You’re in your Harvard dorm room reading cases when it starts snowing. No worries – they told you that it doesn’t get that bad. Next thing you know there’s 30 inches of snow, 80 mph winds, no power, and the heater has stopped working – how did this happen in the USA? Will power be coming back soon so you can finish your reflection assignment? Are you going to freeze to death before discussion group?
This scenario seemed implausible given New England electricity and natural gas is largely supplied by Eversource Energy (merged with NSTAR), a Fortune 500 utility company founded in 1966. Climate change however has brought a rising number of record breaking storms, and a shift in the types of power generation – failing to adapt would jeopardize the grid.
Increased variability from multiple angles
If studying operations teaches one thing, it is that variability is costly for a business. Climate change brings this from both a demand and supply perspective.
- Demand Variability
With increasing “super storms” or “super heat waves”, there can be unusually spikey demand for heating homes or cooling offices. Just as a distributor asking for 10x the usual order from a wholesaler can cause a lot of grief and desire to stockpile inventory, a polar vortex would cause a city to order 10x the amount of energy from utilities than normal. With extreme consequences for not delivering (hospitals shutting down, etc.), Eversource must either develop or procure with contracts that have much more excess capacity than what is normally needed and at great expense.
- Supply Variability
Favorable regulatory policy for solar energy combined with increased consumer favor for renewables has increased a new type of power generator to enter the grid. Instead of a utility owning or contracting a few large plants to supply all resource needs, each home with a solar panel and excess energy can be a contributor, through an arrangement called “net metering” – effectively creating a distributed grid. Although there are many benefits to this, such as increased individual household resiliency, and cleaner power sources, aging grid infrastructure may struggle to keep up with this overhaul to their supply chain given the massive CAPEX required. The issue is exasperated by solar energy supply being uneven (more in the middle of the day) and future extreme weather causing downed power lines. To cope with these challenges, Eversource must essentially help build a “smart grid”, via software and electricity rate design, to optimize power flow and minimize the need for capital intensive infrastructure investment.
Tradition vs. Smart Grid
Teaching an old dog new tricks
Although utilities are notorious for being old, slow, and bureaucratic, they are innovating to develop solutions and not only mitigate these issues, but even sometimes create profitable opportunities through several methods:
1. Owning the change
Instead of adapting after solar and energy efficiency solutions have been implemented by consumers, utilities can develop (often with external financing) or partner with 3rd parties to sell these solutions to end customers. Owning this process will not only help forecasting due to an increased information control, but also create new business lines.
2. Changing rates and enabling capital markets
If electricity is more expensive during unwanted peak demand times, entrepreneurs will find a way to provide end customers a solution to reduce demand to reduce energy bills. Using rate design can be a way of smoothing out unwanted variability without intensive infrastructure investment.
3. Creating buffers
With decreasing costs of energy storage, the grid can benefit from investing in more decentralized storage facilities to essentially act as buffers against some variability. The prime example is to store the excess solar power coming in at noon in batteries, and then use the power during rush hour when energy demand peaks.
Eversource is moving in the right direction, but will it be enough?
Eversource, like many utilities, has invested in many of the innovations above including helping develop distributed solar and offering energy efficiency tools to their consumers.
However, there is still resistance to fully embracing these challenges as an opportunity rather than a threat. Eversource had been fighting against solar and environment groups to reduce net metering allowances rather than collaborating to find a win-win solution. Separately, they have moved slower than their Californian and New York counterparts, who have formed much larger partnerships with solar, storage, and energy-efficiency partners, already altered rates, and found innovative financing for investing in this space. This not only eases the transition to a new grid, but accelerates this inevitable change.
It is a tough process with an uncertain ROI, but the consequences of being left behind are high – Eversource must adapt faster to keep our lights on and our homes warm.
[Word count before citations: 797]
 – “Monitoring and Understanding Changes in Extremes – Extratropical Storms, Winds, and Waves” , American Meteorological Society, March 2014, http://journals.ametsoc.org/doi/pdf/10.1175/BAMS-D-12-00162.1
 – “Blizzard hammers US Northeast, five dead, 700,000 lose power”, Reuters, February 2013, http://www.reuters.com/article/us-usa-weather-idUSBRE91611P20130209
 – “Analysis of Operation Events and Market Impacts During the January 2014 Cold Weather Events”, PJM Interconnection, May 2014, https://www.pjm.com/~/media/documents/reports/20140509-analysis-of-operational-events-and-market-impacts-during-the-jan-2014-cold-weather-events.ashx
 – “Solar ITC extension approved in the US Sentae”, PV Magazine, December 2015, http://www.pv-magazine.com/news/details/beitrag/solar-itc-extension-approved-in-the-us-senate_100022519/
 – “The California Duck Curve Is Real, and Bigger Than Expected”, Greentech Media, November 2016, https://www.greentechmedia.com/articles/read/the-california-duck-curve-is-real-and-bigger-than-expected
 – Seminar on Smart Grid Technology, Professor Ram Meghe, 2015 http://www.slideshare.net/asegekar18/smart-grid-technology-53195451
 – “2016 State of the Electric Utility Survey”, Utility Drive, 2016, http://app.assetdl.com/landingpage/state-of-the-utility-survey-2016/
 – “Lazard’s Levelized Cost of Storage Analysis”, Lazard, 2015, https://www.lazard.com/media/2391/lazards-levelized-cost-of-storage-analysis-10.pdf
 – Eversource Company Website, https://www.eversource.com/Content/general/residential/programs-services/customer-generation/solar
 – “Action on solar bill at center of fight between Eversource, National Grid and environmental groups”, Mass Live, November 2015, http://www.masslive.com/news/boston/index.ssf/2015/11/action_on_solar_bill_at_center.html
 – “New York and California are Building the Grid of the Future”, Rocky Mountain Institute, February 2015, http://blog.rmi.org/blog_2015_02_18_new_york_california_building_the_grid_of_the_future