Despite scary challenges, strength and optimism

While the Suniva trade case – potentially a devastating price increase especially for utility-scale – loomed largely, attendees eagerly packed presentations.  The audience’s questions provided an interesting barometer to the psyche in the room.  Participants focused on where we are going and how to get there.  Further, the evolving business models continue to pry open market segments.  We are tenacious!

Even in markets dominated by utilities such as Florida Power & Light, some competitors have created interesting niches.  Not to be cowed, participants strategized on how to open up the Florida market.  Within my aperture, conference attendees did not appear to be hunkering down even in these monopoly-controlled markets.  As an industry, our entrepreneurial ethos and scrappiness continue as enduring strengths.

Just how big is demand?

In my mind, the critical question to be answered is how will supply and demand balance out. Players in this industry know this underlying truth: we compete in a classic commodity market with zero barriers to entry.  Demand growth has saved the day for years – yet seemingly boundless demand growth in come-one, come-all markets cannot stave off all bankruptcies.  History of similar markets suggests we will continue to experience ferment. Will supply so outstrip demand that we experience severe dislocations?  How many of the conference attendees will be seeking new employment in unrelated industries over the next two years?

Multiple panels focused on demand growth from direct procurement by Commercial and Industrial (C&I) customers.  Panelists shared encouraging statistics: 70+ of the Fortune 100 have committed to procuring renewable energy with 26 committed to 100% renewable. 65 companies that represent seven trillion in market capitalization have committed to the – a set of principles stating how they will procure renewable energy.  Electricity demand from these 65 companies represents 30-35 GW of solar capacity.

Unfortunately, traditional wholesale electricity challenges have caged this demand.  These icons of American business are learning that wholesale electricity procurement presents numerous esoteric challenges.  Procuring wholesale energy requires decisions to either carry price and performance risks on the company’s balance sheet – self-insure – or to purchase derivative products (insurance).  These risks include i) basis risks – dynamic pricing differentials between the locations for the supply and the demand, ii) modulating supply to match the hourly demand at a particular point in the grid, iii) capacity to transport energy on the wholesale network, iii) pricing of ancillary services consumed, iv) reactive power, and others.  Further, how they contract can add implied debt to their balance sheets and thus impact their ability to access capital markets at attractive rates.

Throughout the 1990s policy-makers market reforms unleashing competitive wholesale electricity markets.  Over these last two and half decades, the markets have evolved mechanisms that mitigate risks and better allocate who bears what risks.  However, only a handful of highly sophisticated players possess the capabilities and infrastructure to provide these services.

Before corporate buyers, with expertise in totally unrelated industries, decide what to do, they first need to become educated, then perform the analysis within their unique context.  I suspect more than one were drawn to the siren song of “how complicated can it be I flip on the light switch and the lights come on.”

I am confident the emergence of traditional wholesale electricity participants will address these issues, and the markets will function as they have done for decades.  However, towering aspirations will not immediately translate into contracted renewable energy.

In a future blog, we will assess factors influencing the growth in supply.

Will we combine passion, tenacity, and wisdom?

I stay up at night because of the old saying “she was ahead of her time.”  But, I believe we can speed up getting to the future because we have passion and tenacity.  With one caveat: we need buyers and suppliers of renewable energy to not re-invent the wheel.  We need the wholesale electricity experts to take up these challenges and provide the tools to mitigate and allocate risks.  Anything else is no less foolish than asking a wholesale electricity market expert to manage logistics for the retail electronics supply chain.  If we play to our strengths and add wisdom, we can be Johnny on the spot.  And, hopefully, we will all sleep better at night.