Change is Coming: Top Trends for Energy Employees in 2022
by Bob Shively, Enerdynamics President and Lead Facilitator
Energy companies around the world are going through rapid transformation as climate change, decarbonization, decentralization, digitization, and customer desires for customization require radical changes to traditional business models. Employees in all positions at energy companies can expect to encounter numerous trends in 2022.
Here are 10 top trends you may be integrating into your 2022 work routine:
- Decarbonization of energy delivery
Energy policy makers, regulators, investors, and customers are pushing energy companies to reduce greenhouse gas emissions. On the electric side impacts include changes in electric supply from fossil fuel generation to renewables, integration of batteries into the grid, programs for electrification of loads, programs to foster electric vehicle (EV) growth, increased energy efficiency and demand response offerings, and growth of customer-owned solar. On the gas side, energy companies must rapidly ramp up efforts to transparently reduce methane emissions, add renewable natural gas (RNG) into supply streams, and, for the longer term, investigate replacing natural gas with blue or green hydrogen.
- Infrastructure upgrades
Utilities expect to spend billions of dollars upgrading electric and gas infrastructure. For electric utilities, upgrades are needed to address impacts of climate change, integrate digital technologies into the grid, and prepare for a future of prevalent distributed energy resources (DERs). On the gas side, utilities are focused on upgrading old facilities to improve safety and reliability. This includes replacement of cast iron pipes in older areas, replacement of early-generation plastic pipe that is now failing, and testing/replacing older steel pipe as needed. Some companies will also implement pilot projects to inject hydrogen into gas streams to determine what upgrades are required to make this a viable future option.
- New services for customers
The old days of simply providing electric and gas supply at reasonable levels of reliability and cost are no longer sufficient for today’s consumers. They now demand service choice, multiple channels of communication, and customization. Energy companies must find the right mix of services and communication tools. Utilities should realize that while they may have a monopoly on energy delivery, they now have strong competition for numerous other energy-related services.
- Rate cases and new rate designs
Many utilities have been able to remain profitable for years without going in for new rate cases. Some utilities have gone as long at 10 years or more without filing a rate case. With the need to raise rates to cover infrastructure upgrades and address potential load loss due to rooftop solar on the electric side and electrification on the gas side, utilities are needing to file rate cases to maintain profitability. In other cases, they are being required to file by their regulators. A key question in rate cases is rate design. With the growth of renewables and DERs on the electric side and potential loss of load on the gas side, the traditional rate structure focusing primarily on flat volumetric rates may no longer work. Considerations likely to arise include time-of-use rates, larger fixed components to rates, and revisiting net-energy metering.
- New earnings mechanisms for utilities
The utility industry has mostly relied on the cost-of-service model where earnings are based on a return on reasonable capital investments. As we enter the energy transition, this model is being reconsidered by many policy makers, regulators, and utility managers. New models already being implemented in some regions include performance-based ratemaking (PBR) where earnings depend on performance relative to specific operational targets, shared savings where contracts with third parties help save on expenses and increase shareholder/utility profits, and market-based earnings where new utility services may help boost profits outside of traditional regulatory mechanisms.
- Energy affordability initiatives
Unfortunately for customers, decarbonization and infrastructure upgrades will cost a lot of money. And for gas customers, load loss results in the same amount of fixed costs spread among fewer customers. Inevitably rates will go up. A significant concern is the impact of higher rates on low- and middle-income customers. Utilities must work closely with regulators and customers to find ways to mute these impacts.
- Integration of data analysis into operations
With the cost of data collection dropping and the need for better reponses to climate change and infrastructure costs, data analytics is a key area for energy companies. Of course, most other industries are also growing this function, so attracting or developing employees with data analytics skills will be critical. Then, these employees must work closely with field and customer service employees to ensure that data analytics results in actual work benefits.
- Globalization of gas markets
With the rise in liquefied natural gas (LNG) exports to Europe, Asia, and South America and in pipeline exports to Mexico, the U.S. gas market is becoming increasingly globalized. This results in gas price fluctuations not only based on traditional national supply and demand caused by weather, production, and storage factors, but also market conditions around the world. Given limits on investment in new production and ongoing investments in export capability, we can expect ongoing volatility in natural gas prices based on global as well as local factors.
- Identifying a new future for natural gas utilities
Given the combination of decarbonization and electrification efforts, many gas utilities must face a future of shrinking sales while costs continue to rise due to needed investment in safety and reliability. Gas utilities must identify new strategies for long-term growth. Transitioning to a business based on multiple fuels including low-carbon methane, RNG, and hydrogen may present a viable future. In the meantime, gas utilities must consider retirement of underutilized facilities and shortening depreciation lives to recognize likely future retirements.
- Identifying new energy company business models
Utilities around the world must focus on identifying and implementing business models that reflect the new market realities. Utilities must decide if they want to cede providing supply and services to other entities and simply focus on being a network operator or attempt to be a full-service provider either through a suite of regulated services or through partnerships with third parties. Expect to see lots of experimentation with various alternatives and a variety of directions from different utilities in the coming years.
Given these trends, what can you look forward to? Plenty of change but also lots of opportunity. The next decade will likely see the biggest shifts in energy companies since the development of the utility model in the early the 1900s. Successful companies will move forward immediately in 2022. And as an energy employee, you have the opportunity to be on the ground floor of transitioning an industry that is critical to all of society.
Learn more about Enerdynamics' seminar The Future of the Utility: Evolving Customers, Changing Technology, Revised Regulation, New Business Models, and Growing Opportunities. This electric/natural gas seminar is available in a live and live/virutal format. It explores how emerging technologies and rising competition are rapidly changing the utility business model and how this evolution is affecting how utilities offer services and make money. Call 866-765-5432 ext. 700 or email us for more information.