Lara Krecic, DNV, 9/14/2021
Here at DNV, we have a unique understanding of the energy transition, which is of strategic importance to us as well as our customers. It is our fervent belief that the energy industry can and must take the lead in driving the energy transition. We discussed the hurdles with a diverse group of experts across the DNV Energy Systems teams and issued a challenge: Convince me that the energy transition is possible.
Electrification is a major priority shift for the energy industry. But with the right partnerships and programs, utilities can accelerate electrification.
As part of the #ConvinceMe series kicked off by Nick Brod, my colleagues have shared the core changes that need to be made in three key areas—and in many cases, are already underway—to accelerate electrification and the energy transition. Energy regulations must forge avenues for public investment in electrification, reflecting the true social costs and benefits, and establishing clear expectations. Likewise, the traditional utility business model must evolve to support this new mission. Profits must be decoupled from commodity sales to reward electrification. Finally, grid infrastructure must be modernized to integrate clean energy solutions.
The pivot to electrification represents a tectonic priority shift for the energy industry, which has driven energy efficiency programs for the past two decades. But with the right partnerships and programs in place, utilities can make these core changes and accelerate electrification.
Utilities must increase DERs offerings
Up until recently, utilities have been laser-focused on demand-side usage. But today, as new clean energy technologies emerge, utilities must also focus on the supply side. Currently, few utilities have offerings around distributed energy resources (DERs), except perhaps solar which is still under-resourced.
Meanwhile, building owners and energy customers are looking at electric vehicles, energy storage, and solar options that fall outside utilities’ purview. Furthermore, DER aggregation vendors are going direct to utility customers, frequently leaving utilities out of the conversation.
To meet demand more efficiently, utilities can play a proactive role in driving DER adoption through programmatic offerings that integrate customer choice. This is especially true following FERC order 2222, which promotes DER participation in wholesale energy markets.
To stay competitive and align with market shifts, utilities need to create avenues for customers to access the DER services they need. Utilities have the opportunity to set DER-responsive rates to influence customer behavior. Additionally, utilities can integrate the performance of DERs to benefit the grid through reduced infrastructure costs and improved reliability.
Forging new partnerships and strengthening existing ones
Achieving this next phase of market transformation necessitates deeper and broader collaboration and the identification of funding opportunities such as federal dollars, crowd-funding, and clean energy financing. These partnerships look different for different utilities.
For example, some utilities provide on-bill financing, enabling customers to repay loans through energy savings. Other utilities choose to take an active role in third-party financing by partnering with financial institutions that provide loans for energy efficient, clean energy, or LEED construction projects. The idea is to work with partners to co-develop opportunities that empower customers to make the right decisions around electrification.
Additionally, utilities must engage closely with regulators and other stakeholders to establish goals and key performance indicators, anticipate challenges such as cost-effectiveness and free ridership, and define how programs should be structured to go to market. One of the key challenges utilities must contend with is balancing out costs vs benefits and refactoring traditional rebate-driven programs into modern electrification programs that reflect new goals.
In some states, we’ve seen a shift from traditional cost effectiveness to total system benefit. The traditional energy efficiency resources portfolio is evolving. Previously, portfolio cost effectiveness governed program design and performance. New models of program offerings incorporate social costs and have redefined what is considered cost-effective. In a recent report, we cited the need for a new approach to selling and promoting the non-energy benefits of energy efficient technologies, such as occupant comfort and accident reduction.
The corporate world is also seeking opportunities to increase electrification and sustainability. Increasingly, corporate customers are expected to report on climate risks and impact. If a company is planning to expand or relocate, the cost and cleanliness of electricity matters. Failing to address these issues has a negative economic impact.
Lots of pieces must come together—and utilities must play a role. Pilots offer an excellent testing ground for utilities to trial program implementation on a small scale, test the market, and educate consumers. With good data collection, many lessons can be understood around what works and what doesn’t, unique use cases and operating characteristics, and customer behaviors and choices. By piloting and optimizing programs on a small scale, utilities can often identify challenges early, make adjustments, and pave the way for success on a bigger scale.
Education plays a pivotal role
Among their many hats, utilities are also expected to be trusted advisors responsible for educating suppliers, vendors, partners, customers—in fact, the whole supply chain. This role requires a keen market understanding and the ability to surface insights and solutions that align with the needs of their stakeholders. This role is also an opportunity to shape the electrification effort.
In Arizona, when the electrification effort was nascent, Arizona Public Service Electric (APS) ascertained a need for education at the state, regulatory level. APS brought in industry experts and provided workshops to help regulators and other stakeholders understand electrification and the major role it must play in a clean energy future. By coming in as a trusted advisor, APS was able to collaborate more effectively and help guide regulatory process from the outset.
Utilities central to the future of electrification
The fact is that while electrification is a global issue, much of the burden falls squarely on the shoulders of utilities. It’s a big responsibility requiring a shift in priorities and mindset. While adapting isn’t easy, there is a path forward and it behooves utilities to be proactive by setting firm, aspirational goals now. The good news is that politicians, regulators, corporations, and consumers are all looking to fast-track electrification and new DER offerings are hitting the marketplace faster than ever.
To learn more about the future of electrification, be sure to download Energy Transition Outlook 2021: Financing the Energy Transition. To explore ways to accelerate your electrification journey, contact the experts at DNV.