Being a utility executive used to be a sweet gig.
State regulators told you how much you could charge your customers for electricity and dictated your profit margin. Your job was to build big power plants, or buy energy from those that do, and distribute it your customers. And those customers weren’t exactly going anywhere. After all, you owned the transmission lines that delivered your electrons to their homes. In other words, it was a bit like sitting in the corner suite of AT&T, circa 1981, when Ma Bell was the only game in telephone town.
Those days are over. Regulators now want you to obtain a growing percentage of the electricity you sell from wind, solar, and other renewable sources that are carbon-free but intermittent, which plays havoc with the power grid. And your customers? They’re increasingly generating their own electricity from rooftop solar arrays, fuel cells, wind farms, and self-contained power systems called microgrids. The rapid expansion of this so-called distributed generation deprives utilities of revenues while leaving them liable for maintaining the grid. And increasingly severe weather spawned by climate change is raising doubts about the wisdom of relying on a centralized power system.
David Crane is not a utility chieftain but, as chief executive officer of NRG Energy, one of the United States’ largest independent energy producers, he faces the same disruptions that are roiling the power industry. NRG owns big fossil-fuel-burning power plants, but the $9 billion company increasingly has been placing bets on solar, wind, and distributed generation.
“Utility executives are usually the antithesis of visionaries,” says the blunt-spoken Crane, who sat down with The Atlantic to talk about the future of the energy industry in the age of climate change and why in the near future you will become your own utility.
NRG, for instance, is collaborating with inventor Dean Kamen on a 10-kilowatt device for the home called the Beacon 10 that can convert natural gas, biogas, and even household garbage into electricity, generate heat, and store in a battery the electricity generated from solar panels.
Todd Woody: There’s been a lot of dark talk from utility executives about how the rise of rooftop solar threatens to send utilities into a “death spiral.” Are utilities’ days numbered?
David Crane: I completely agree that the distributed future will being utterly destructive of the utility model that we now have. No one wants to spend more on electricity than they have to. If you can monetize the solar value of your own real estate—put solar panels on your roof to produce your own power and do that more cheaply and more reliably and add capital appreciation to the value of your own home, why wouldn’t you do that?
I actually think we’re in the first stages of adaption to climate change and this extreme weather. The transmission and distribution system that the regulated utilities rely on may have been one of the biggest feats of the 20th century but we’re now in the 21st century. I can’t tell you how quickly the switch to distributed generation will happen, but I’ll tell you that after a couple more Superstorm Sandy’s it’ll happen a hell of lot quicker.
So what does this distributed energy system of the future look like?
I think the dominant paradigm replacing reliance on the grid may be actually be the natural gas distribution system. Some 34 million American homes have a natural gas line into their houses. And all we need is a technology that converts that natural gas into electricity in your basement and then solar has the partner it needs for me to tell the owners of the grid to just shove off and disconnect my wire. The day is coming when people are going to be converting natural gas into electricity in their own home.
Tell us about the Beacon 10 that Dean Kamen has invented and which NRG will provide to its customers.
The test machines are all being placed in the field over the next three to four months. Machine No. 1 is going into Dean’s house and machine No. 2 is going into my house. Assuming these machines are all working fabulously, we should be to market in the third or fourth quarter of 2014.
Since the Dean machine and solar systems can share the same electronics it makes the cost of rooftop solar much more economic. So for the disconnected-from-the-grid home of the future, power first comes from solar on the roof because that’s the lowest marginal cost. The Dean machine also has a battery so you decide how much or little natural gas you want to use. When there’s not enough solar, you turn on the Beacon 10. Then ideally, the grid itself would just be the ultimate backup. It’s the coolest thing I’ve ever seen.