We have distorted memories about the good old days, but there is no denying that things keep changing. Take jobs, for example. The jobs of 200 years ago were based on farming and trade. Then there was a major structural transformation as manufacturing jobs became the norm, and this resulted in significant economic gains for men entering the job market. The situation was not as good for women, but for young men getting out of high school, it really was easier to get a “good job” back in the 1950s and 1960s.
However, for the average male worker of age 25, the inflation-adjusted wage level peaked in 1968 and has been falling ever since. A recent study by University of Minnesota economist Fatih Guvenen for the National Bureau of Economic Research analyzed reams of Social Security data. The results provide detailed evidence of what we already know to be true. Developed countries are well along in another major structural transformation – the decline of manufacturing and the rise of the services economy. Jobs in manufacturing, mining and farming are not coming back.
An analogous transformation is underway for the electric industry, and as with jobs in the transformation from a manufacturing to a services economy, this transformation requires a different skill set. These are no longer the days of building large factory-like power plants to manufacture electricity and collecting regulated returns from these “safe” investments. Future power system business opportunities (and jobs in the energy sector) will be much more about software and services, communications and system optimization, and other new skill sets.
These transformations to a services economy will have huge impacts on the electric utility industry. Demand for power is stagnant right now, but use of electricity may grow as we electrify other sectors such as transportation, and there is a wealth of new ideas for transforming the way that we deal with energy. The challenge for utilities is that this will be a new world based on services, customer interactions, and non-traditional competitors.
Renewable energy is one example. The cost of wind energy has fallen to levels where, for much of North America and the world, wind plants are now the cheapest source of new generation for providing energy. From a more expensive starting point, the cost of photovoltaic solar power has fallen so much that it is often the cheapest source of new “on peak” generation. Increasingly, our challenge may be more about having too much energy during some hours, to the point that we must alter customer behaviors, develop large-scale storage systems, and build national-scale transmission systems.
We are also facing a digital transformation that is similar to the disruption that previously shocked the telecom, photography and music industries. This is even visible in the characteristics of our power plants and loads, with a transition from synchronous devices to computer-based control systems and inverters in new generators, electronics, lighting and motors. The change is further amplified by customer expectations for using the internet and our phone apps to interact with everything and everybody.
Most disruptive, however, could be the relationship with energy customers. Power is no longer produced only at large utility-owned power plants, but there will still be value in ensuring reliability and balancing the needs of all customers at all times. There will be many buyers and sellers, but there will still be value in the tracking, settlement and billing for an increasingly diverse set of products and transactions. And more than anything, there will be value in control systems, software, platforms, and the overall understanding that is necessary to optimize an increasingly complex system and make it all work. This will be a great business, but with a very different skill set.
Renewable energy has been a catalyst for change in the electric utility industry, but this is a major structural transformation that goes well beyond renewables. The digital revolution is a foundation for great change, and so far, it has treated the energy industry more gently than the way it ripped through other industries. But the structural transformation is definitely underway.
Change can be painful for many, but it creates wonderful possibilities for others who are prepared to embrace it. The old days are not coming back, but new opportunities are bright for utilities and energy companies that develop the services, skill sets, and jobs for the future.
This is where UVIG will also need to adapt and help the industry. We have helped our utility members understand renewable energy and how to integrate variable generation into power systems. With renewable energy now mainstream, we must look at energy integration more broadly as we help energy companies and engineers take full advantage of the opportunities.
Mark Ahlstrom
President, UVIG Board of Directors
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