Utility revolution could help users become less dependent on grid
Imagine a miniature power plant, or at least heavy-duty batteries, in scores of homes and businesses. And now imagine what that would do to the utility industry — and to the companies that make fuel used to produce electricity.
The underlying shift would lead to decentralization of the power grid, as the region and the country move away from an electricity system that relies on large power plants. The trend line is clear, as supersized power plants become too expensive to build and maintain, and other options become more affordable.
The question: How quickly will this shift occur?
The crystal ball, however, is cloudy. The energy markets, and their underlying technologies, are prone to rapid and unpredictable change.
David B. Williams, dean of the College of Engineering at Ohio State University, explained this with an aphorism whose idea has been attributed to Mark Twain and Yogi Berra, among others: “Prophecy is very dangerous, especially about the future.”
In Williams’ program, faculty deal with uncertainty by trying to prepare for a variety of scenarios and also maintaining a diversity of expertise.
Right now and for the immediate future, energy companies are relying on abundant supplies of cheap natural gas to provide around-the-clock electricity and serve as the backbone of the power grid. Wind, solar and other renewables make contributions. Meanwhile, coal-fired and nuclear power are being phased out for the most part, with hardly any new plants being built, at least in this country.
Looking far ahead, a few big and interconnected factors will help determine the pace of change:
• Researchers and businesses are developing batteries that could be used as backup power for homes and businesses. This, along with advances in energy efficiency, will transform the demand side of the electricity system.
• Natural-gas prices probably won’t remain as low and as stable as they have been in recent years. The current reliance on gas for new power plants is tied to low prices, which in turn is tied to the seemingly limitless supply of gas from domestic shale formations. But longtime observers of the gas market do not expect low prices to continue forever, as
gas exports and rising demand help shape markets.
• Use of renewable energy is going to grow, fueled by demand from environmentally minded companies and consumers, and by the improving cost-competitiveness of wind and solar. The question is how can the electricity grid handle this increase with intermittent electricity sources? The answer likely will be closely tied to the progress that companies make toward developing affordable, reliable systems of battery storage.
An affordable storage system is “the real pot of gold at the end of the rainbow,” said Scott Miller, associate dean at the Russ College of Engineering and Technology at Ohio University in Athens.
Navigant Research is projecting a nearly 40-fold increase in The government’s Energy Information Administration issues annual forecasts of how the country’s energy use might change in the decades to come, with different outlooks for various scenarios. The figures below are taken from the “reference case,” which is the main forecast, and show the rise of natural gas and renewable energy sources and the fall of coal and nuclear power. the use of home-based battery storage worldwide, going from 94.9 megawatts last year to a forecast of 3,773 megawatts in 2025.
The research and consulting firm says utility companies likely will lead the way with the largest systems that operate as part of the grid. That would be in addition to homes and businesses with their own systems.
“It’s really sort of the beginning of the decentralization of everything, and batteries are an important part of that,” said Alex Eller, a research analyst who specializes in energy storage for Navigant.
Volatility returns
For energy professionals who got their start in about 2000, it was almost a given that natural-gas prices were rising as part of a cycle of highly volatile ups and downs. Businesses were founded with models that sought to shield customers from the volatility.
And then, gas prices took a tumble in 2008, hit by the stiff recession and then by the emergence of a vast supply of gas from U.S. shale formations, including in eastern Ohio. The U.S. benchmark price of gas has been less than $5 per 1,000 cubic feet since early 2010, a remarkable run of low prices.
Just as someone entering the energy business in 2000 saw volatility as a way of life, someone who came in around 2010 might think that low prices are normal and will continue.
But there are several factors that point to an increase in gas prices. First is a construction boom in gas-fired power plants, including several new units in Ohio. Second is the development of infrastructure and rules that will allow for gas exports.
“I don’t think anybody who’s ever watched naturalgas market prices expects the cost to stay low” as more gas is exported, said Miller of Ohio University.
Boom or bust?
Another factor that could lead to higher natural-gas prices is a dropoff in the efficiency of production from shale, including in the Utica and Marcellus shale in Ohio.
Energy producers are able to extract oil and gas from shale by using hydraulic fracturing (“fracking”) and horizontal drilling, tapping into resources that were once too far below the ground to be easily accessible. A shale well has high initial costs, but those are somewhat mitigated by the fact that many of the wells are gushers, with high production figures. But then many have big dropoffs in production, sometimes after only a few months.
“The initial declines are very steep on new wells, but then they level out after six months to a year and are likely to produce at that rate for a very long time,” said Ben Ebenhack, associate chairman of the petroleum engineering department at Marietta College in eastern Ohio.
When he looks ahead, one of his questions
has to do with the number of wells.
“It’s not just what happens with (the decline rates of) individual wells, but how many wells will the Utica and Marcellus really support in the long run,” he said.
There are many possible scenarios. At one extreme, energy companies have only begun to tap resources from shale, and this is an energy boom that will last generations. At the other extreme, the heyday for Ohio shale country will be short-lived. The latter would contribute to a tightening of the gas supply and rise in prices.
“I am confident that we have not seen the heyday come and go,” Ebenhack said. “We haven’t seen the best of it yet.”
And yet, he has been working in and around the energy business long enough to know that just about anything is possible.
About the closest thing to consensus about the future of energy-generating technology is that renewable power is going to continue its rapid growth. Utility companies, residents and businesses are going to continue to invest in wind turbines and photovoltaic panels, wooed by a decrease in costs and a desire to reduce the pollution footprint of energy production.
The U.S. Energy Information Administration’s long-term forecast shows a series of milestones as
renewable energy gains more prominence. The office’s most recent forecast shows that renewable energy will pass nuclear energy by 2021 and coal by 2031 in terms of kilowatt hours produced. After that, only natural gas is expected to have a larger share.
A few caveats: The forecast is updated each year and includes figures for several different scenarios. The outlook described here is one of those scenarios, close to the middle of the various assumptions about the economy and changes to energy policy.
One of the variables is the presence, or absence, of the federal Clean Power Plan, which places limits on carbon emissions from power plants. Since the forecast was issued, the Trump administration has said it is beginning the process of unraveling the Clean Power Plan.
The Energy Information Administration forecast includes scenarios with and without the carbon limits. But the ability to issue a forecast belies the uncertainty about many facets of this federal policy, which was already embroiled in litigation before the Trump administration’s action.
Also, energy analysts note that the broad contours of the market are not likely to shift much because of this one policy.
For renewable energy to reach some of the most optimistic growth targets, there will need to be substantial adoption of battery storage units by residents and businesses.
The technologies are linked because battery systems, if deployed on a large scale, would allow the output from wind farms and solar arrays to be stored for use during times of peak demand. So, energy from an Iowa wind farm in the middle of the night could be stored for later use when power demand is higher.
In addition to batteries, consumers could help decentralize the grid by installing mini-power plants. Researchers have made progress on fuel cells, which convert a fuel such as natural gas to electricity, and would be small enough to fit in basements or boiler rooms. Fuel cells could provide backup power and help reduce strain during times of high demand on the grid.
Fuel cells are one of several technologies that have the potential to throw the whole system for a loop and confound the forecasters.
Grid still vital
The common thread is that there are many competing methods to help the individual user become less dependent on the grid. And that gives pause to utility companies and regulators who have a responsibility to maintain the grid.
No matter how much the grid becomes decentralized, there still will be a need for it. Not every home and business will be able to afford its own power system, creating a potential for a division between the haves and have-nots.
Utility companies and policymakers will need to figure out how to maintain reliable electricity in an environment in which many consumers might be able to disconnect from the system.
One of the likely scenarios is that utility companies will become leaders in the deployment of new technologies.
There are hints of how the transition could happen by looking at regulatory battles over rooftop solar power. Utility companies have taken action in several states to require that home-based solar panels be connected to the grid, and have limited some of the financial benefits of selling excess solar power into the grid.
Eller, the Navigant analyst, expects the developments to be done with utility companies closely involved. He says the companies could offer to install small battery systems, about the size of a mini fridge, that provide backup power and are connected to the grid.
“Customers will pay extra each month to have a battery installed, and the utility will own and operate it,” he said.
And that — a simple fee for service — might be the most familiar thing about this potential future.