by Rick Nicholson, Energy Insights
Editor's note: An abbreviated version of this article will be included in the February 2009 issue of Utility Automation & Engineering T&D magazine.
Last January the price of oil topped $90 a barrel and was headed even higher. Energy stocks were up 10 percent for the year. Venture capital investments in cleantech hit a new high and climate change was the dominant new driver of expected investment in energy and information technologies.
Over the past year climate change hasn't gone away but nearly everything else has changed.
We are now experiencing an economic crisis the likes of which none of us have previously experienced in our careers. The merchant sector has been hit hard. Energy industry stocks are following the general market trend and are down a staggering 37 percent over the past 12 months. The credit crunch has slowed capital spending and has forced companies to conserve cash. Energy consumption is expected to be down on a weather normalized basis due to the recession. As of the writing of this article oil was trading at less than $40 a barrel.
However, expectations are high for the Obama administration's energy policies. President-elect Obama continues to stress his commitment to renewable energy and energy efficiency. The anticipated economic stimulus package, dubbed the "American Recovery and Reinvestment Plan," is likely to include subsidies for the build-out of the smart grid. Other key U.S. energy policy initiatives are expected to include a national renewable portfolio standard, stricter environmental regulation and enforcement, a push to put 1 million plug-in hybrid electric vehicles on the road (subject to the fate of the U.S. auto industry), and a mandatory carbon cap-and-trade program, although the latter will probably not emerge until the economy starts to show signs of improvement.
Given this new economic and policy environment, Energy Insights' top 10 predictions for the North American utility industry in 2009 are as follows:
1. Energy efficiency will become the "first fuel" choice for electric utilities.
We expect that utilities will increase their investments in energy efficiency and demand response programs. To support these programs, utilities will increase investments in technologies that enable these programs including intelligent grid components, smart metering, home area networks, in-home displays, smart thermostats and consumer web portals.
2. Renewable energy growth will slow in 2009 but rebound in 2010.
The high cost of credit will slow near-term growth of many renewable energy markets (e.g., wind, solar, geothermal, biomass) but the fundamentals of renewable energy will ensure a rebound by 2010.
3. Utilities will place greater emphasis on distributed energy as a grid support tool.
Investor funding for utility scale energy storage -- especially for automotive and grid-scale applications -- will markedly increase. Accelerated deployment of commercial stationary storage applications are expected to ensue.
4. Intelligent grid technology spending will reach $70 billion in 2013.
Intelligent grid subsidies as part of an economic stimulus package will dramatically accelerate technology investment during 2010-2013. However, this growth will cause the industry to face critical constraints imposed by workforce availability, manufacturing capacity and project complexity.
5. Web portals will be the fastest way to enable active consumer energy management.
Utilities will prioritize the deployment of customer web portals that enable energy efficiency and demand response programs over other similar technology investments in 2009 due to lower costs and easier implementation. Web portals coupled with other technologies such as in-home displays and smart thermostats will become the norm in 2010-2013.
6. Energy trading and risk management technology spending will stall.
Energy trading and risk management technology investment will be down sharply, similar to post-Enron. Companies that don't already have their credit risk capabilities and visibility to position will focus what investment they do make on credit risk and intraday visibility to position.
7. Generators will be focused on managing and reducing carbon exposure.
With increased regulation and the coming cost of carbon but the high cost of emissions controls, companies with fossil fuel generation will look to analytics to help increase the efficiency of plant operations in an effort to grab some emissions reductions. These companies will want more visibility into emissions performance from plant floor to generation management.
Companies with "clean" generation -- renewables and natural gas -- will prepare for mandatory carbon markets and look for ways to improve trading efficiency, while reducing the costs of information technology used to support trading.
8. Scarcity of clean water and availability of new technology will awaken the sleeping water market.
Increasing water rates will begin to provide a price signal that drives conservation initiatives and associated technology investments during the next 2-3 years. However, industry fragmentation will continue to be the biggest challenge.
9. Gas utilities will be hit harder than electric utilities by the economic crisis.
Gas utilities will become increasingly marginalized by electricity-focused energy policies and competition from the electric segment. Any increases in IT spending will be driven primarily by regulatory compliance requirements such as the U.S. Dept. of Transportation distribution integrity management program (DIMP).
10. U.S. utility IT spending growth will decrease to 1.9 percent in 2009, down from 5.9 percent prior to the economic crisis.
Utility CIOs will conserve cash by freezing or slowing down external spending until the credit markets recover -- probably for 3-6 months. Longer term (1-2 years), new IT spending will be used to support energy efficiency, demand response, renewable generation, intelligent grid and carbon management initiatives.
Rick Nicholson is the vice president of research at Energy Insights. In this role, Nicholson is responsible for the company's research-based advisory and consulting offerings, which provide full coverage of the energy industry value chain including both utilities and oil & gas segments. Nicholson has been a contributing writer to a variety of energy industry publications and a regular speaker at industry conferences and has been interviewed on national television news programs. Nicholson holds BA and MA degrees from the State University of New York at Buffalo.