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Batteries Credit: Rick Payette

Published on February 27th, 2014 | by John Farrell

7

Is Utility 2.0 A Forecast Or A Post-Mortem?

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February 27th, 2014 by  

For the last six months, the energy news sphere (perhaps led by the Edison Electric Institute) has been rife with a discussion about the threat to the utility business from distributed energy like local solar, as their customers shift to getting their own power from nearby renewable resources.  Reports and news stories – e.g. “Adapt or Die” – suggest changes to the electric utility business model are imminent as power generation shifts from massive to medium scale and from remote to local.

For some utilities, this discussion is not a forecast, but a post-mortem.

Electric utilities have always built infrastructure (power lines, power plants, etc) as long-term investments.  They relied on growing electricity demand and sales to help recoup the costs of new coal-fired power or (over budget) nuclear retrofits in the Midwest or new high-voltage power lines in the Northeast.  Utility commissions played along, allowing them cost recovery and generous returns on equity (10-11%) for new infrastructure. But hardware that seemed wise in the 1990s and 2000s is suddenly and rapidly being exposed as untimely and unnecessary.

Electricity demand has flattened (even fallen), thanks to energy efficiency legislation and economic stagnation. Customers are increasingly generating their own energy from renewable energy like solar, whose cost is falling by 10% or more per year. Not only is big infrastructure proving harder to pay off as revenues stagnate, it’s also increasingly irrelevant in a 21st century electricity system where power generation can be cost-effectively placed right on the roof.

Commercial wind power started to crack the facade 20 years ago, but today renewable energy is rapidly imploding the utility’s entire antiquated business model.  Renewable energy capacity is growing by 25% per year, and solar is growing even faster.  The utilities are the landline phone companies facing down the iPhone, as SolarCity and other service providers are beginning to package solar with batteries, allowing customers to not just cut their energy bills, but cut off from the grid entirely.

Look at Georgia Power.  They’re struggling to complete new reactors at their Vogtle nuclear power plant, and costs are rising despite over $8 billion in federal loan guarantees.  But thanks to a coalition of environmentalists and the Georgia Tea Party, the state’s public utilities commission has required the utility to invest in distributed solar power.  The utility will get 525 MW of new clean power generation, years before either new reactor will generate a single kilowatt-hour. And by 2017, the earliest the reactors could come online, it will cost less for Georgia Power customers to get solar energy from their own rooftop than to buy it from the utility.

It’s the same problem in the Heartland. A coalition of Midwestern utilities is completing construction of a new high-voltage transmission project – CAPX2020 – to be completed by the end of the decade.  But in the next 10 years, long before those lines are paid off, distributed solar will be competitive (without subsidies) with retail electricity prices of nearly every Midwestern utility.  An infrastructure decision from last decade (for a grid of the last century) is likely to be stranded by a storm of solar power and customer-initiated, local power alternatives.

It may have taken the utilities until 2013 to notice, but their business model cracked 20 years ago.  Already, their customers (you and me) are going to pay heavily for their mistakes as utility commissions in many states allow them to raise rates to cover their ill-fated investments.

But we can do something.  We can tell regulators to stop utilities from making any investment (in power plants or power lines) that does not align with the inevitable distributed renewable energy future. We can insist that utility shareholders pay first for shortsighted choices, before ratepayers are asked to cover their company’s mistakes.  We can insist that utility resource planning should focus first on conservation, efficiency, and facilitating the maximum use of renewable energy.   And we can toss out the antiquated notion that a utility grid must be centrally planned and centrally owned in an era when cost-effective energy generation is neither.

It’s too late to save the utilities from their business model blackout, and their customers from carrying the cost, but it’s never too late to shift to a future where utilities can respect (and transmit) power from the people.

Photo Credit: Rick Payette

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About the Author

directs the Democratic Energy program at ILSR and he focuses on energy policy developments that best expand the benefits of local ownership and dispersed generation of renewable energy. His seminal paper, Democratizing the Electricity System, describes how to blast the roadblocks to distributed renewable energy generation, and how such small-scale renewable energy projects are the key to the biggest strides in renewable energy development.   Farrell also authored the landmark report Energy Self-Reliant States, which serves as the definitive energy atlas for the United States, detailing the state-by-state renewable electricity generation potential. Farrell regularly provides discussion and analysis of distributed renewable energy policy on his blog, Energy Self-Reliant States (energyselfreliantstates.org), and articles are regularly syndicated on Grist and Renewable Energy World.   John Farrell can also be found on Twitter @johnffarrell, or at jfarrell@ilsr.org.



  • Doug

    Follow the money. At 10-11% guantaneed profit from a fixed investment, what company wouldn’t propose putting up more high voltage transmission lines, at upwards of $1M a mile? If instead, utilities were given the right incentives, the projects they invest in would be much different.

  • dgaetano

    “And by 2017, the earliest the [Vogtle] reactors could come online”

    At present it looks as if the two reactors are scheduled to come online 2018 and 2019.

    http://energy.gov/sites/prod/files/2013/08/f2/July%202013%20Scorecard.pdf

  • Larry

    Utilities should have embraced solar power 10 years ago. Their engineers know only central power plant generation and distribution; and their CEO’s and business managers are scared s _ _ _ less that they will lose their fat cat status and overpaid salaries. We still need the grid to shift power from where it is abundant to where it is needed. We need to shut down the coal generating stations before Florida sinks into the Atlantic and hope that Climate Change can be arrested.

  • Will E

    Totally agree. The utilities have no money they get money from customers.
    when customers have Solar, clean and easy, the age of utilities comes to an end and the people make the profit for themselves. A huge economic uprise will take place.

  • andereandre

    So no new transmission infrastructure is needed because everything is covered by distributed solar?
    I was under the impression that we also need wind and geothermal and hydro and pumped storage and wave energy etc. I just did not realize that I can put all of that in my garden.

    • mike_dyke

      I agree, we can’t just stop putting in infrastructure as all of those microgrids will need to pass around the spare solar energy from the sunny states to the cloudy states. We’ve also got to get the wind etc to the microgrids.

    • sault

      Not exactly. This article is saying that infrastructure planned with the old centralized generation model in mind can be wasteful. Money spent on hooking up giant and dirty coal or natural gas plants, and the plants themselves, is at risk of becoming “stranded” as distributed renewables increasingly make these energy sources smaller and smaller players in the overall energy pie.
      Large wind, solar, etc. plants will still need the grid to come out to them. However, money spent on a grid extension for a dirty coal plant will be sasted when the plant itself is forced to shut down in 10 – 20 years. And if utilities had to feel the pain of their bad investments instead of their ratepayers (like this article suggests), then they would be less inclined to take these risky bets on increasingly antiquated technology.

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