Electric utilities across the U.S. have just faced their most difficult decade ever, and the future doesn't seem to be getting any better. Demand for electricity, which grew steadily at 2%-3% per year for decades, has stagnated over the last 10 years and may be in structural decline as consumers are using more efficient electrical components.
Meanwhile, improving technologies like solar panels, wind turbines, and energy storage threaten the long-term viability of everything from power producers to regulated utilities. Given what's going on in the industry, it's about time utilities start pushing hard for a potentially massive demand boost from electric vehicles.
Why utilities are in a tough spot
The chart below shows generation from the U.S. electricity industry since 2000. You can see that supply has stalled over the past decade and may be starting to decline slightly.
What's challenging is that the reasons for the slump could get worse in the future. More-efficient lights like LEDs are lowering the consumption of electricity by each home and business across the country. For example, the average amount of electricity used per residential customer has dropped from 11,042 kWh in 2008 to 10,401 in 2017. That's a shocking reversal in an industry where consumption rose year after year as more electronic devices were being used.
The problem for utilities is that less electricity consumption drives the wholesale price of electricity lower, leading to losses at power plants that we've seen at companies like Calpine, NRG Energy, and Dynegy. It also means regulated utilities, which charge customers for electricity based on a guaranteed rate of return on their assets, have to spread costs among a smaller number of kWh sold. This raises electricity prices, pushing customers to consider alternatives like rooftop solar and energy storage, which exacerbates the problem.
EVs could be the answer to utility woes
A significant source of electricity demand on the horizon will come from electric vehicles, which could be a game changer for utilities. Not only could they reverse the decline in consumption, but they could lead to an increase in demand. Take as an example Tesla Model S 100D, which gets 251 miles per charge in optimal conditions, meaning it averages 2.51 miles per kWh. A consumer who drives 15,000 miles per year would need 5,976 kWh of electricity to drive their vehicle. In other words, two EVs at home could double an average home's consumption in a year.
Utilities have a vested interest in seeing the adoption of EVs grow. They may even be able to make the charging infrastructure a moneymaking business in the long run.
Playing a role in the charging infrastructure
One of the gaps in EVs today is in the charging network to keep EVs on the road. Outside of Tesla's Supercharger network, not one network has taken over charging, especially fast-charging stations, which are sparse in the market today.
In California, utilities have tried to include charging stations in the assets that they charge to all customers. San Diego Gas & Electric, owned by Sempra Energy , is building and owning chargers; Edison International is facilitating third-party ownership; and Pacific Gas & Electric is using a mixed approach in its EV charger buildout. But long term, it may be a tough sell for all customers to pay for chargers that only EV owners use.
What we know is that there's clearly interest in utilities figuring out a business model that works for EV charging and they have an incentive to make it work both as a new line of business (owning chargers) as well as a way to increase demand for electricity.
Act quickly before someone else does
If utilities don't act quickly, someone else will provide EVs the electricity they need and may not need utilities to do it. Tesla has said it plans to disconnect "almost all" Superchargers from the grid and unconventional sources of electricity are making inroads in electric markets as well.
Companies are starting to buy electricity directly from solar and wind power plants, using the grid as little more than a highway to deliver them power. Then there's rooftop solar that homeowners can use to chare EVs without the grid at all.
If utilities don't figure out a way to push more EV adoption and play a role in the charging infrastructure, new business models could bypass the grid altogether.
Utilities' only growth option
Utilities have had a challenging decade and have been vocal in fighting new innovations like rooftop solar and energy storage owned by consumers. However, they have an opportunity to ride the wave of EV growth if they play their cards right. One effort that's being made is utilities pushing for the federal government to extend the EV tax credit, which saves buyers $7,500 on the purchase of a new electric vehicle. Earlier this month, 36 energy companies -- including the three California utilities I mentioned above -- asked Congress to extend the tax credit in this year's spending bill, and I think they could ask for an extension beyond the 200,000-vehicle limit per manufacturer. It may be in their long-term interest to cozy up to EVs, a surprising partnership given the conflict between utilities and renewable energy over the past decade.