Hugo van Nispen has been with the consultancy formerly known as KEMA through all of its "various corporate shifts" -- first as CEO of KEMA, then as COO of the newly formed DNV KEMA's Energy & Sustainability America’s Division, and today as the director of DNV GL's Global Energy Advisory.
But just as KEMA evolved, utilities today are also evolving. Van Nispen, an energy consultant himself, believes these changes raise significant challenges for utilities, while also opening the door to new opportunities.
Utility Dive spoke with van Nispen about what he thinks the best path forward is for utilities today.
Disruption
“We understand that as a society we are collectively seeking to move to a lower carbon footprint," van Nispen said. "We can debate how low ‘low’ is – but nevertheless we want to use less carbon than we use today.”
But as we're trying to move to a lower carbon footprint, "we are also saying that we don’t want to give up any of the things that we are accustomed to – reliability, resilience, certainty of supply, and so on," van Nispen noted. "Technology is racing to catch up, but it’s not there yet.”
As utilities struggle to deal with the disruption from relatively new technologies such as rooftop solar, they have to choose which of these technologies to embrace.
The regulatory model
The biggest challenge for utilities today is “inertia” in dealing with disruption due to “uncertainty over the political dynamic,” van Nispen said. Today’s regulatory and policy decisions are being made on a “two-to-four year maximum horizons” timeline, van Nispen noted, which is why utilities are struggling to make investment decisions for assets with 30-40 year lifespans.
“If the regulator were to say – as for example California just did – ‘go out, investigate and implement 1325 MW of energy storage,’” said van Nispen. “If regulators were to give utilities some degree of certainty that these assets are not going to be stranded assets to their shareholders, utilities would very eagerly run forward, embrace the technology and create this industry. The dilemma is that in most regulatory jurisdictions, regulators are unwilling to give that degree of certainty. That’s the flaw in the model right now.”
“If you go back 20 years, virtually every significant North American utility had its own R&D budget and that R&D was able to finance alternative business models and pursuits. In some cases, these became standard business practice,” van Nispen said. But “most utilities today are operating without that R&D budget,” and that’s a significant challenge.
The California storage mandate model or a performance-based model could both work to incentivize utilities to invest in new technology, but “the challenge is that our industry for the last several years at least has been under increasing pressure to squeeze more out of the bottom line,” van Nispen noted. “Innovation and squeezing costs are typically not used in the same sentence.”
The changing customer relationship
“I would love to say that what we’re seeing is utilities wholeheartedly embracing the opportunity to engage more fully with their customers,” said van Nispen. “Unfortunately, I’m not seeing that.”
Van Nispen sees some leading utilities exploring options to become closer to the customer. “But I see more and more utilities who are saying, ‘You know, gosh, why don’t we abdicate the big data management to the Googles and the Microsofts of the world, who after all already have these large data farms, and are already close to the customer, and already are collecting data. We’ll just use that data to enhance our operations,’” van Nispen said.
“Abdication of the primary customer relationship will lead to significant disintermediation in the long run, and will limit utilities’ ability to offer new products and services that make them consistently relevant,” van Nispen said. “If you go down that path, you run the very real risk as a utility of just becoming a non-smart pipes and wires company.”
Growth opportunities
Van Nispen argues that infrastructure investment is a "very real way" for utilities to grow their ratebase and earnings "under the existing regulatory regime."
Despite being mired in "a period of declining year-over-year consumption (or at least, zero growth)," van Nispen believes more reliable, resilient infrastructure is needed to harden against increasingly serious and frequent weather events. But "the incessant anti-build lobby has stalled that progress," van Nispen said.
Van Nispen believes utilities should also be exploring non-traditional business models. Particularly, utilities should look more aggressively at distributed energy.
Utilities "arguably rightfully believe" that if generation is distributed, that "would reduce the emphasis on their core infrastructure," said van Nispen. But "if utilities really want to get closer to the customer," that's the "best relationship [they] can have," and utilities need to think about "servicing the customer's holistic energy needs."
"Once you’re in the door, you’re in a position – if you choose to do this – to go well beyond just providing energy," said van Nispen. "You can now not only provide supply, you can also help the customer manage their consumption more effectively. You can sell new products and services. You can really create this whole new dynamic relationship. But utilities – for many good reasons but also for a few perhaps not well-thought reasons – are hesitating to do that."
The grid of the future
Van Nispen believes "the grid of the future is going to become a network of networks."
Technologies like rooftop solar and energy storage will reach grid parity, and will become a "gamechanger for customers," said van Nispen. "We're going to see the industry transitioning over time to a much more distributed model -- in particular, much more distributed renewables."
In the future, communities will band together, "forming reliability networks amongst themselves," van Nispen said, and we will have "much less reliance" on the centralized model of the last century.
"As with any kind of innovation, there’s always the dilemma – at what point are you willing to cannibalize your existing, well-known, tried-and-proven business model and jump into that thing that looks like it might work but, gosh, you’re not sure?" van Nispen said. "To steal a coined term, that’s really the innovator’s dilemma. At what point do you leave the comfortable thing you know for the thing you don’t know but think will perform better?"