Leveraging Insight During the Pandemic
The industry trends coming into the year included relatively flat load growth, digitization, decarbonization, and a level of decentralization in energy production. So, in light of the COVID-19 crisis, will these anticipated trends change, or will the crisis act as an accelerator? Digitization will likely record a sharp boost from online commerce, digital information consumption, and an introduction of lower-touch service alternatives.
Decarbonization is certainly a long-term trend (we'll talk more about this later). And, how about on the consumer level? How have they reacted? According to The Nielson Company, there are six consumer behavior thresholds3 :
1.Proactive Health-Minded Buying
2.Reactive Health Management
6.Living a New Normal
While there has been widespread pantry loading with shelf-stable products and lots of time spent at home, overall electricity use, as reported earlier in this article, was originally projected to decrease slightly in the residential sector in 2020. Nationally, we are in threshold number 5, moving into number 6. We'll continue to telecommute to a large degree with travel remaining lower than anticipated into the foreseeable future. But for many, there will be immense desire to return to normalcy and get back to work. Health and safety have the potential to be woven into a number of trends already impacting the broader energy ecosystem.
Providing stability—and solutions—in a time of uncertainty is something utilities are in a unique position to help with. Granted, pandemics impact the broader nation, but let's consider the expertise and preparation utilities have for disasters, natural or man-made, and their shared support policy across state lines. Utilities are trusted brands and are in an excellent position to help their employees, customers and partners during this recovery. In a recent Edelman global survey of 12,000 people4 , the majority of people turn to trusted brands in situations such as the COVID-19 crisis.
As we have seen, leadership during the COVID-19 pandemic started at the local and state level, backed by health experts. This state-level leadership bodes well for the role utilities and their regulators can play in fostering a unified Plan B. Forecasting what the future could hold one or two years ahead felt pretty normal in January, but our recent collective experience and massive societal impacts suggest forecasting now is almost like shaking a snow globe every two weeks.
So, it is useful during a time of uncertainty to look at the longer-term trends.
-Decarbonization – 65 percent of customer accounts in the United States are served by a utility with a carbon or emission reduction goal. Many of those include becoming carbon-free or net zero by 20505. Customers' demand for clean energy and technology supports that goal. While there are headwinds in the transportation sector, such as the relaxing of fuel-efficient standards for vehicles6 , the stock market is placing its bets on electric vs. the traditional combustion engine. With a market capitalization of $139B, Tesla is worth more than the next three car companies combined: GM at $32B, Ford at $20B and Fiat Chrysler at $16B (as of April 17). Despite that valuation, electricity in the latest EIA transportation forecast is still likely to be less than 2 percent of transportation fuel consumption in 20507. This prediction demonstrates there is still much to do in transportation in regards to the adoption of electric or lower carbon-emitting liquid fuels.
-Environmental, Social and Governance or ESG as it is known, incorporates environmental, social and governance issues into both decision-making and the investment process. It accounts for about one quarter of all professionally managed assets globally8. Sovereign funds and state investments have increasingly driven this approach. For instance, consider how a company is responding to climate change and mitigating risks that rating agencies such Moodys9 and S&P10 identify in their heatmaps and industry comparisons. Some say the recent pandemic provides investors with a greater incentive to look at the broader risk structure and mitigation efforts11. And while there has been a lapse in leadership on climate change at the U.S. federal level, global business leaders recently reaffirmed their commitment to sustainability12. And, as we return to normalcy, there will be pressure from the public to keep to longer-term commitments as Umunna13 notes in his article. Clean air, improved health for society and a robust network of local, clean energy – what's not to like?
-Economically - 2.4 million people are employed in the design, installation, and manufacturing of energy efficiency products and services according to the 2020 U.S. Energy & Employment Report14 . And impressively, it's projected to add 70,000 more jobs in 2020. These employees had a large part in driving energy efficiency programs that helped save enough electricity to power 22 million U.S. homes for one year, according to the Edison Electric Institute15. As the lowest cost resource, energy efficiency has a tremendous opportunity to drive savings for customers and reduce the risk for utilities, all while participating in the economic recovery on a local level.
Looking ahead, we map out potential societal, utility, regulatory and partner impacts as we move through various phases.
The remainder of 2020 promises to be a year of renewal and growth. The AESP Business Issues and Models topic committee looks forward to discussing the items mentioned in this article and many more, including electrification, the model for integrated demand side management. In the meantime, we wish you all a healthy and safe reintroduction to our new normal.
This article is written by the chairs of the AESP Business Issues and Models Topic, comprising: Gary Epstein, President and Founder of ERS; Kevin Lauckner, Vice President of Business Development at Franklin Energy; and Steve Bohlman, Vice President of Business Development at Slipstream.
1 EIA, April 2020 https://www.eia.gov/outlooks/steo/report/electricity.php ; https://www.eia.gov/outlooks/steo/report/natgas.php
2 EIA, April 2020 https://www.eia.gov/outlooks/steo/index.php
3 The Nieslon Company, March 2020. https://www.nielsen.com/us/en/insights/article/2020/key-consumer-behavior-thresholds-identified-as-the-coronavirus-outbreak-evolves/
4 Edelman. Trust Barometer 2020 https://www.edelman.com/sites/g/files/aatuss191/files/2020-03/2020%20Edelman%20Trust%20Barometer%20Brands%20and%20the%20Coronavirus.pdf
5 Smart Electric Power Alliance (SEPA), Utility Carbon Reduction Trackerhttps://sepapower.org/utility-transformation-challenge/utility-carbon-reduction-tracker/
6 EPA, The Safer Affordable Fuel Efficient (SAFE) Vehicles Final Rule for Model Years 2021-2026 https://www.epa.gov/regulations-emissions-vehicles-and-engines/safer-affordable-fuel-efficient-safe-vehicles-final-rule
7 EIA, Annual Energy Outlook 2020 Transportation pg 4 https://www.eia.gov/outlooks/aeo/pdf/AEO2020%20Transportation.pdf
8 Forbes, 2018 https://www.forbes.com/sites/georgkell/2018/07/11/the-remarkable-rise-of-esg/#780653771695
9 Moodys. Environmental Risks Global Heatmap Overview. https://www.moodys.com/sites/products/ProductAttachments/Infographics/Environmental-Risks-Global-Heatmap-Overview.pdf
10 S&P Global. Navigating the ESG Risk Atlas. https://www.spglobal.com/en/research-insights/articles/navigating-the-esg-risk-atlas
11 WSJ. https://www.wsj.com/articles/coronavirus-pandemic-could-elevate-esg-factors-11585167518
12 World Economic Forum. http://www3.weforum.org/docs/WEF_Stakeholder_Principles_COVID_Era.pdf
13 Forbes. April 5, 2020 https://www.forbes.com/sites/chukaumunna/2020/04/05/can-business-throw-economic-social-and-governance-concerns-esg-overboard-when-normality-returns/#5e65d7f0d950
14 US Energy Jobs.org 2020 Report https://www.usenergyjobs.org/
15 EIA, February 2020 https://www.eei.org/issuesandpolicy/Documents/Leading_on_Clean_Energy_Handout.pdf