Utilities can no longer rely on traditional business models - they need to develop strategies around a new electricity system which is powered by clean, distributed renewable sources.
Investments should now be aimed at assisting progressive utilities and disruptive upstarts to develop. Gone are the days of protecting dwindling profits of the traditional utility which remain stoic in their position as power generator and distributor.
The boom in renewable generation
It is evident that renewable generation is here to stay. Not only in Germany but also in two of the world’s top four emerging economies—China and Japan, as well as India—non-hydro renewables now out-produce nuclear power. In 2012, China’s wind farms out-produced its nuclear and coal plants. China added more generation from non-hydro renewables than from nuclear and fossil sources. Last year, 54% of China’s capacity additions were renewable (only a third of these were non-hydro). The coal-fired contribution to China’s electricity could drop by two percentage points in 2013 alone.
From 2011 to 2013, each year has seen tremendous private investment in renewables globally-about a quarter-trillion dollars of private investment and over 80 billion watts of capacity has been added during this period. Solar power is growing at an alarming rate, even surpassing wind power. This growth is reported to be even faster than the growth of mobile phones.
The call for new business models
To adapt to these unparallel shifts in both supply and demand, electricity providers need to search for new ways of earning revenue. New business and regulatory models will need to be implemented to support this transformation.
Groups such as eLab in the US should be created in order to tackle new challenges, experienced by the utilities, head-on. eLab is a group of thought leaders and decision-makers from across the US electricity sector. The group focuses on collaborative innovation to address critical institutional, regulatory, business, economic, and technical barriers to the economic deployment of distributed resources in the US electricity sector.
More groups like these should be developed worldwide to encourage open discussion amongst key role-players in the electric industry.
It is now up to the utility to be more innovative and find opportunities. A good example would be a utility like Fort Collins in Colorado which provides a variety of services and investments on the customer side of the meter-all promoting energy efficiency and cost-savings. They can help the customer navigate efficiency and distributed generation investments while providing low-cost finance and on-bill repayment. This e-Lab-aided innovation may offer a sound and scalable path beyond net metering.
Thanks to the utility’s energy efficiency program, the city's businesses and residents are saving US$9.1 million annually through the utility's energy-efficiency programs since they started them in 2004. According to the utility, it is less expensive for the utility to help customers save money on energy than for the utility to buy power.
In our recent article Smart Home Technology-The Future for Energy Companies? we discuss how utilities are entering the smart home technology space in order to stay in the market and remain competitive.
Hanging on to out-dated business models should not be rewarded nor celebrated. After all, change has been on the horizon for a while now.
As scientist Amory Lovins so aptly points out, “Ordering new coal plants in the face of renewable mandates and emerging carbon trading is akin to buying up carriage-makers just as automobiles began to relieve London’s horse-manure crisis.”