Two utilities, 8,500 miles apart, wrestle with energy transition and digitalization

Electric and gas utilities face similar challenges in modernizing their systems and making the transition to clean energy — even when they are on different hemispheres and face very different circumstances — as Paula Gold-Williams, president and CEO of CPS Energy in San Antonio, Texas, and Frank Calabria, CEO of Origin Energy in Sydney, Australia, discovered in Stanford University’s Global Energy Dialogues on August 4.

Their companies are a study in contrast. Origin, a publicly-traded stock company, operates in Australia’s competitive energy market and serves over four million customers. CPS Energy, the largest U.S. municipal utility, has a corner on San Antonio’s energy market. The non-profit serves about 860,000 retail electric customers and 350,000 natural gas customers. Both companies have a mix of coal-fired power plants and renewables like wind and solar, but CPS Energy relies much more on natural gas. CPS Energy also has nuclear energy. Nevertheless, Gold-Williams and Calabria found many points of agreement in their wide-ranging, interactive discussion on how to utilize more renewable power affordably, the promise of digital tools in the energy industry and the road to zero emissions. 

“The energy journey is for the globe,” said Gold-Williams. “I do believe in the concept of regionalism though, because where you are and where you start from changes your journey along the way.”

Backing up renewables

As the world achieves a deeper penetration of renewables, investing in the ability to back up intermittent solar and wind power to maintain grid reliability is crucial, Calabria and Gold-Williams agreed.

“Our new challenge is not the influx of more renewables. That trend will be inexorable over time,” said Calabria. “It's actually the market signal and support and policy environment for what we call firming capacity to be invested alongside it.” Australia, the United States and countries worldwide will need this backup capacity to respond to fluctuations in supply, as well as seasonal demand changes.

A “suite of technologies” will answer the call, including batteries, pumping water back uphill behind a hydroelectric dam, gas-fired generation, and new technologies not now known, said Calabria. “We'll need all of those to work in unison.”

Gold-Williams agreed with Calabria that backup power generation is important. For CPS Energy, she noted that solutions need to beat natural gas in terms of performance, reliability and pricing. She also explained that CPS Energy uses batteries three times faster than their advertised life, making the economics of battery storage more challenging for utilities.

Digital energy tools

Arun Majumdar, co-director of Stanford's Precourt Institute for Energy and moderator of the conversation, asked about the increasing use of digital tools in the energy industry for the smart grid: the coordination, automated optimization and aggregation of distributed resources like rooftop solar panels and residential batteries to store excess power from those panels.

“I think this is one of the most exciting things that's going to emerge,” said Calabria. “Companies that can embrace both data and energy and bring those together, and the digitalization that flows from that, will be those that succeed going forward.”  Intermittent renewable energy, distributed storage assets and smart devices in the home ranging from EVs to smart meters are all on the rise. These resources and their information flow in multiple directions, unlike the traditional electric grid’s one-way flow from power plants to homes. Calabria thinks that utilities can evolve their relationship with customers in a way that helps customers understand their energy use and efficiency better. With customer support, utilities can manage customers' aggregate supply and demand, and optimize the way a neighborhood makes the most of its resources and energy use.

Gold-Williams agreed and added on automation: “Customers don't want to have to think consciously about every single transaction. Technology should help that happen in the background.”

Customer trust, privacy and data security are paramount. “Citizenship will be a source of competitive advantage,” said Calabria.  Without trust, energy companies “won’t get through the first gate” on digitalization.

Gold-Williams agreed with Calabria’s assessment.  “As Frank says, we are connected to our customers, and trust is extremely important,” she said. “It's really important that the grid stays secure.”

Affordable path to carbon neutrality

Coal is part of the energy mix for both Origin Energy and CPS Energy. Both utilities have emission reduction targets, and both look to ultimately retire their coal plants or capture their carbon emissions. However, the transition to clean energy must be planned carefully to maintain affordability for customers.

“Our goal is to absolutely get to net-zero emissions and ultimately no emissions. It's not that we are disagreeing with the objective,” Gold-Williams explained. “The complexity is the velocity of change and whether or not you can optimize technology without making it shockingly financially difficult for customers in the transition.”

Agreeing with Gold-Williams about the challenge of maintaining affordability while pursuing emissions reductions, Calabria said that retiring coal plants is a delicate balance. “We have to be mindful about creating winners and losers” when promoting expensive customer programs like rooftop solar, he said. Australia has one of the highest per-capita penetrations of rooftop solar in the world. Calabria credits subsidies put in place a decade ago ago and the rise in energy prices in 2017 that have seen installations rise each year as customers turn to solar to reduce their energy costs.

“It’s great that Australians have embraced solar and now that the economics of rooftop solar make sense on their own, we think it’s time to remove the subsidies, which are paid by all energy users,” Calabria said in an interview afterward.

Utilities must balance “security, reliability, the reduction in emissions and affordability,” said Calabria. “We’ve seen those get out of balance over the course of this journey, and that remains a challenge as we go forward.”

San Antonio has many lower-income customers. CPS Energy offers a blend of energy-efficiency programs that reach a range of consumers, from weatherization to discounts for reducing use when supplies are tight. Some of the programs reaching lower-income consumers are more expensive and less cost-effective from a business economics perspective than, for example, solar rebates. “That didn't matter to us. For us, it has to be a blend” of programs so everyone benefits, Gold-Williams explained.

For CPS Energy, the path to carbon neutrality is a call to look across the globe for new energy solutions. “Think global, apply local,” she said.

The next Global Energy Dialogues session is on Aug. 18 and will feature a conversation with former U.S. secretary of commerce Don Evans moderated by Tom Stephenson. Global Energy Dialogues are free and open to all. Registration is required.

The Global Energy Dialogues are funded by the Stanford Global Energy Forum.