Climate Action, EV Expansion, Could Be Only Hope For US Utility Sector Facing Death Spiral
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Back when they were created, in the early 20th century, utilities were designed to electrify America. They would invest in the machinery needed to keep up with rising power demand; the returns on those investments would fund the next round of investments; and so on, in perpetuity. It all worked out fine as long as America’s appetite for electricity kept growing, justifying round after round of new investments.
But that’s over now. After 100 years of robust, dependable growth, demand has leveled off. The economy is still growing, but electricity demand isn’t. (As I explained in a longer post last week, this is due to the rise of energy efficiency and the explosion in customer-side solar panels and batteries, all of which reduce demand for utility power.)
With no growth, utilities have no reason to invest in new machinery. With no return on new investments, they can’t pay off the old investments or fund ongoing maintenance. They can go to customers for more money, but to the extent they raise rates, they push more customers to invest in energy efficiency or onsite generation, thus accelerating the problem. This, in a nutshell, is the much-discussed “utility death spiral.” (I also wrote a longer post on that subject.) Utilities aren’t going to implode overnight, but the mid- to long-term prognosis is extremely grim.
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According to Brattle, if US heating and transportation were fully electrified, it would add “3,000 TWh to U.S. electricity demand by 2050, nearly doubling 2015 electric load.” Instead of farting around at 0.6 percent growth, electricity demand would grow 2 percent a year through 2050. As a happy bonus, such a strategy, in conjunction with the greening of the grid, would also produce “economy-wide emissions reductions of over 70% relative to 2015,” helping US states and cities reach their ambitious goals. Of course, heating and transportation are unlikely to be completely electrified anytime soon (plug-in electric vehicles were just 1.13 percent of new vehicle sales in the US in 2017), and it will take a while to green the grid. But the point remains: Aggressive decarbonization could mean more business for utilities!
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https://www.vox.com/energy-and-environment/2018/3/13/17108590/utilities-electrify-everything
