Utilities: What Walmart's power plans say about your future (it's scary!)
Read the Walmart press release >>
By Jesse Berst
At first glance, the Walmart press release on page 2 sounds like just another greenwashing announcement bragging about the things the company will do to improve the environment.
Look a little closer, and you'll see that it is not that at all. And you'll see that it has some challenging implications for the current utility business model.
First, consider these key points made by CEO Mike Duke at Walmart's annual Global Sustainability Milestone Meeting. The company intends to:
- Produce or procure 7 billion KWh of renewable energy every year (up 600% from 2010 levels!)
- Reduce the energy intensity of its buildings by 20% compared to 2010 levels
- Install solar on at least 1,000 rooftops by 2020 (it has 200 in place or in development now)
- Increase LED usage indoors and outdoors
- Be supplied 100% by renewable energy by 2020
Walmart's 600% increase in renewable energy will be the approximate equivalent of two fossil fuel plants.
Here's another key point -- Walmart's driver is NOT the environment. Walmart's motivation is purely economic -- saving money on power bills. The environmental benefits of switching to renewables is simply a PR bonus.
Now consider what would happen if ALL of your commercial and industrial customers went down the same path. If ALL of them committed to using 20% less energy. And ALL of them decided to generate as much of the remaining 80% on their own as possible. And ALL of them demanded that what little they bought from the utility had to be 100% renewable.
Now consider that Walmart is a thought leader in big box retailing, pioneering business strategies that its rivals rush to copy.
Anybody else worried what this will mean for the utility business model, which for the last 50 years has assumed that demand will grow every year? Anybody else think that utilities should be getting into the business of supplying rooftop solar for the customers that want it? Use the TalkBack form at the bottom to agree or disagree.
Read more renewables news and trends >>
Jesse Berst is the founder and chief analyst of Smart Grid News.com, the industry's oldest and largest smart grid site. A frequent keynoter at industry events in the U.S. and abroad, he also serves on advisory committees for Pacific Northwest National Laboratory and the Institute for Electric Efficiency. He often provides strategic consulting to large corporations and venture-backed startups. He is a member of the advisory boards of GridGlo and Calico Energy Services.
Page 2: Read the Walmart press release >>
|Does this indicate that Wal-Mart believes power costs will go drastically higher? Rooftop solar does not currently cost less, unless of course,subsidies are involved. Is that what is going on here, the tax payer will subsidize Walmart?|
|Rick Flesher - 04/17/2013 - 07:15|
|Renew the outages!|
|It sounds like legal counsel should help script the new tariff that covers 100% renewable service. Theyâ€™ll need to add a clause explaining that when the clouds move in and the wind stops, the outage experienced is a renewable one. Committed Walmart customers will understand.|
|Wyatt Pierce - 04/17/2013 - 07:24|
|Walmart's strategy is indeed indicative of the end of the current utility business model. This is good news. Current utility executives will be the first generation of utility leadership ever to re-invent their businesses.|
|Bert Haskell - 04/17/2013 - 07:38|
|WalMart and Renewables|
|...excellent article. WalMart is working on Solar installations via Solar City which is for all intents and purposes is becoming a 21st-century utility (are you paying attention PSC/PUC's?).|
...WalMart is doing what any smart business-leader would do, cut its costs to do business. While natural gas has thrown everything a bit out of kilter for the time being to cost associated with production and installation of PV solar is going nowhere but downward.
...I think you are absolutely right, especially as fuel-cells and storage technology improve, many businesses will be looking to become self-sufficient. So yes, utilities should be looking at adopting the "Solar-City" business model for long-term growth...
|Dave Perrino - 04/17/2013 - 07:57|
|Not sure why this is scary|
|Solar is now cheaper than a lot of utility power and your rate is locked in for the next 30 years. Of course this has implications for the utilities, but still not sure why that is scary. The article doesn't seem complete.|
|thomas braum - 04/17/2013 - 07:59|
|WALMART Energy Strategy|
|Walmart is perhaps ahead of the economics for going with renewables, but as the cost of renewables comes down, I expect that first companies, then eventually residences will see the economic benefits of local renewable generation (and perhaps also natural gas turbines if gas becomes cheaper) as a means of avoiding exposure to prolonged power outages and to appear environmentally green. Utilities will have to adapt to this new reality -- perhaps, as you suggested, by selling and/or installing rooftop solar for customers.|
|Al Mondelli - 04/17/2013 - 08:01|
|We have seen this phenomena before with Houston Lighting and Power Co in the 197's. When I started work there in 1971 72% of our kwh sales went to the industrial SIC codes. This was based on 20cent natural gas contracts with Exxon and Pennzoil and an avrage heat rate of 9550 ont eh supercr5itical powerplants. REfineries chemical plants such as chloralkali and other basis could not compete. Peaking plants were higher but baseload was under 10,000. As a result we could sell power to high load factor 75% or more at an effective rate of 6mills including demand charges. Pennzoil broke their supply contract in1973. HL&P began building coal plants to cover projected shortages. The high construction costs (10X the supercrictical gas plants) sent the rate base so high that the rate base alone whas higher than the entire bill under 100% gas. HL&P had other options using scrubbers added tot eh supercritical plants and #6 oil and continuing the EXXON gas contract without modification but ignored them. By 1978 55% of the industrial load had switched to self generation. Tha forced a major increase in the rate base for all remaining custoemrs and all petrochemical and other steam using plants had left the system by 1984. In 1985 HL&P was only 15% industrial load by SIC code. |
Every one needs to be aware of spinoff effects when high load factor customers leave. Walmarts are probably high 40's or low 50's but you will see shifting in rate base costs to other customers.
|Edward Hinders - 04/17/2013 - 08:04|
|WALMART Energy Strategy|
|Is it the time for utilities to have a Distributed Generation/Energy for all customers whose load is bigger than 2 MW? Our studies indicate that using existing technologies, regulations, and standards for Distributed Generation/Energy for 1-5 MW with pay back of 4-6 years.|
So WALMART strategy for energy is practical, economical, and wise
|Hossein Pakravan - 04/17/2013 - 08:17|
|Shift in costs|
|Currently the "wires" costs are probably embedded into the unit rates or at least based upon electricity supplied. If the big users shift to self-generation, then the cost of the wires will be spread across less consumption. This will then mean that those who don't have onsite generation will pay more, because their share of the electricity being delivered down the wires will go up. So Walmart's bill will go down and Grandma's bill will go up...... unless she installs PV. It's more apparent when you exist in a fragmented market like to UK, but it applies everwhere.|
|Paul Scotson - 04/17/2013 - 08:22|
|Lots of Factors at Work|
|There are probably a number of factors at work here. One is the tax benefits, because without them PV at published prices is still more expensive than grid power in most parts of the country. Another is the likely future impact of renewable and coal emissions reductions mandates, which will drive energy bills higher. |
It's also likely that WalMart's size and scale allow it to deploy PV at somewhere close to the cost of the equipment alone, in which case PV is likely to be roughly competitive without any tax subsidies.
As for the 20% reduction in energy use, isn't that what regulators have been encouraging all electricity consumers to do for the past four decades?
Regulators have clearly not thought through the implications of policies that encourage consumers to install distributed generation. It's a back-door form of retail access with all of the attendant issues to be worked through. If I was a utility executive, I would be thinking very hard about what businesses I should stick with among generation, transmission, distribution and retailing, which businesses I should be getting out of, and whether selling and installing DG is consistent with the traditional low-risk modest return business model widows and orphans can depend on (or at least be clear about any transition plan to a different business model).
As a regulator, I would be seeking ideas from many constituencies, including a few outside the normal clique of utilities, consumer interests and entrepreneurs. I would also want to make sure I thoroughly understand the short- and long-term implications of any course of action I ultimately decide to take, so that I can provide clear, unambiguous guidance (which is obviously sorely lacking today).
Jack Ellis, Tahoe City, CA
|Jack Ellis - 04/17/2013 - 08:48|
|Walmart - reliability impacts|
|Walmart's proposal also addresses service reliability, which has been a critical issue along the East coast, in parts of the midwest and expected to be a problem in the west. Costs for grid improvements will add to the acceleration in energy costs and in most cases those investments will only marginally improve reliability. Onsite generation, per the Walmart proposal, takes care of that issue, especially if combined with other improvements that could eventually take them off-grid. |
|Roger Levy - 04/17/2013 - 09:42|
|As at least one person has addressed in the comments above. The cost per kW/hr is probably a lot closer to the cost of commercial electricity when you consider the sheer volume they are talking about. They probably have a long term contract with a solar panel supplier to produce several thousand of these panels per month in exchange for a guaranteed purchase volume. Can you imagine 7-11, Kroeger foods, or Safeway doing the same thing? All 3 of those businesses have literally thousands of sites across the country and could probably make make money with it.|
|Aaron Timm - 04/17/2013 - 17:18|
|WAL MART CAN CHANGE THE FACE OF BUSINESS|
|Wal Mart CAN CHANGE THE FACE OF BUSINESS What ever comments about negative is a perception from suffering of common people While Wal Mart being rich company if take my view there they can bring their running cost of energy and its implications over environment,health and so on Wal Mart should know business of ethical is doable and achiveable with the same profit margin in place as well earning world wide respect from the consumers being a SOCIABLY RESPONSIBLE COMPANY does not mean loss making but profits with socially responsible taking charge of their consumers well being with profit would earn them more profit than loss to know tenthnov57atycom may reach to more about how they can earn respect thanking all C K SWAMY |
|SWAMY P J - 04/18/2013 - 01:48|
|Not going to happen|
|Does anybody know the load factor of a Wal-Mart store? It is around 82%. If you're familiar with load factor (average kW/peak kW), their kW requirements are consistent through out the day. Therefore, a tremendous amount of storage will be required to power the facility during the night time hours. |
From the utility perspective, a Wal-Mart store is as good as it gets.
Here's the key to this discussion: utilities are not going to sit by and allow a customer to drop their load factor to 10% or less. They will have to develop a new rate structure to penalize a customer for not purchasing kWh (energy). As a utility, they are not going to provide back-up power without being compensated. If Wal-Mart wants to go off-grid, I am all for it. Just don't expect me as a ratepayer or taxpayer to subsidize their plans or goals.
If it such a great idea, then Wal-Mart needs to keep pushing forward.
|Todd Sumner - 04/18/2013 - 03:30|
|Reliability Impacts - safety|
|There's safety issue while these places are still grid-attached. In the UK, certainly from a small scale perspective, if there's no power in the grid, then the installation is wired to prevent you keeping your own lights on. |
Imagine export leakage into the local grid in a power outage - your local engineer is working on a system which is supposed to be dead and zap! The big company down the road starts exporting into the grid - one fried engineer.
|Paul Scotson - 04/18/2013 - 07:10|
|Reliability - Safety - Islanded|
|There's no reason you can't have the power to the building and still be islanded from a grid that is down. In fact the law and regulations will ensure no safety issue with their installations. There is nothing inherent in the current practice of unpowering the PV array output during a grid failure.|
Consider that if they run LED lighting directly off of PV, they could use an off-the-shelf MPPT that outputs 380Vdc, the worldwide DC microgrid standard, at 99% efficiency. That way they can run lights and motors (HVAC, Refrigeration) at higher efficiency (10-25%), reduce the amount of PV they have to install by 10-25%, and use a bidirectional, auto-islanding inverter to sell excess power in the day and run off the grid at night.
|Guy AlLee - 04/18/2013 - 10:49|
|Expected for a long time...|
|For years, we've been talking about building the smart grid of the future composed of many microgrids with distributed generation built into a resilient network.|
Now when customers start to listen and actually build out renewable distributed microgrids -- we fear the future. It is easy to argue it will be unreliable, the lights will go out, etc. But read the other "SmartGrid" hot news of this week and we are reminded of substation damage by "rifle". The existing grid is also at risk even if Walmart takes no action.
There has been years of research, design and pilots of various microgrids. The risk adverse utilities have been good at avoiding risk - and the result is they may be bypassed by the very customers they depend on.
Walmart has the ability to buy and install onsite large scale battery storage. They can easily incorporate natural gas standby to the battery storage. They could go entirely off grid!
Utilities may need to worry about the future after 2020 - when Walmart begins to sell fully charged "house fuel cells" an idea that is similar to the propane tank swaps.
Walmart is not the only retailer to decide to deploy solar. Walgreens and IKEA have also made the same decision.
In seven years the cost of solar will be at parity with traditional coal, natural gas, wind or hydro. It will cost less than the current traditional nuclear.
Perhaps a better approach for the utilities is to enter the solar market themselves. This will of course require the regulators allow the utilities to take the risk with an opportunity of recovering the costs.
Start leasing the roof tops of the big warehouse like buildings and adding their own solar farms. Think many small modular generation systems with the consumers underneath their plants, or in a building within one or two kilometers.....
|Dennis Heidner - 04/18/2013 - 21:03|
|Easier Said than Done|
You are correct that Wal-Mart can add generators and they can add onsite batteries; unfortunately, they cannot produce power less expensively than the power utility. Unless it is highly subsidized by the taxpayer, solar with battery storage is not economical. Back-up generator is another huge cost and it unattractive if you are not interconnected with the utility grid.
I do agree with your overall assumption that utilities will have to stay competitive with alternative generation sources or they will loose them. The residential ratepayer is going to have to pay their true cost of service because today the Wal-Mart's are absorbing to much of the costs.
|Todd Sumner - 04/19/2013 - 12:23|
|RE:Easier said than done|
|Walmart has the advantage of scale, they own the roof tops, they have engineering teams. Module prices have dropped enough that Walmart may easily be able to compete with local electric rates across much of the US.|
And yes, they may be obtaining tax credit, but then we give manufacturers an R&D credit, we offer up resource depletion credits, and exploration credits, the idea that Walmart might be able to take an investment tax credit for solar should be considered no different than the many other tax credits offered up to a wide range of businesses and individuals.
Sure we can cancel the renewable investment credits, I am game for that, but we should also be willing to pull the plug at the same time on the other 1000+ credits/deductions out there.
|Dennis Heidner - 04/21/2013 - 20:46|
|Utilities and most consumers are used to being the only game in town, with a commodity business model where a kWh is a kWh. But the idea of "negawatt-hours" and what I call "local watt-hours" or "locawatt-hours" challenges that traditional worldview. Now grid kWhs must make room for nWhs and lWhs ... smart consumers will find the optimal blend of grid energy, energy efficiency and localized generation. WalMart, perhaps the smartest consumer of all, has spent years studying their load and options for energy efficiency and on site generation. Their core competency is optimizing their supply chain and this press release reflects years of research and experimentation. As more and more consumers emulate WalMart and take control of this critical resource and operating expense, utilities will need to adapt and find ways to maintain revenue - adding punitive charges and rate increases, as some recent reports have suggested, doesn't appear competitively feasible when alternatives exist. |
|John Cooper - 04/22/2013 - 13:52|
|Selling a DIY home solar system?|
|Walmart also has their own bank and can finance complete home solar setups, if they make them simple and modular, Ie: automatic transfer switch, inverter, generator to start, and solar panels, eventually added as affordable and then replaces the generator, and batteries configured to be added or replaced as need or afforded! And with some local, trained, help to hookup------- Another future?|
|chuck conly - 04/25/2013 - 09:11|
|RE:selling a DIY home solar system|
|There really isn't such a thing as a DIY home solar system - grid tied. It is unlikely that a UL/CE approved and utility accepted system would be sold in North America or Europe. If Walmart had any intentions of doing that -- they would have already offered DIY electrical panel kits, DIY 15KW automatic standby kits. DIY gas furnace kits with ducting.|
The electrical portion of a solar system is just one piece of the design, placement on the ground or roof needs to be decided. Lightning protection, earth grounds, if on the roof - structural loads. Racking system designs - local covenants and restrictions.
Solar is easy if the intent is to charge your cell phone. But grid tied becomes more involved. Off grid solar isn't that much easier - because you need to worry about the batteries, charge equalizing, energy storage, and eventually waste disposal of the batteries.
|Dennis Heidner - 04/26/2013 - 11:43|
|RE: Easier Said than Done|
|When Walmart installs generators, they will be CHP units, heating and cooling with free electricity, less expensively than the power utility.|
|Jody Solell - 05/30/2013 - 20:14|
|"Walmart's driver is NOT the environment. Walmart's motivation is purely economic -- saving money on power bills."|
Not true. If it were economic, they'd buy cheap electricity, not produce or procure expensive renewable energy. It is purely PR and the author's failure to recognize this, shows where his loyalties reside.
Consultants are always driving fear and change in the utility industry to ensure the existence of their own industry. Utilities then end up spending way too much money on these consultants at the ratepayers expense.
|Russ Steven - 06/25/2013 - 08:52|
|What a fascinating array of reactions - think you picked a scab, Jesse?|
The reality is that Walmart has been pursuing a very aggressive and lucrative sustainability program for the last several years. They have repeatedly demonstrated that conservation can pay. That they have now turned their attention to their use of energy - regardless if due to market discontinuities - means the reinvention of the utility business is being left to others to drive. Pity.
|Robert Spencer - 06/25/2013 - 16:03|
|Taxes already subsidize Walmart|
|The average Walmart employee already receives approx. $6k in subsidies in the form of welfare & healthcare. Walmart won't pay a living wage so we sub them already.|
|George Lister - 07/05/2013 - 06:42||