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It’s Time for Electric Companies to Pivot

U.S. demand for electricity has slumped; utilities should shift their focus to renewables and efficiency consulting

3 min read

Graphic illustration of multiple electricity pylons from different angles.
Illustration: iStockphoto

Renewable energy is rapidly changing the electric grid, and utilities need to adapt or face still greater disruption in their industry, according to a new report. Two directions now appear likely to offer opportunities for growth, the report says.

One is to move toward electric infrastructure as a platform for new applications that other companies can develop, such as renewable energy storage. The other direction is for the utility itself to expand into new growth areas like electric vehicle charging stations.

Either way, says report coauthor Dan Cross-Call of the Rocky Mountain Institute, utilities that sit back and continue with business as usual could fall behind. Traditional utility growth models, he says, are not future-proof. “Demand for electricity has become flat or declining in many places,” he says. “So the historical expectation that sales will increase is no longer the case.”

Cross-Call says renewables such as solar photovoltaics—whose explosive growth has put it 40 years ahead of the U.S. Energy Information Administration’s forecasts from earlier this century—continue to eat into the old, centrally generated electric utility business model. Meanwhile, the efficiencies of LED lighting and other improvements have reduced demand for electricity in the United States compared with that of the age of the incandescent bulb.

The good news for utilities, he says, is a number of innovative players have already shown the way. For instance, Cross-Call lauds the Vermont utility Green Mountain Power (which IEEE Spectrumprofiled in 2014) as “one of the most innovative utilities in the U.S.” He says Green Mountain represents a hybrid approach, offering both platform development and some expanded offerings as well.

On the latter front, for instance, Green Mountain Power offers home energy audits and efficiency consulting as part of its services. And as a platform developer, they’ve partnered with Tesla to promote and install Tesla Powerwall and Powerpack batteries for home energy storage.

New York state also provides an example of utilities that have developed platforms that third parties can use. For instance, according to a Rocky Mountain Institute blog on the subject, in 2014 Con Edison opted not to open a US $1 billion electric substation and instead contracted out to other companies. Con Edison spent an estimated $505 million on renewables, increased efficiency, substation transformers, and power rerouting in the resulting Brooklyn-Queens Demand Management program. While a regulated utility might not always be so driven to avoid costs, the RMI’s blog notes that the New York Public Service Commission incentivized ConEd to seek what it calls ConEd’s “non-traditional solutions.”

“Demand for electricity has become flat or declining in many places.”

As such, RMI’s report calls the BQDM “the poster child for non-wire alternative investments.” (On the other hand, not all media accounts of BQDM have been as glowing. Last year one report called into question the savings and even the necessity of the New York City program.)

California also offers a case study in utilities that have expanded their own services, especially into regions that might otherwise be underserved.

The boom market in electric vehicles, Cross-Call says, makes a chicken-or-egg problem of charging stations. Namely, electric vehicles face headwinds as they try to penetrate further into the consumer automotive market if charging stations aren’t widely available. But the business incentive for making charging stations widely available is, of course, having more electric vehicles (EVs) on the roads.

“Utilities arguably have a significant role in developing and, in some cases, owning that EV charging infrastructure,” Cross-Call says. And Golden State regulators have studied the EV charging chicken-or-egg problem as intensively as any, he says.

“California has determined that utilities can own EV infrastructure in cases where the private market is not showing up,” he says.

So in cities and other regions with already high EV penetration, he says, the commercial sector could build out many of the EV charging stations the market will demand. However, utilities could still pick up plenty of slack in currently underserved markets.

And this leads to the cautionary tale underlying the entire RMI report. Market forces and incentives can shape electric utilities and infrastructure in productive ways…up to a point.

But market forces can also run amok and leave many consumers literally in the dark, as the 2001 collapse of Enron exemplifies. Enron was a Texas-based electricity production and transmission company that in the late 1990s turned their future energy production (and plenty other things outside energy) into futures contracts for Wall Street to gamble on. The speculative frenzy they launched helped spark a series of blackouts and energy price spikes in California in 2000 and 2001. Enron declared bankruptcy in December 2001.   

Cross-Call says state and local regulators must be proactive in guiding local utilities through their transition from centrally generated fossil-based entities to more decentralized and renewables-based utilities.

“Enron and the California energy crisis is always an apt reference point in electricity industry transformation,” he says. “It requires market oversight and regulation and appropriate market rules to ensure there’s not that type of market behavior or taking advantage of customers or others. Utilities are regulated businesses for a reason. The role of that regulation has to remain at the heart of this work.”

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