Utility Dive's fifth annual State of the Electric Utility survey shows a sector committed to the clean energy transition, but wary of policies coming out of Washington.
A new survey of North American utility executives shows them wary of President Donald Trump's energy policies, but unmoved in their commitment to a cleaner energy future.
Utility Dive's 2018 State of the Electric Utility Survey, out today, reveals a sector still overwhelmingly committed to moving to a lower-carbon, more distributed electricity system. But it also shows that professionals are increasingly concerned with policy and market uncertainty following the first year of the Trump administration.
The survey of more than 600 U.S. and Canadian electric utility professionals, conducted in December 2017, shows utilities across the continent expect to install more solar, wind, distributed resources and natural gas in the next decade, and modernize their grids to accommodate them.
However, sector professionals also named regulatory uncertainty as the top issue associated with their changing fuel mix — a concern that barely registered before the Trump era.
The survey also shows that electric utilities are largely opposed to key administration energy priorities, including rolling back carbon regulations and altering wholesale power markets to benefit coal and nuclear plants.
The entire 86-page survey report is here to download, and also contains important insight into utility load growth expectations, state regulatory models and the sector's most pressing concerns. Here's a rundown of some of the highlights.
Power mix evolution
Utility expectations for the power mix have not changed dramatically in the five years that Utility Dive has conducted sector surveys. Again in 2018, utilities expect to add more solar, wind and natural gas resources, while nuclear stagnates and coal declines.
But in 2018, utilities also appear more bullish about the growth of distributed energy resources and energy storage than in the past. Respondents expressed the second-highest level of confidence in the growth of distributed generation resources, putting it right behind utility-scale solar, with the third-highest level in grid-scale storage:
Percentage expecting "moderate" or "significant" growth:
Utility-scale solar: 92%
Distributed generation & storage: 90%
Grid-scale energy storage: 85%
Utility-scale wind: 77%
Natural gas: 55%
The most popular resources received support from all around the continent. More than 80% of respondents from each region, for instance, expect moderate or significant increases in utility-scale solar.
Much the same is true for distributed generation and grid-scale energy storage. Those resources were not addressed in this section in past surveys, but their inclusion this year shows that utilities are more bullish on their growth than a variety of other resources.
The optimistic outlook for renewables and DERs contrasts with an increasingly tepid view of natural gas generation. In 2016, 72% of utility professionals said they expect moderate or significant growth in gas, dropping to 64% last year. In 2018, the number is down to 55%, and respondents from the West Coast — home to ambitious carbon goals — are more likely to expect a decrease in gas generation than an increase.
Expectations for growth of gas and renewables contrast those for coal. As in past years, utilities all across the nation indicate they expect to continue retiring coal-fired generation, and virtually no one expects to add more coal capacity to their systems in the next decade.
Power mix uncertainty
Utilities plan out their power mix changes decades in advance, so it’s not surprising to see expectations for generation sourcing change little over five years of surveying. However, recent findings indicate they may be increasingly uncomfortable with the policy and market turmoil evolving alongside those plans.
By the end of the Obama administration, the utility sector could see a clear trajectory for the 21st century: The U.S. and other industrialized nations would continue to tighten carbon budgets, gradually pushing utilities toward cleaner sources of power. Increasingly favorable economics for renewable energy, natural gas and storage made that transition tolerable for U.S. utilities, and they planned to go big on those resources.
The Trump administration, however, attempted to alter that trajectory with a number of actions in its first year, including rolling back EPA regulations on carbon, methane and other pollutants, as well as pushing wholesale market reforms to benefit coal and nuclear.
Even before Trump took office, those plans appeared to increase sentiments of uncertainty in the sector. In the 2016 survey, only 12% of utilities ranked policy and market uncertainty as the top issue with their changing power mix. But when utilities were polled for the 2017 survey — during the transition period between the two administrations — uncertainty had jumped to 35%, leading all power mix concerns.
This year, uncertainty was even more pronounced than in the past, despite the inclusion of more response options for participants. Nearly 40% of respondents named uncertainty as the top issue with their power mix — leading the second-place option by 19 percentage points — and that result was consistent by utility type, size and region.
Utilities may feel some discomfort toward the Trump administration's energy policies because they are, by and large, opposed to its key priorities. While the White House has moved to revise the EPA's Clean Power Plan and repeatedly calls into question mainstream climate science, a clear majority of electric utility executives would like to see the federal government take action to cut carbon, though they are split on the optimal policy.
At the same time, utilities appear overwhelmingly opposed to the Trump administration's attempt to reshape wholesale power markets with its Notice of Proposed Rulemaking (NOPR) on grid resilience, rejected last month by FERC. At the time of survey, the Department of Energy's proposal was pending before federal regulators, but it received the least support of any policy option offered to deal with the retirement of large, inflexible generators.
(Fewer than 70% of respondents indicated their utility company owns generation assets. Among those participants, support for the DOE NOPR rose to 6% and was still the least popular option.)
Other key takeaways
Load growth expectations shifting
For a century, utilities expected electricity demand would grow indefinitely as the economy expanded, providing new opportunities for infrastructure investments that return revenue to shareholders.
Since the 2008 recession, however, utility load growth has slowed or begun to decline in many parts of the U.S., squeezing utility finances and pushing them to identify new business model opportunities.
The 2018 Utility Dive survey indicates utilities may see that trend shifting. Across all customer segments, more utilities expect their net load to increase, rather than decrease, though most still expect load to stay stagnant. If this load growth materializes it could help utilities return more money to shareholders and reduce the urgency of business model reforms.
Cybersecurity remains a top concern
While utilities are clearly concerned with upheavals in Washington and their state commissions, it's the evolving threats in cyberspace that appear to have them most worried. For the second year running, respondents listed physical and cyber grid security as their most pressing issue, and this year's report includes additional questioning into their state of cyber preparedness.
Cost-of-service regulation is dead
Just as load growth expectations are shifting, utilities expressed a desire for regulatory models that rely less on power demand to deliver revenues. Like last year, utilities largely expect to move away from a cost-of-service regulatory model on the state level, and toward models that integrate performance-based regulatory standards.
Utilities want hybrid power markets
Just as utilities expressed interest in mixed state regulatory models, they also favor a hybrid approach to power markets. While regional variations exist, most utilities indicated a desire for wholesale electricity markets to decide what generation is sited and dispatched, but also want some plants to be allowed traditional cost recovery in those markets.
Electric vehicles are coming
The 2018 survey also asked about electric vehicles for the first time, with palpable results. About 90% of respondents expect either significant or moderate growth in EVs over the next decade, making it the most popular DER surveyed. "Electrification of other industries" also ranked as a top-10 utility concern among respondents.
Before you bookmark the report to read later, here's a look at the top ten most pressing issues for utilities in 2018:
The report has a litany of other important insights on rate design, DER ownership, utility business model reform, and more. The entire report is free and available to download here. Special thanks is owed to our report author Amy Gahran, lead designer Kendall Davis and Brand Studio manager Kelly Mount for making the 2018 State of the Electric Utility Survey our most comprehensive look at the power sector yet.