SC | dialogue
Market forces and deregulation
BY MIKE COUICK
President and CEO, The Electric Cooperatives of South Carolina
“Teach a parrot the terms supply and demand and you’ve got an economist.”
THAT QUOTE is sometimes attributed to 18th century British historian Thomas Carlyle, although no one knows for sure who said it. It was clearly intended as a dig toward any eco­ nomic analysis that leaned heavily on those terms. Real economists may not be amused, but the long life of the quip does not diminish the terms’ value as a fundamental eco­ nomic concept.
It has been helpful for me to view the energy economy through the prism of supply and demand, as we look toward a new energy future with new market forces and potentially new regulatory constructs. As it is in any industry, the eco­ nomics of the energy sector are more complex than simply generating and distributing electricity (the supply) to energy­ using consumers (the demand) at a market price.
In the new energy economy, there will be an unusual
twist. The energy consumer will play an increasingly signififi­ cant role on both sides of the equation. On the demand side, more effificient use of energy by consumers and the new tech­ nologies that are making that possible have caused volumet­ ric consumption to plateau over the last decade. The supply side’s response has been as expected— a delay in building new power generation plants. However, one of the complexities in energy’s version of supply and demand is the factor of peak demand— that period when everyone is using energy at the same time.
Traditionally, utilities have needed to build enough power plants to meet that period of peak demand. While total mega­ watt­hour sales have been flflat, peak demand has increased, and that’s the most expensive energy to produce. Utilities
fifire up their most expensive and least effificient plants to meet the last megawatts of the peak demand. How did suppliers respond to the increasing use of those expensive, ineffificient plants? They planned for new electricity production that is cheaper and more effificient. But that is not the only solution.
Demand­side tools like battery storage, smart thermostats and switches on water heaters give consumers more control to reduce consumption at peak times. Behind­the­meter forces— that’s industry­speak for actions on the consumer’s side of the electric meter— are not limited to controlling demand. They can also work on the supply side. Solar energy’s improving effificiency and affordability have made the consumer a sup­ plier. In what other industry does that happen?
A demand­side tool doesn’t have to be a piece of
equipment. Mid­Carolina Electric Cooperative has imple­ mented a revolutionary billing method that gives its members more control over their energy costs with a price signal that encourages shifts in the time of day when energy is used. It’s an example of the kinds of choices consumers need to be able to make in their own best interests.
The status quo will not remain regardless of whether we deregulate the energy market in South Carolina. Market dis­
The status quo will not remain regardless of whether we deregulate the energy market in South Carolina. Market disrupters have arrived, and more are coming.
rupters have arrived, and more are coming. The questions that we should be asking revolve around how to adapt and how to prepare.
Consumers want and need more choices, more flflexibility. How can we give it to them? Our generation infrastructure is aging. How do we modernize without overburdening our con­ sumers? Can we achieve these goals under the current cost­ of­service model, or is a regional transmission operator (RTO) necessary?
For the foreseeable future, we’re going to need large gener­ ation plants. There’s too much demand and too much depen­ dence on the economies of scale of large plants for us not to. But in the new energy economy, we have the opportunity to transition to a more distributed, renewable energy­based grid.
Can we build together the smart grid that integrates dis­ tributed generation such as solar, storage such as batteries, and demand­side consumer­benefifitting tools? A grid that allows for real­time communication between the supplier and the consumer can and should be mutually benefificial.
It’s going to take a commitment from policymakers and collaboration between stakeholders to enact these kinds of changes to our power system. The same is true if we’re transi­ tioning into a new regulatory model. How will that transition, and eventual regulatory structure, accommodate and protect consumers? How do we ensure that everyone is served reli­ ably and with choices?
8 SOUTH CAROLINA LIVING | APRIL 2020 | SCLIVING.COOP