Exploring Hydrocarbon Depletion
Page added on March 6, 2014
I had the pleasure this past week of attending the ARPA-E Summit in Washington, D.C. The ARPA-E Summit is always for me one of the most interesting programs on the industry calendar. Although the Summit focuses primarily on highlighting new energy technologies, much of its program is devoted to discussing the future of energy and the future of the economy more generally. These discussions are often more interesting than the individual new technologies themselves.
This year was no exception. Several speakers and panelists talked about the future of microgrids, distributed generation and distributed storage. Although there was plenty of good news about progress in those technologies and the market opportunities relating to them, the good news was tempered, as usual, by many bemoaning the high price of those new technologies and the need for utilities to move slowly in adopting them.
A new insight for me in thinking about these problems, however, came from David Crane, President and CEO of NRG Energy. Mr. Crane reminded the audience that for all the problems with new energy technologies, the challenges faced by traditional electricity providers may be even worse. Electricity demand in the United States is likely to fall, as electricity consumption becomes increasingly efficient. Mr. Crain opined that this trend will likely accelerate as energy efficiency becomes a function of automation rather than a function of choice. Customers are no longer going to be customers, in the traditional sense. Customers will increasingly be looking to compete with traditional utilities, rather than to just be served by them, with the most lucrative of those customers often being the first to reduce consumption or go off-grid entirely. The traditional electricity business, complained Mr. Crane, is a lousy business.
Schadenfreude is no virtue, but it does have its moments. David Crane reminds us that in thinking about the financial challenges of microgrids, distributed generation systems and distributed energy storage, it is important to remember the question: “Compared to what?”
Mr. Crane noted that one of the consequences of the challenges facing the traditional electricity business is that financing large grid scale projects will become more difficult, as the entities that have in the past owned or used those projects become less creditworthy. This probably means that the cost of traditional, centralized electricity will be going up over time. At the same time, the cost of microgrids, distributed generation and the energy storage devices upon which they depend will almost certainly be going down.
The economic challenges we face in deploying energy storage on the grid are real. But they do not exist in a vacuum. It may well be that because of changes that are happening in the wider electricity business, many new energy technologies, including distributed energy storage, may become economically attractive a lot sooner than many may think.