2013 trends for the power industry
I had the opportunity recently to ask a few quick questions to Andre Begosso, managing director of Accenture's Utilities North America strategy practice. Thanks to Andre's expertise, we can flesh out what might happen in the coming weeks and months.
Trend No. 1: The "Dash for Gas" will continue, but don't count coal out
This year, hydraulic fracking and other developments in fossil fuel extraction have tipped the scales in favor of natural gas , thus leading power companies to exploit the record low prices of natural gas-fired generation. Andre said he expects this trend to continue into 2013.
"The price of gas will continue to fluctuate and there is a reason for that," he said. "Price is driven by marginal demand, which in turn is driven mostly by the power generation sector."
Along with the Dash for Gas, another phrase that gained notoriety was the "War on Coal." Energy lobbyists and politicians from coal-producing countries have been among those who claim that the president, the EPA and Congress have it in for coal and are putting the industry at risk deliberately. For his part though, Andre said he doesn't buy this hype.
"The price of gas is the single biggest pressure on the coal sector," he said. "Worse than any regulation or legislation from the government."
Regardless of why coal is feeling the pinch, though, there will always be a need for the baseload power it provides, he said.
"Even in the best case scenarios, we don't have enough gas to completely replace coal," he said. "Not only that, but we have some upcoming technologies currently under development that will allow us to use less coal. Coal will never go away."
Trend No. 2: Utilities get back to their bread and butter
With the American Recovery and Reinvestment Act funding spent and Congress not in a spending mood, I wondered where smart grid pilot programs and smart meter rollouts were going to get their funding. "The ratepayers," predicts Andre.
"In terms of the smart grid, there was a wave of construction, and now people are getting better at applying the technology. We will continue to learn more about how to apply it and how to keep the technology viable," he said.
Some of the more exotic technologies, such as energy storage, that have yet to be firmly proven in the field, utilities will take a rain check on — waiting to see how the technologies evolve over time.
"Utilities will continue to invest in their bread and butter technologies, like AMI. There is no reason for them not to invest in those," he said.
Trend No. 3: Has renewable energy deployment hit a peak?
FERC announced what I thought were some surprising numbers about renewable generation. Biomass, geothermal, solar, wind and hydropower, taken together, accounted for more than 41 percent of new generation put online in the U.S. in 2012.
This is thanks to a variety of factors, Andre said. Government support, in the form of the production tax credit, is one factor, as are state-level renewable portfolio standards.
"A lot of states have a looming 2015 deadline to meet their portfolio standards. Michigan is one of them. So they needed to meet those standards," he said.
In the absence of some major advance in energy storage, Andre said, he expects that renewable energy installation will probably start to slow as its shortcomings become more apparent to utilities and power companies.
"I would not expect these trends to continue because of the tremendous limitation that renewable technologies have. You cannot break the laws of physics or the laws of chemistry. The wind doesn't blow all the time and it never will, and the sun doesn't always shine and it never will," he said.
Trend No. 4: Energy back on the agenda
In my last blog post , I speculated about what it might take to get energy policy back on the agenda. When I asked about this, Andre said energy already is back on the agenda.
"Over the next 3 years, over $220 billion in new infrastructure will be built. But the problem with infrastructure is Rome wasn't built in a day. It takes time," he said.
This new wave of infrastructure upgrades will require a level of patience and understanding on the part of ratepayers that Andre wonders whether the average person is capable of. During Hurricane Sandy, for example, Con Edison had one of the most sophisticated electric grids available — yet it still failed, and people wonder why.
"As much as people hate outages, I don't think they understand them," he said. "If we had to build everything to withstand every possible disaster that could happen, it would never be built. It would be too expensive."
As far as utilities are concerned in this, Andre compares adopting new infrastructure improvements to how consumers usually approach the release of flashy new electronic gizmos.
"Remember when BluRay players were $400? Some people did pay for them, but the average Joe looked at it and said, 'Well, I can still watch movies on my old DVD player.' The infrastructure problem isn't much different from that."
Trend No 5: Growth opportunities will come from new start-ups
Maybe one of the biggest long-term changes the utility industry has ever seen is the reversal of the status quo of energy use. Energy companies are realizing they have a vested interest in getting customers to use less of their product, and this trend in turn is leading to a market for all kinds of consumer gadgets that will help people use less energy.
"The regulatory model of the U.S. was built around capital. The underlying assumption was we'd always have growth and we'd always consume more energy," he said. "What we may see in the future is that assumption might not be true... If you have a good understanding of the way the market works, you will be successful."
Small start-up companies that have a good idea and a way to market it might make a bigger splash in the energy sector with it comes to growth than the older, more established players.
"I just got a new smart thermostat called the Nest , and it's one of the coolest things I've ever bought," he said. "I installed it myself and I'm not a very handy person."
My thanks to Andre Begosso for his help with this post. Andre is a managing director in the Accenture management consulting practice and is focused on the resources operating group. He has more than seventeen years of experience in the utility and energy industries and advises clients in the alternative energy, power generation and oil and gas sectors. Andre has a B.S. in industrial engineering from the university of Sao Paulo, Brazil and an MBA from the Ross School of Business at the University of Michigan.