Sleepy Electric Utilities Suddenly Face Major Disruption: How To Play It
Commercial disruption is happening at an increasing pace. Some industries have learned to live with constant disruption. These include the tech industry, pharma, biotech, and communications. Others formerly unaffected now are increasingly facing it. The financials sector is being disrupted by Fintech. The formerly staid food industry has been disrupted by meat alternatives, GMO ingredients and organics.
The electric utility industry has quietly gone about its business with few major changes to its business model for a century. Sure, there have been some shockwaves, but most resulted in only moderate change. One event that had an impact was the oil embargoes of 1973 and 1979. In 1973, 16% of power plants’ fuel was oil. Due in large part to those events, today it is 1%. Starting in the 1970s, there were anti-nuclear plant protests that slowed and then stopped the construction of new nuclear power plants in the U.S. double-digit interest rates in the early 1980s made heavy capital expenses expensive for a time. In more recent years, there was a proliferation of non-regulated fossil fuel power plants. However, many of those did not provide adequate returns on investment.
The electric utility industry has seen little growth of the power grid in recent years. However, there has been rapid annual growth in the past due to changes in technology. There was rapid growth from 1970-1975, a period corresponding to the electrification of homes in the rural U.S. and the addition of household appliances such as refrigerators and clothes washers and dryers. It happened again during 1990-1995, due to the wider scale installation of air conditioning.
The rise of electric vehicles (EVs) will create a new wave of growth. The difference this time is the growth will not be primarily through fossil fuel but more from renewables and other sources. That means more effort will be needed to balance when the power is produced (when the sun shines or it’s windy) to when it is needed. The major disruptions are listed below.
Earlier this year, President Biden announced a goal to cut greenhouse pollution by 50% from 2005 by 2030. This plan relies heavily on energy plants reducing coal and increasing renewable energy. They will also eventually need to cut back on natural gas. To date, more than 150 cities, counties and states across America have passed resolutions to commit to 100 percent net renewable electricity in the coming years.
Last year, 78% of new power installations were wind, solar, and battery storage. The more solar and wind power, the harder balancing the grid becomes. There will be a huge demand for ways to keep the power flowing when those two sources are not working. This may include battery backups, hydrogen power, small modular nuclear reactors and other energy storage methods.