Americans bring their own power with outages on the rise

Good morning and welcome back to Energy Source, coming to you from New York, where persistent rain and concerns about the US economy threaten to upset the summertime vibe.

There was better news for investors in Glencore on Wednesday as Gary Nagle, chief executive of the world’s largest listed coal producer, provided some clarity over the future of the Swiss commodities group. He has abandoned plans to spin off Glencore’s coal business in a strategic pivot, which reflects a sea change in sentiment towards fossil fuels.

“The pendulum has swung on ESG . . . [investors] still do recognise that cash is king,” he said.

But whether Glencore’s policy shift represents a major shift in investor attitudes on climate change or is rather a smokescreen deployed by Nagle to justify the company’s U-turn is an open question, according to an analysis by my Financial Times colleagues Harry Dempsey and Emma Dunkley.

Elsewhere, my Energy Source colleague Myles McCormick travelled to the US oil heartlands to talk to Latino voters about the presidential election, where Donald Trump’s “Drill, baby, drill” slogan is proving popular.

Our main item today looks at why many businesses are building their own microgrids to overcome reliability concerns over power supplies.

Thanks for reading, and do get in touch at jamie.smyth@ft.com.

US businesses turn to microgrids amid power reliability concerns

Americans are spending millions of dollars to go “island mode” and operate off the grid as growing electricity demand, extreme weather and ageing infrastructure pose a threat to power reliability and raise utility prices.

Last week, Cummins, which sells generators, reported that quarterly sales for back-up power systems were up 16 per cent year over year, totalling $987mn. Generac, another generator manufacturer, raised its annual outlook as growing power outages — including from last month’s Hurricane Beryl — leave consumers scrambling for alternative sources of electricity.

“We see the need for back-up generation growing and maybe higher demand than it is today,” Jennifer Rumsey, chief executive of Cummins, told Energy Source. She cited increased interest in microgrids — a more advanced system of decentralised power that typically consists of solar panels, batteries and natural gas or diesel generators — as a driver of growth.

The US buildout of microgrids nearly doubled for commercial and industrial users last year, surpassing 900MW, according to Wood Mackenzie. Business owners are paying high upfront costs to own private grids and avoid the operational losses that can come from power outages. 

“The age of on-demand power, in some ways, is being challenged,” said Ryan Goodman, chief executive of Scale Microgrids, who has nicknamed the growing trend in microgrids “BYOP”, or bring your own power.

“BYOP is . . . a huge and growing segment of the market front that five or 10 years ago, I didn’t think would exist,” Goodman said. 

The growing share of small, independent power systems heralds a period of greater fragmentation in the US electricity system and underscores the mounting frustration among Americans as sluggish grid reforms and more frequent blackouts force consumers to find and generate their own electrons.

April Farage, a Chick-fil-A operator in California, said her microgrid has helped her continue operations and avoid losses from spoiled food during power outages, which are prevalent in her area due to the increased frequency of wildfires and triple-digit heat.

“Our power could go out at six o’clock during a night, and we don’t know if we should stay or send the team home, or if we should close up our operations,” said Farage. “That’s one of the things we don’t have to worry about any more.”

Five-year forecasts for US power demand growth have more than doubled in the past year to 4.7 per cent driven by data centres for artificial intelligence, clean tech manufacturing and the move to electrification, according to a report from Grid Strategies, a consultancy. Power outages, meanwhile, are on the rise — the non-profit Climate Central found that blackouts were twice as frequent in the past decade compared with the decade before.

“Microgrids are solving increasing reliability concerns about lack of 24/7 round-the-clock power availability, and have evolved from infrequently used back-up generators to everyday use by consumers and businesses under a reliability-as-a-service business model,” says Brandon Dalling, a project finance partner at law firm King & Spalding.

Private equity firms are piling into the business. In 2019, Schneider Electric launched AlphaStruxure, a microgrid joint venture with Carlyle. Blackstone and infrastructure giant Macquarie have also set up joint ventures with microgrid developers, and buyout group Warburg Pincus put $300mn in equity behind Scale Microgrids. New York-based KKR is hunting for its own partnership as part of its climate strategy.

“We [will] start seeing commercial and industrial consumers willing to pay a premium for resiliency. It’s going to be about keeping the lights on,” Emmanuel Lagarrigue, a partner and co-head of climate at KKR, told Energy Source.

The Biden administration has invested tens of millions of dollars in microgrid research and development as part of its strategy to reach a 100 per cent carbon-free power sector by 2035.

But the growth in microgrids has sparked concerns from environmentalists, who dislike the use of gas generators, as well as critics who worry that the rise of microgrids could lead to a vicious “utility death spiral”. In this scenario, the largest and richest energy consumers would exit the grid, leaving less sophisticated players that are less likely to push — and less able to pay — for modernisation.

Ari Peskoe, an electricity law expert at Harvard University, told Energy Source there is a risk that “you create a two-tier system where those that can afford more reliability can pay for it, and those that can’t afford it are left with increasingly frail utility systems”.

Lagarrigue acknowledged this risk: “You really don’t want to have the haves and the have-nots of that transition at the end of the game.”

However, he argued a fully centralised grid alone “will not be the solution. You need to have a more decentralised way.” (Amanda Chu and Lee Harris)

Job moves

• Paul Charlish has joined American Lithium as chief financial officer. Charlish previously served as the lithium producer’s vice-president of finance and corporate secretary. 

• Peter Gardett is leaving S&P Global, where he served as executive director of financial and capital markets. He will start later this month as head of research at Karbone. 

• Everen Group appointed Robert Foskey as president and chief executive. Foskey most recently served as chief operating officer of the energy insurance company. 

• Tim Emrich has joined power producer Terra Firma Energy as a senior adviser. Emrich co-founded and previously headed UK Power Reserve, a developer.

• Kraken has tapped Amir Orad to be the next chief executive of the utility digitalisation platform. Orad previously served as CEO of Sisense.

Power Points

Energy Source is written and edited by Jamie Smyth, Myles McCormick, Amanda Chu, Tom Wilson and Malcolm Moore, with support from the FT’s global team of reporters. Reach us at energy.source@ft.com and follow us on X at @FTEnergy. Catch up on past editions of the newsletter here.