What's in the cards for carbon-free electric grids? For Macky McCleary, who advises mostly regulated companies on navigating the energy transition, a lot depends on how securely and uniformly the economy recovers.
McCleary says the Covid crisis shouldn't frustrate the rise of renewable fuels. The economics of solar, wind and coal make that rise a matter of logic.
He worries, though, that America has much progress to make on coordinating public safety and retraining workers before it can meet the challenge of rehiring workers, reinvesting capital, and resetting an electric system that he says has evolved to baffle Edison himself.
A system designed in the early industrial era to serve an expanding American population now runs into a global disruption with no obvious master remedy. The statement describes the predicament for electric utilities that need to run their perfectly reliable networks on sun, wind and water. It also describes the American economy as it sheds millions of jobs, some permanently, after broad public-health shutdowns. Macky McCleary, who directs energy, telecommunications and infrastructure for consulting firm Guidehouse, says that economics make the energy transition inevitable while politics make it fragile. Utilities figure to benefit from capital provisions that stoke the economic recovery- if and only if the federal government can coordinate that recovery in a way that provides for public safety and retraining.
CEFF: What has changed the prospects for grid modernization, broadly, during the Covid crisis?
McCleary: I'm not sure there has been a huge change. The entire utility regulatory system is designed not to innovate. It was designed in the early 20th Century around this radical concept that every person in the United States had the right to electricity, ubiquitous and at a low price. Everything points in that direction, including engineering- the engineering is insane as it seeks reliability [That means] there is significant impediment to any kind of new technology. Ultimately reform factors will win because the new system is better. The crisis may slow things down because there's less revenue to go around- and with revenue drops you'll see less investment. On the other hand, maybe innovation provides a way for utilities to get earnings. You may see accelerated adoption of electric vehicles, especially in Europe.
CEFF: What's the outlook for job losses and subsequent job growth in the industries you follow? How does this vary by region? What, if anything, can we generalize about a timeframe for job losses, disruption, reinvention and recovery?
McCleary: I'm primarily focused on elecricity, energy and telecom. The areas of greatest risk are in the mobility space because a lot of people are not buying cars. When people aren't driving, charging companies also don't have revenue- though Chargepoint has diversified. And automakers are going to struggle. Already they run on a very small profit margin: you put one small [disturbance] in their system and it blows up. Now, the amount of government support and stimulus needed to maintain the restaurant industry is an order of magnitude higher than what we're looking at today. That lack of recovery affects consumer demand. And your return to normalcy in the near term is dependent on [Covid-19] test availability. Presuming a federal government doesn't exist, which in the United States it doesn't right now, you need states doing 5-10x of what the best states are doing.
CEFF: In that context, what is the long-term bull case for grid modernization anywhere?
McCleary: Grid modernization proceedings have not stopped - things that stop those are politics and commissions. Because we've crossed the threshold of cheaper renewables, there will be very good policy reasons to accelerate adoptions. It's just really hard to say no to solar at one cent per kilowatt-hour, or winter peaking wind at five cents per kilowatt hour. It's just silly. There should be large amounts of capital investment, also, in construction. Grid modernization will benefit. The challenge is that chefs and waiters will have to retrain to be utility linesmen and transmission workers. That requires the Federal government to be working, which it's not. The biggest impediment is in my view political. It's a challenge we will rise to.
CEFF: How so?
McCleary: We have gridlock because there's still delusion about normalcy being around the corner- when that delusion goes away, action will be required. The need for spend will ramp up, especially after the rollout of a vaccine.