Just because you can burn coal doesn’t mean it’s in your best interest
In case you missed it, here’s a good summary of Tuesday’s executive order to review the Clean Power Plan and begin rolling back the Obama administration’s climate policies.
Mr. Trump’s intent is to bring back coal jobs by eliminating the requirements that utilities scale back their use of coal. As has been widely reported, there are a few problems with this logic:
- The utility industry has voluntarily scaled down its use of coal (from 52.8% of the fuel mix in 1997 to 33% in 2015), largely because the prices of natural gas and solar have gotten so favorable. A policy change making it OK to burn coal doesn’t change the economics.
- The utility industry likes certainty. If I were the CEO of a utility, I’d be thinking, “Well, this might be the policy for the next four years … but a new administration could come in then and change everything back. Therefore, it doesn’t make sense to start building a bunch of coal-fired power plants only to have a new president tell me I can’t use them once they’re finished.”
- New jobs are coming from the renewables sector. Quoting directly from a report published by Environmental Defense Fund (our client, full disclosure): “In 2015, renewable energy jobs in the U.S. reached 769,000, the result of a compound annual growth rate (CAGR) of nearly 6% since 2012. Job creation in this sector has outstripped the fossil fuel industry: for example, jobs in fossil fuel extraction and support services slumped, with a -4.25% CAGR over the same period.”
But there’s another reason why it doesn’t make sense for utilities to go back to burning coal: their customers want clean power, and they expect their utilities to provide it.
Most every Investor Owned Utility in America is hyper-focused on improving their J.D. Power score, and it’s clear in J.D. Power’s data and in Shelton Group’s polling that when customers believe their utility operates in an environmentally friendly fashion, the customer feels more satisfied/favorable toward their utility.
And if the utility industry doesn’t stay on this path toward cleaner energy, the industry’s customers will move ahead without them. It’s already happening.
The largest energy consumers in America – the Fortune 500 – are regularly out doing their own deals with wind and solar developers, both because it’s a priority flowing directly from their sustainability goals and because the economics are so favorable. In fact, 66% of business decision-makers in America and Canada polled in our most recent B2B Pulse study stated that they intend to increase their reliance on more renewably generated electricity. And 65 companies, representing over 48 million MWh of annual electricity demand by 2020, have signed on to the Corporate Renewable Energy Buyers’ Principles – which is, in my parlance, a list of demands for the utility industry related to renewable energy.
And that represents an opportunity and a strategic decision for the utility industry. Utilities can go, “Neat! Now we can slow down all this rigamarole on making our generation cleaner, and use the savings to bolster our financials for our shareholders!” and continue to watch their largest customers migrate to their own renewable energy deals that don’t involve the utility (which will be very bad for a utility’s financials in the long run).
Or the industry can go, “It’s clear that our largest, best customers want to buy clean power. We can provide that to them, both in the form of a cleaner overall generation mix and in the form of new programs, plans, tariffs, etc., that allow us to partner with them on renewable energy deals. That will allow us to shore up those customers’ revenue for the long haul and hold our financials in good stead.”
Obviously, the Shelton team recommends the latter – we believe the most successful approach to business is always grounded in understanding what customers want and then figuring out how to give that to them, packaged in a way they’ll find most attractive, with a business model/pricing structure that the company also finds attractive. And based on a study of utility executives conducted by Utility Dive earlier this year, it seems most utility executives agree and are planning on taking this approach.
Which means despite what Washington does or doesn’t do related to climate, clean energy will prevail. It may not be what the coal industry wants, but it’s what the people want.