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AEE's Woolf says 'pent-up demand' to modernize grid driving record growth in advanced energy

According to a report released today by Advanced Energy Economy, revenue in the advanced energy sector topped that of the pharmaceutical industry in 2015. What's driving growth in this sector, and how is policy impacting investments? During today's OnPoint, Malcolm Woolf, senior vice president for policy and government affairs at Advanced Energy Economy, explains why, despite regulatory uncertainty, advanced energy and technology investments continue to see record growth.

Transcript

Monica Trauzzi: Hello and welcome to OnPoint. I'm Monica Trauzzi. With me today is Malcolm Woolf, senior vice president for policy and government affairs at Advanced Energy Economy. Malcolm, thank you for joining me again.

Malcolm Woolf: Happy to be back.

Monica Trauzzi: So, Malcolm, AEE is releasing a new report this morning highlighting advanced energy revenue in 2015 in the United States. What is the top trend that you saw in this analysis?

Malcolm Woolf: It's exciting for me to see just the growth of advanced energy both globally and in the U.S. We're now a $1.4 trillion industry globally; in the U.S. we're a $200 billion industry. To put that in perspective we're larger than pharmaceuticals. We're rivaling the consumer electronics industry. To phrase it differently, in terms of revenues we're twice as big as the beer industry. So this is a major industry that has really come into maturity in recent years.

Monica Trauzzi: And the report shows that in 2015 global advanced energy revenue was 17 percent higher than in 2011, and in the U.S. the advanced energy market grew 29 percent since 2011.

Malcolm Woolf: Right.

Monica Trauzzi: What are the key drivers behind that growth?

Malcolm Woolf: I think there's a lot of pent-up demand to modernize our grid. Our grid was pretty much designed -- or it is today pretty much the way it was when Edison designed it 100 years ago: centralized generation, one-way power flow, not a lot of customer engagement or information. With the technological improvements, cost-effectiveness of renewables, Internet, two-way communications, there's a lot of modernization needed to give consumers the flexibility and the products they want. And so that's driving a lot of investment.

Monica Trauzzi: There are many different players under the advanced energy umbrella. Who's doing the best?

Malcolm Woolf: A lot of success stories. In fact almost every sector with the notable exception of ethanol, which we can come back to, is --

Monica Trauzzi: We will. [Laughter]

Malcolm Woolf: OK, sure -- is growing. A couple bright spots in my mind: The building energy sector has grown 50 percent over the last five years, which is a nice, steady improvement. This is lighting, insulation, demand response. I think we're really beginning to see two things, both policymakers recognizing the benefits of energy efficiency and building efficiency to reduce bills, and so they're increasingly investing in utility programs and other techniques, and then also customer demand. Customers are beginning to want their Nest thermostats on the residential side or demand response at the commercial/industrial side again to manage their own controls. So that's one sector that's really interesting.

The other sector worth highlighting is energy storage. For me it's exciting to see that industry, which has always been kind of the future, science fiction, game-changing technology really come into its own. Over the last five years its growth from a very small beginning is 800 percent. Last year revenues were $734 million. So this is an industry that the future is now in terms of energy storage. It's going to be very exciting.

Monica Trauzzi: So you brought up ethanol. Revenue declined by a third. This comes at a time when the future of the renewable fuel standard is being very fiercely debated here in Washington. There's also litigation related to the RFS. Will we continue to see a decline in ethanol revenue?

Malcolm Woolf: It's an interesting time -- lots of uncertainty in that sector. I think the revenue -- actual sales of ethanol increased from 2015 over 2014, but they did have declining revenues largely I think because ethanol sales track gasoline prices. And so as gasoline prices have gone from $4 to $2, it's not surprising that revenues from ethanol have decreased as significantly as they have.

Monica Trauzzi: So the report is largely positive but there are some critical investments that will need to be made in order for more renewables to come online, for example, transmission, a key missing link. At what point will the growth trend hit a roadblock if there is not enough transmission sited and online?

Malcolm Woolf: Yeah, one of the exciting things for me is how the electricity system is modernizing at all levels, so you absolutely need new transmission for the large-scale renewable projects and actually for a lot of large-scale projects overall. If you look at what's come online over the last five years it's almost all -- like 94 percent of it is natural gas or renewables. So those technologies are going to need transmission to get to the market, but you've also got real efficiencies going on in the transmission system, using information systems to better manage the transmission grid itself, likewise on the distribution system and end use. There's kind of innovations on all sides that are freeing up that gridlock.

Monica Trauzzi: So why do clean energy industries continue to need subsidies if there is such dramatic growth happening?

Malcolm Woolf: Sure -- great question. I think there's different support that government provides to different technologies. The nuclear industry has long benefited from Price-Anderson for insurance support. The production tax credit and investment tax credit now were extended with the five-year phaseout, so those are going away, and that's great news from our members' perspective that they've got business certainty. They can now plan. They know what that business model is going to look like and they can plan that transition away from the government support, because they are increasingly cost-competitive.

There is an element of economies of scale. You've got to get the deployment on the grid, and also to reduce the costs of getting that deployment. So there's a transition for all new technologies. I think what we're seeing with the phaseout of the ITC and the PTC is a recognition that those technologies have reached that point. Other technologies need different kinds of supports.

Monica Trauzzi: All of this growth is occurring without a comprehensive federal emissions reduction policy in place. Is the market sort of just organically adjusting to this normal? And is a policy like the Clean Power Plan not needed then?

Malcolm Woolf: We were certainly disappointed with the Supreme Court's stay of the Clean Power Plan, but I think businesses need certainty, so certainty on climate is important. Nevertheless the overall trend globally and in the U.S. is a recognition that we need to modernize the grid, we're going to use advanced energy, cutting-edge technologies to provide more secure, clean, affordable power. And so these investments that often last decades or many decades -- they're extending nuclear power plants to 80 years -- you need to make them with a time frame well beyond any administration or any one policy. So I think the nation needs to figure out what it's doing with the Clean Power Plan, but the need and the compelling technology innovations are going to continue going forward.

Monica Trauzzi: All right, we'll end it there. Thank you so much for coming on the show. Nice to see you.

Malcolm Woolf: Thank you. Good to see you.

Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.

[End of Audio]

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