfect storm of challenges. New technologies, environmental pressures, regulatory drivers, and changing customer preference are threatening the stability of a century-old business model.”
The Black & Veatch survey was conducted in May and June of 2015 and draws on the expertise of 435 respondents representing stakeholders from across the electric generation industry.
Asked to name the most important issues facing the industry, respondents ranked the following concerns at the top of their lists:
- Aging infrastructure
- Environmental regulation
- Aging workforce
Citing forecasts by the Edison Electric Institute, the report notes that “investor-owned utilities will spend nearly $60 billion through 2017 on grid modernization and reliability, new transmission lines and substations, and other improvements.”
Distributed generation and net metering
According to the report, the disruptive force of DG will actively challenge utilities to alter their strategies for maintaining reliability, resilience, and profit. Governments and public utility commissions must balance regulatory treatment of utilities and consumers in the face of increasing integration of distributed energy resources.
Eighty percent of respondents feel that distributed generation (especially solar) will seriously challenge their business, with those professionals in the industry longer feeling less concerned about the issue than those in the industry for shorter periods of time.
Nearly one-third of utilities say they are currently reviewing policies on net metering. Nearly 75 percent of respondents are open to investing in behind-the-meter and distributed grid infrastructure. And more than half of respondents believe that six to 10 percent of all U.S. power generation will come from distributed generation by 2020, effectively doubling current numbers.
Nearly two-thirds of respondents expect the impacts of DG to carry significant long-term repercussions. Nearly 65 percent believe that at least some investment in their electric distribution systems will be required to accommodate the integration of distributed energy resources like solar. More than 70 percent of respondents believe that net metering will be a significant issue in the long-term financial viability of electric utilities.
These fundamental changes in the utility industry will necessitate modifications to a regulatory system that has been in place for decades in order to bring it into compatibility with modern distributed generation business models, says the report.
Independent power producers
In deregulated markets, the influence and activity level of IPPs on new generation capacity has grown, with 46.1 percent of respondents believing that the increased portfolio share of renewable energy is the primary driver, according to the report. Respondents in the Southeast and Midwest believe that IPPs have less influence on new generation capacity. In these regions, regulations favor traditional utilities and renewable energy has not yet achieved the level of market penetration seen elsewhere.
Half of Southeastern respondents believe IPPs will generate 20 percent or less of all new capacity through 2018, while nearly one-third of respondents from the Mid-Atlantic region believe that 60 percent or more of capacity will be generated by IPPs during the same period, mostly due to increased demand for renewables and distributed generation in the face of traditional coal plant retirements in the region. Nearly 40 percent of respondents say their utilities are reacting to the increased presence of IPP generation by placing greater focus on transmission infrastructure.
Utilities feel that renewable energy and battery storage will most impact the demand response trends in their business, with more than 62 percent of respondents believing the trends will have a significant impact on business. Over 65 percent of respondents believe that investments in renewable energy will increase over the next five years, as compared to an average 85 percent in other countries.
Survey respondents maintain confidence in the availability of low-cost natural gas, the vast majority believing that natural gas-fired generation will take away market share from nuclear and coal. Only 11 percent of respondents believe new baseload generation will be responsible for the increased role of natural gas in the generation landscape, with the replacement of coal plants accounting for the greatest upswing in natural gas demand. Nearly a quarter of respondents believe the role of natural gas as a fast-response backup for renewables will have an impact on the market.
Respondents were also concerned about cyber security breaches, with more than half of North American utilities feeling they were prepared to address the North American Electric Reliability (NERC) Critical Infrastructure Protection (CIP) low impact cybersecurity requirements set to become active in April 2016.