The U.S. electric grid is changing and some utilities have begun building new business models for the future.

Forward-leaning utilities are already working with state regulators to understand and capture the value of distributed energy resources, according to Presidential Counsel on Climate Change and Energy Policy John Podesta.

“We’ve seen that among the aggressive utilities, but others are now stepping up,” Podesta added in a private conversation on the sidelines at Senator Harry Reid’s seventh annual Clean Energy Summit in Las Vegas.  

Partnering to capture new value was the topic of the utility panel at the conference. “Shrinking electricity demand is the new normal,” said Rocky Mountain Institute Co-founder and Chief Scientist Amory Lovins, kicking off a conversation with two leading utility heads. “It has shrunk in five of the last six years and the last three years in a row.”

“There is flat demand but in renewables there is a lot of growth because of coal plant retirements,” replied Sempra U.S. Gas & Power President and CEO Patricia Wagner. “That’s where we see a lot of opportunity.”

“Our ten year residential load growth forecast is about 1% per year but that is largely offset by energy efficiency. So we see a flat growth rate in the residential sector,” agreed NV Energy President and CEO and former Berkshire Hathaway Energy Renewables President Paul Caudill.

But with rooftop solar the growth rate is so “huge” that utilities cannot turn away, Caudill and Wagner agreed.

New customer choices

“As customers figure out they have choices, it’s usually a good idea to offer them what they want before someone else does,” Lovins said. “Of the strategies, 'ostrich' is not a good one. Taxing or charging customers will make them leave the grid faster. You could finance. Or offer rooftop solar as your branded product. Or be an integrator of technically qualified offerings.”

“The cost of rooftop solar is very competitive,” Caudill said. “The decision the consumer has is whether to spend the upfront capital or do a lease with a third party provider. We want to partner with third party providers in the solar business to achieve a win-win for everybody.”

Wagner said Sempra is focused on utility scale solar and large scale storage. It is planning to bid into RFPs in California where investor-owned utilities are moving to meet a first-ever U.S. energy storage mandate that requires 200 megawatts by 2014 and 1.325 gigawatts by 2020. 

“Bulk storage and fossil fuel back-up are the most expensive ways to get grid flexibility,” Lovins said. "The cheaper stuff is demand response, efficiency, diversification by type and location, dispatchable renewables, distributed thermal storage, and EVs.”

That is the loading order California established, Wagner agreed, which is why Sempra’s initial participation will be on a small scale. “But we think utility scale renewables are going to be a big part of the mix,” she added.

Utility scale renewables with storage makes more distributed resources possible, Wagner said. “In Maui, our grid connected 21 megawatt wind farm, with 11 megawatts of battery storage, is making it possible for our partner, Maui Electric, to integrate more rooftop solar. I think you will see more of that.”

Lovins asked if the Maui project was part of a micro-grid. It isn’t, Wagner answered. “We are willing to do micro-grids if that is what our customers want but there is a lot of regulation around it.”

Customers’ concerns come first, Caudill agreed. Driven by demand for increased efficiency, NV Energy has moved from smart meters to home energy audit reports and automatic energy use updates.

NV Energy's strategy: Partner with solar leasing companies

The obstacle to NV Energy owning rooftop solar is that “some folks see it as competition with commercial market third party providers,” Caudill said. “But the penetration of residential solar is less than 3%. The opportunity is to establish a rate that is fair for all customers. Not everybody can have solar on their roof. Not everybody has a FICO score over 680. We can move forward, provide the opportunity, and partner with third party providers so there aren’t winners and losers.”

Because of solar's peak coincidence, it is conceivable utilities could soon not use any fossil generation on sunny afternoons, Lovins said, and the “inside-out utility” is a way to get there sooner. “Instead of starting by forecasting demand and building generators to meet it and wires to push it out, you start with a distribution planning area,” he explained. Calculate the end use, then address it with targeted demand side programs, or better distribution service management, or more distributed generation. “Only if none of that is enough do we build more generation.”

“It makes sense to start with the lowest cost solution from the customer’s perspective,” Wagner agreed. “But when you have a big system it might be a little more difficult.”

“Distributed generation is here, Caudill said. “But none of this works if our customers have to pay substantially more. Utilities can’t ask customers to pay an additional $0.50 per kilowatt-hour to $0.60 per kilowatt-hour over the next 10 to 15 years.”

Studies find the benefits of PV for the system are often bigger than their costs, even with little or no accounting for their energy, Lovins replied. “There is a contradiction when some utilities say you can buy green power for a premium and others say they are investing in green power because it is so cost effective.”

Renewables are location dependent, Wagner replied. “They are not created equal.”

The Clinton energy policy takes shape

Those hoping to catch a glimpse of likely presidential candidate Hillary Clinton's energy policy were not disappointed. 

“China and other competitors are racing ahead with big bets on renewables,” former Secretary of State Hillary Clinton said in her wide-ranging keynote address. “We cannot afford to cede leadership in this.”

She was even more passionate about opportunities in energy efficiency. “Think of the savings, think of the jobs,” she said. “If utilities become as committed to building new capacity through efficiency as they are through new supply, we really will make progress.”

Just as important, she said, is a smart grid. The soon-to-be unveiled iPhone 6 will plug into an electric grid built in the 1950s that uses 1960s and 1970s technology. “With a 21st century smart grid, we could avoid blackouts that cost businesses and consumers billions of dollars a year. If the public and private sectors put aside politics and come together, we could do this before the iPhone 7 comes out.”

Mr. Caudill was unavailable after his appearance at the summit. Utility Dive will follow up with more details on NV Energy’s rooftop solar plans as soon as possible.