Energy sector officials discuss challenges, opportunities entering 2018

In early February, Northwest Arkansas Business Journal editor Paul Gatling sat down in the Firmin-Garner Performance Studio at Fayetteville radio station KUAF 91.3 FM with three energy executives to discuss their thoughts on the industry entering 2018.

Peter Main is principal communications consultant for Southwestern Electric Power Co. (SWEPCO), a division of utilities giant American Electric Power Co. with a little over 117,000 customers in Arkansas.

Penny Storms is manager of media and public relations for Ozarks Electric Cooperative, a nonprofit member-owned cooperative that serves more than 70,000 homes, farms, businesses and industries.

Douglas Hutchings is the CEO of Fayetteville startup Picasolar, which works closely with some of the largest solar panel manufacturers and solar equipment manufacturers in the U.S. and world. Picasolar also is working on a plan for a solar module assembly plant in Arkansas.

Gatling: Thank you all for being here today. What we want to accomplish with our time and the reason we’ve invited you all to join us is to discuss what’s ahead in the coming year for one of the most dynamic sectors in both the Arkansas and U.S. economy, and that is the energy sector. Peter, I’m going to come to you first as we focus on 2018 and the future of energy. Just kind of a 30,000-foot view, what are some of the key questions you’re focusing on, what’s your view as it relates to what’s going on to have the biggest impact among consumers in 2018?

Main: Some of the things that are a particular interest and focus for SWEPCO now are changing energy resource mix, more renewable energy added to our mix, in particular our Wind Catcher project and also some of our customer-focused initiatives like a new mobile lab that we’ve recently introduced to serve our customers. Of particular importance for the reliability of our service to our customers, some major initiatives to improve the reliability of our transmission and distribution system especially around some automation and some rebuild projects.

Gatling: I do want to come back to that Wind Catcher project, certainly. Penny, same thing for you. What are you dealing with, big picture view? What’s the big issue, regulatory or otherwise, that Ozarks Electric is focusing on right now?

Storms: The thing that we’re probably focusing most on is technology advances and how they are influencing both the electric side of our business, as well as [our] new fiber company, OzarksGo, that is bringing fiber to the area of Northwest Arkansas. As far as the fiber goes, it is not only connecting our substations and improving system reliability, but it also is giving us information downline from substations — like as far as breakers and substations — so that we can actually isolate small outages. And it’s sort of a self-reporting system before a member can even call us to report their outage.

Gatling: And Douglas, let’s now talk about solar energy in the state. What’s the big picture for you in the solar economy in Arkansas right now and what are the issues that are of most importance to Picasolar?

Hutchings: I think energy, solar energy, has had a pretty interesting year in Arkansas. I know in talking to the local installers it’s been growing, I think, exponentially. Some of the big folks locally, Shine Solar, Richter Solar Energy and then Seal Energy down in Little Rock are all reporting significant interest in deploying solar and don’t see that slowing down in the future.

Obviously, from Picasolar’s standpoint, we’re more on the technology development side so we work with all the major manufacturers as a technology provider. And so we’re working with … most of these manufacturers are overseas, and so we’re still looking at ways to implement those technologies so they can get deployed here in Arkansas.

Gatling: When you pay attention to all the policy discussions that are going on right now at both the federal and state level, you’ve obviously got the tariff on solar modules from the Trump administration, you’ve got the net metering discussion going on at the state level, what do you hear that makes you think 2018 could be a breakout year for renewable energy and on the flip side of that what do you hear that might be somewhat a cause for concern as we go forward this year.

Hutchings: So I think the tariff has been obviously on everybody’s mind recently. I think the most challenging aspect of the tariff was it happened between the summer and the announcement of the actual tariff where everyone was just kind of speculating what was going to happen instead of knowing the actual rules that they were going to be operating under. I think a lot of people eventually said that the tariff isn’t as bad as they expected and so now at least they can adjust their expectations to the new reality and continue moving forward.

Gatling: Penny, over to you. Let’s talk about some renewable energy issues that I’m sure that are top of mind to you. What are some of the challenges, and what are some of the opportunities? In Arkansas, both of those are growing rapidly as I’m sure you well know.

Storms: Absolutely. Actually two years ago we put online our 4-megawatt solar facility in east Springdale which you’re probably familiar with, Douglas. Also, several years ago, gosh, it’s probably been five to seven years ago, Waste Management came to us with a biomass project because they have methane gas that is naturally emitted from their landfill site. And so we have a 4-megawatt facility called EcoVista that we purchase power from through our power provider, Arkansas Electric Cooperative. So we are — probably the whole power mix, our assets, generation assets — there are something like … let me give you the number. About 20% of the power or generation assets that we have through the electric cooperatives of Arkansas is renewable energy. We have three hydroelectric power plants. We have the biomass facility, we have our own solar project here in Northwest Arkansas, but other cooperatives are following suit in that area.

Gatling: Peter, is the net metering something that’s on your radar, on SWEPCO’s radar and some of the discussions taking place in Little Rock?

Main: Yes. We’ve been a participant along with other utilities in the net metering docket with the commission and other commissions. Decision is several months out, but it is an issue that we’ve been involved in and very interested in, obviously.

Gatling: And your Wind Catcher project, going back to renewable energy, a $4.5 billion dollar project. Explain to consumers what they need to know about it and how they’re going to be impacted by it.

Main: So the project is, as you said, $4.5 billion dollars. SWEPCO will be 70% owner of that project along with a public service company of Oklahoma, which is based in Tulsa and that is our sister company (Public Service Co. of Oklahoma, or PSO) within the American Electric Power system. The project consists of a 2,000-megawatt wind farm out in the Oklahoma Panhandle, which is just a wind rich resource in this part of the country. And that’s one of the real opportunities here is that it allows us to tap into one of the richest wind resources in the country. And the other portion of the project is a generation tie-line, and it then delivers that energy into the Tulsa area,  where it then is delivered to SWEPCO and PSO customers through the existing transmission system.

Gatling: So what are we going to see tangibly in terms of that project in 2018? What are some of the key dates that we’ll hit as we go through the year?

Main: One of the key dates coming up is the regulatory approvals that we’re seeking in all four states. Oklahoma for PSO and Arkansas, Louisiana and Texas for SWEPCO. We’re hoping to get those regulatory approvals by the end of April, that’s what we asked for — for expedited consideration there. What we’re really working hard to do in all of those proceedings is to demonstrate the tremendous potential of this project, the long term savings, more than $4 billion dollars for our customers over the 25-year life of the wind farm. And this is compared to what would otherwise be market purchases.

[We’re also working] to show that this project really responds to the interests of our customers, folks who have their own sustainability and renewable energy goals and objectives. And these may be individual companies, universities, individual customers. So it can be a broad variety of people. These are the things that we’re hearing about in the integrated resource planning process that we undergo through the Arkansas Public Service Commission and that helped us identify some of the resources that we were going to pursue going forward.

Gatling: Just to make sure we heard you right, that’s savings with a “b” as in billion, correct?

Main: Correct. More than $4 billion for our customer base in Arkansas, Louisiana and Texas over the 25-year life of the project, and that would start in 2021 at the completion of the project and the beginning of the savings. It’s largely through the fuel portion of a customer’s bill because with the wind project there is no fuel charge.

Gatling: So certainly an important project. Douglas, I want to get a quick recap from you on an important trip that you took to … I’m wagering to guess you’re the only person in the room who’s been to China in the past couple of months. So tell us a little bit about that trip. I guess you would call it a goodwill mission, a fact-finding mission to some of your partners over there. Give us a quick recap of that trip.

Hutchings: Absolutely. So, there’s two local companies that have developed technologies for the solar industry, both Picasolar and WattGlass. I had the honor of traveling with Corey Thompson from WattGlass to go and visit all these manufacturing facilities, talk about how they would be adopting our technology in the future and then also hearing their plans for deployment long term and kind of tackling it in that order.
We had visited some manufacturing facilities in the U.S. before that were 200- to 400-megawatt capacities. That’s pretty big. The smallest one we toured in China was about two and a half gigawatts, so kind of 10 to 20 times the size.

I think sometimes there’s a misconception when you think of China and the level of automation that [it] may or may not employ. But some of the facilities we toured, you could look around you and hardly see a person. There were cutting-edge technologies being implemented and continuing to drive down the cost.

Gatling: Does that get you excited when you come back here, when you see what you saw over there and you come back to the U.S.?

Hutchings: Absolutely. I think with that level of automation the question to me is then shipping costs are becoming a bigger and bigger part, so why couldn’t this be done locally? Since that trip there’ve been some conversations around that, around how we could do some of that stuff. And then obviously with the background of the tariff taking place, potentially that could push some of that stuff to making even more sense.

Gatling: I want to get all of your thoughts on the much discussed federal tax cuts that were signed in December. Those are being felt in every industry, and energy is no different. And the Public Service Commission here has opened a new docket to determine if some of those savings, if the utilities can pass those savings on to consumers. Is that a possibility, Penny?

Storms: We have rate studies that are done that involve cost of service and that sort of thing, so certainly that is taken into consideration when those studies are done. And yes, that is a concern of ours at this point: How do we move forward with the tax cuts that have been proposed?

Gatling: Peter, you agree with that?

Main: Yes, the commission has opened these proceedings, and they’re really looking at gathering the information so that they can make a determination about how we do pass these tax benefits along to our customers within the existing mechanisms and rate-making processes. So it’s not a matter of if it will be passed along, it’s really a matter of how and when.

Gatling: Douglas, any main ramification for your company, or in the solar industry really, as a result of the new tax cuts?

Hutchings: I don’t know if it was intentional or not, but I think it’s opened up some interesting opportunities in solar with kind of the accelerated depreciation stacked with the equity investment tax credit. If you are a large-energy consumer, probably $5,000 to $10,000 a month in electrical costs, you should probably be looking into how solar can help offset some of that. In talking to some folks locally even, some of those payback periods are well below five years when all of that is considered.

Gatling: Final question for all you guys to put on maybe your creative thinking cap, and Douglas I’ll start with you. If we’re talking at an energy roundtable next year, in two years, what are some new trends we will be talking about at those meetings? What is your half-crazy, counterintuitive prediction of about the next three to five years in the energy sector?

Hutchings: So, one year versus three to five may be different answers. The nice thing is, historically, solar in Arkansas from the deployment side was not mainly done for financial reasons. There’s a lot of kind of environmental stewardship and so forth. That had just started to change. And then the tariff, in some people’s opinion, may have pushed it back to not being so sure. I think the module prices at the end of 2018 will probably be lower — even including the tariff — than they were at the beginning of 2018, just because of this relentless march in technology.

I think the biggest opportunity currently is in the so-called soft cost, the non-hardware costs. I would really like to see someone in Arkansas really step up and propose a model that addresses a lot of that. I think if you look nationally, residential installs are about $2.90 to $3 a watt. A dollar or less of that is hardware cost. Hardware cost has plummeted so much, but how do we streamline the policy side, the installation side? I think in the next year or two we’ll see someone stepping up and making big advances in that area.

Gatling: Lots of conversations still to come I’m sure. Peter, a variation of that question. What do you hope we’re talking about in a year in the Arkansas energy sector?

Main: Well, I think we will continue to talk about the integration of renewables into our resource mix in perhaps new and different ways we don’t know at this point. For us, we’ve had a history of a diverse energy mix and felt like we needed to continue diversity in our resource mix to balance things out and assure a secure energy future for our customers. So we would see that continuing as we face the challenges of integrating further the various renewable resources. I think just looking forward with our customers and recognizing that we’re in a regulated industry, but serving customers who are used to dealing in a very unregulated marketplace in all of their transactions. So seeking to meet their needs, doing business with them the way they want to do business with us, is an ongoing challenge.

Gatling: Right, ongoing. Regulations aren’t going anywhere, right? Penny?

Storms: Yes, I agree with Peter, and I think probably environmentally sound renewables is a concern of all of ours. Distributed energy resources is going to have, I think, a large impact on our industry, especially large battery storage and that sort of thing is coming along. The technology that Tesla and others have been working on with electric cars is coming to commercial and residential, so I believe that we will see a large influx of that sort of technology for people to use even in their homes, much less on the electric grid for all of us.

Gatling: Peter, Douglas, Penny, we thank you all for being with us today. Appreciate your insights.