The Change for Energy: The Utility Transformation (pt.3)
In the previous installments we have spent time uncovering the movement in the energy market by consumers, and the regulator’s boundaries against that inertia. We have found to no surprise that the consumer is demanding renewable energy.
The issues with renewable energy are not necessarily with just its production, it is mostly with storage capability. Utilities and regulators have been dragging their feet with regards to storage in recent years and are being surpassed by consumer demand in this area as well. Residential storage is becoming more of a possibility as stated in the first installment with the Tesla Powerwall. But this storage can also be designed on a more macro level for the neighborhood, county, and beyond as seen in the below article:
A Utility needs revenue to invest in new technology and/or meet the changing demand of the consumer. Raising revenue isn’t a normal ‘profit’ exercise for a regulated utility as it is for most commercial organizations. If demand increases due to population and ratepayer increase, then the utility can raise funds through the PUC process. Utilities usually make their money in the margins. Cost savings are the mantra due to a relatively flat revenue stream. Sure, they can sell efficiency programs to the consumer, but a higher rate on less energy usage is a bit mutually exclusive. A Utility is being asked by the market to invest in support of new technology, but their only way of raising capital is by raising rates.
So how can a utility re-imagine its business model to protect their viability? Utilities need to provide energy at a safe and reliable pace and can do so by focusing on individual industries, not just the residential consumer. Investment in renewable energy and storage is a start and there needs to be more incentive to do so. But, aligning and supporting industries such as transportation is one of many examples in which a Utility can redefine their model. For example, the rail industry: http://www.popsci.com/just-three-years-dutch-trains-will-run-wind-power . Creating goals and partnerships now, as we are building wind capacity and storage, will help drive momentum. If Rail can see the opportunity for customers in providing a renewable way to travel, they will increase ridership which benefits themselves and the Utility. We are in both an energy and transportation renaissance of sorts, and this would be a great place to start.
Utilities also should continue to define themselves as Energy Services. When these new systems fail, it should be the modern Utility which services the equipment and maintains the grid. It should be the Utility which responds to storms and large outages. They do this today, but these service offerings are slowly being replaced by smaller, more nimble businesses. Utilities should change their field service model to be more agile and responsive by partnering with solar manufacturers, storage companies like Tesla and others, as well as driving the change on the regulatory level.
Since there are three main players: the customer, the regulator, and the utility, it is safe to say that each feels as if they are caught in the middle. During a stalemate, something needs to change in order to cause paradigm shift. In this case, the consumer demand for different energy fueled by the environmentally damaging way power is produced is the shift needed to push things ahead. In this scenario, the Utility ultimately loses, and that’s the trajectory of the present state. If the Utility doesn’t alter its course, it will be replaced by self-generating homes, buildings, and industry. Smaller, more nimble service organizations will be tough to compete with for equipment servicing, storm outages, and construction. The utility is left with Transmission and Distribution maintenance, something which they have been subcontracting at an increasing rate.
There are many ways in which a Utility can alter its business model to change incrementally and should do so, but I would suggest looking holistically at what their expected role is in the economy presently. Utilities should lead the change, not simply chase the momentum as they are doing now.