Seeking Alpha has a look at some of the downstream impacts of an economic stimulus package that expands and modernises the US electricity grid - Electric Stimulus Crunch? Generating Utilities May See 10% Revenue Declines.
A lot of renewable energy makes sense when one looks at the 20 year levelized cost of energy. All one has to do is make assumptions about Coal and Natural gas inflation over the next few years and wind and some forms of solar start looking good from a risk management perspective in a power generating portfolio. Here is a spreadsheet tool for comparing renewable energy costs with fossil based equivalents.
Please note oil generates only 1.6% of electricity in the U.S. So please ignore any pundit comparing electricity generation via wind and solar with oil prices at $X price, it is a red herring and something for the CNBC crowd.
The new stimulus package is going to include $54 billion for efficiency. If one assumes that these efficiency investments have a 6 year payback period or IRR of 16.6%, then we might see about $8.64 billion less spent on fuel for heating and electricity due to efficiency savings. If we assume a 50-50% split for electric and fuel based energy, then there could be a $4.3billion contraction going forward in the U.S. electric market due to the stimulus.
This isn't a huge hit for a +$320b industry, but look out if a green smart grid gets put in for transmission and distribution, then it could be a 10% upstream demand side hit going forward. Yes, I am for the green smart grid as it will make things more efficient, safe and reliable over time, but it is important to realize all change has ripples.
The real crunch: The larger impact comes from national HVDC transmission installation and efficiencies in distribution. You can read about the U.S. grid here.
ABB thinks upstream demand could be reduced over 10% with an HVDC grid and smart distribution. See report here and read with care, this is a vendor speaking.
That could mean a +10% decline in demand for power generation, a big decline in upstream generating requirements. From a value investor's perspective, some generators' moats are going to get smaller as the effective grids get larger and more efficient. Depending on the wholesale to retail mark-up, it could be $10 billion in lost upstream generating revenues. Utility experts feel free to submit your estimates in the comments.
On top of the decline in revenue for power generators, a national HVDC grid and / or making the current multiple U.S. grids more efficient would mean the retirement of many Peaker plants and other fixed assets held by generating utilities.
Currently grid congestion means that peaker plants and other capex are required to be available. Depending on the regulatory regime, firms receive compensation for a fair ROI on these assets. In light of efficient grids a lot of these will become redundant, shrinking the rate base. Regulatory regimes vary from state to state and region to region. EnerNoc (ENOC) and other smart load management systems could see their market shrink dramatically.
A smart green grid makes sense. Some wind farms actually had negative electric rates due to poor grid infrastructure. The generating utilities and FERC have been far too cozy for too long.
Upstream electricity demand will shrink. That might not be a bad thing on the macro scale. Some utilities with generating assets instead of just T&D (transmission & distribution) may face a bit of a challenge as the assumption of 1%/ year growth reverses quickly and they are fixed with usage assumptions and fixed debt loads. Earnings could suffer.
Ever wonder why those smart meters never made it into your home or why you never had variable rate electricity pricing? The technology has been around for 20 years. The problem is no utility wants to pay for the privilege of shrinking the consumption rate of their product. Variable rate pricing and in-house meters cause behavior shifts in domestic users leading to 3-10% declines in consumption. Makes a person think a little about what will happen if these become standard.
I am not advocating an energy or policy position, just saying, it pays to look around and see who the winners and losers are from inevitable change that is happening; in the long run efficient, sustainable use of resources benefits everyone. Decisions made in energy typically run for 20-30 years, so before you jump to a decision think about your children's world.
SmartMeters.com also has a look at smart grids and the economic stimulus package - Latest stimulus chatter calls for $32 billion for smart grid.
Democrats in the U.S. House of Representatives, who make up the voting majority, are calling for increased amounts to bolster enhanced IT services in the country. The American Recovery and Reinvestment Bill of 2009, worth $825 billion, now has $80 billion earmarked for smart grid and renewable energy development, increased broadband Internet services, and for the computerization of health records.
Of that $80 billion figure, $32 billion has been allotted for the development of an American smart grid, plus another $22 billion for renewable energy development. Development of the smart grid is critical for intermittent nature of renewable power sources such as wind and solar energy.
Renewable sources are only generating power when the wind is blowing or when the sun is shining; however when available it needs to be harnessed. Large wind farms and vast solar arrays tend to be distributed widely in distant, remote areas. Transmitting energy from these sources is only possible with smart grid infrastructure in place that applies networking concepts to the distribution of energy.
Typically, 7 percent of power generated in the United States goes immediately to waste because of defective transmission lines and other mechanical problems, or theft. Inefficiencies at the transmission end cost the industry around $20 billion in revenue that is never realized.
The costs are even greater when otherwise unused power plants have to be fired up in order to meet demand, or when new ones must be built. Currently, these are accepted facts within the industry. Amazingly, a method for tracking exactly where electricity transmission lost doesn’t exist without a smart grid in place.
A smart grid allows the electrical distribution and transmission system to operate much more efficiently – conserving energy and saving money for consumers at the same time. Utilities can then better manage the energy supply using a technique called demand response. By setting the price according to what the current demand for electricity is, utilities can smooth out demand spikes – long the bane of the industry.
The power grid is also much more reliable and secure as a result. Utilities no longer have to rely on their customers that an outage has occurred – since the smart grid is constantly monitored in real-time personnel are instantly notified that a problem has occurred, or is about to occur in some cases. Further down the road, plug-in hybrid vehicle technology can be introduced to the smart grid, in addition to the integration of renewable power.
SmartMeters.com also has a post on a smart meter display called an "energy orb" - Smart meters to transform energy consumers.
In the future, every home and building in America may be equipped with a “building dashboard” accompanied with an “energy orb” that can be used to help consumers come out of their energy-wasting ignorance. Consumers would be transformed into informed and sophisticated “sippers” of energy instead.
Much has been said about the use of renewable energy resources to lessen the damaging effects of carbon emissions, but Dr. John Peterson, a professor of environmental science at Oberlin College, believes buildings should also be targeted for energy waste. In the United States, buildings are responsible for about 40 percent of total energy consumption – much of it generated by the burning of dirty fossil fuels.
Peterson says that Americans could get by on much less power if people had more information regarding their energy consumption. A smart meter can be installed in the home that informs inhabitants of the level of energy consumption, along with the real-time price associated with consuming that power. “You’ve got dashboards in your car, but until recently nobody had really created one for buildings,” said Peterson in an interview with KRISTV in Corpus Christi, Texas. “It’s all about citizens being better informed about energy use – understanding the context of one’s actions.”
Petersen helped event the aforementioned orb and dashboard. He says they “engage, entertain, educate, and empower,” or the four “Es.” Studies have shown repeatedly that if consumers had the necessary tools that provided the right information that they will take corrective action in order to conserve energy.
Petersen’s energy orb is designed to remind consumers to check their building dashboard – which would essentially be a smart meter display. Displays would be viewable over the Internet, or through a variety of hand-held devices. The dashboard can also inform the consumer on how much energy they have saved in monetary terms – or environmental ones such as CO2 tons saved.
Energy orbs now adorn dorms at Oberlin College. When it glows red, students are reminded that energy consumption is very high and they need to conserve. When the orb is green, consumption is at an acceptable level. Students at the college don’t even have to pay electric bills but have demonstrated that they can cut consumption by 56 percent when competing with each other. ...
Soon, the company expects to deploy a Facebook application that allows energy consumption to be compared with other users of the popular social networking site.
Jesse Berst of Smart Grid News has a book coming out soon on "Electronomics: How the Smart Grid Will Power American Prosperity" in which he argues hat updating the grid will rebound the economy. Greentech Media has an excerpt - Electronomics, or How the Smart Grid Will Power Wealth, Pt. I.
Electronomics – which studies the creation of national prosperity and personal wealth as we transition from today's Petroleum Economy to tomorrow's Electricity Economy – offers essential learning for public and private sector decision makers in the Age of Obama.
And the key word here is "essential."
At a time of financial crisis, the impending and evolving Electricity Economy represents the biggest industrial and entrepreneurial opportunity since the Petroleum Economy it's poised to replace. The Electricity Economy is so large, in fact, that it dwarfs the Internet, the interstate highway system or our vast telecommunications networks in its ability to create new industries, new wealth and new national prosperity.
This enormous potential exists because – even though most people don't realize it – we've already passed the tipping point. In 1950, 20 percent of the U.S. GDP was directly dependent on electricity, according to the Manhattan Institute; today, the figure is at 60 percent – and rising.
Creating New Companies and New Industries
That means we can expect to see the creation of huge new companies – next-generation Microsofts and Googles – as well as fresh fortunes for entrepreneurs who gain early-mover advantage. It also signals legions of new and good-paying jobs that will enhance and sustain our quality of life and standard of living.
So, the upside opportunities of the Electricity Economy are clearly in our financial interest.
They're also in our environmental and national security interests.
Recent forecasts predict that electricity generation will dou ble between now and 2030, and our ever-increasing consumption is putting additional and harmful pressure on the environment (50 percent of U.S. electricity comes from dirty coal plants) and on our aging and overstressed power grid.
But, if we invest wisely in a new, intelligent and digital electric infrastructure – the smart grid – we can seriously cut our dependence on fossil fuels because a new 21st century electric network will make it easier to use renewable energy sources.
The current electricity grid simply wasn't built for wind or solar power, which often have to be generated from great distances before they can effectively reach end users. And, if it's a still or cloudy day, wind and solar power can also be intermittent, putting additional peak-and-trough usage pressure on the already shaky electricity grid.
But, since 60 percent of the current electricity infrastructure needs to be replaced over the next decade anyway, there's a significant opportunity to re-tool and re-invent more cleanly and greenly.
Customizing Our Electricity Consumption
The efficiencies of the smart grid are also promising; some analysts believe we will be able to reduce our energy consumption by up to 30 percent when all is said and done, thanks to a host of intelligent devices that will monitor usage patterns, customize electricity consumption and balance supply and demand across large regions.
For consumers, a smart grid promises lower energy costs – our overall electricity bills today are two times larger than our telephone bills – and an end to today's "one-size-fits-all" electricity pricing; in the future, people will be able to choose an electricity plan just as they now choose a calling plan. What's more, the new digital infrastructure will scale down and decentralize electricity distribution, giving communities, co-ops and campuses the option to become self-reliant and self-sustaining.
And to combat climate change, the proliferation of smart grid technology offers the chance to completely transform our transportation sector from petroleum to electricity. Analysts believe there's no reason that 25 percent of all vehicles on our roads and highways can't –and shouldn't – be electrified by 2020.
One more post from SmartMeters.com, this one noting that Finland is leading the way in Europe - Finland leads Europe in smart grid development.
Utilities in Finland are spearheading the European goal of deploying smart grid technology in order to protect the environment by using less energy much more efficiently.
Last year Landis+Gyr finalised contracts with Finnish utilities that will deploy smart meter technology for nearly 150,000 consumers. Landis+Gyr is a world leading provider of energy management solutions. The Finnish energy consumers will soon be able to monitor their energy consumption much more closely as they will become aware of precisely how much they are using, and how much it costs, in real-time.
Solutions involving smart meter technology are expected to completely change the way consumers use energy and the way the aggregate supply is managed. Energy providers will have, for the first time ever, a two-way flow of information where before electricity was merely transmitted one-way.
This treasure-trove of feedback will allow utilities to run their power grids much more efficiently by managing demand and will have a much more secure power grid. Utilities will be constantly aware of the state of the power grid. This much more efficient smart grid will result in lower carbon emissions.
SmartBrief reports that smart meter penetration in the US is already rising rapidly - Report: Smart meters now 4.7% of meters in U.S..
Smart meters make up 4.7% of installed meters in the U.S, according to a Federal Energy Regulatory Commission report. In 2006, smart meters accounted for 1% of installed meters nationwide. As smart meters gain acceptance, state utilities continue to promote demand response and smart grid technologies for consumers.