Utilities Facing Their “Kodak Moment”
Originally published on RenewEconomy.
Global consulting firm PwC says the nature of the electricity market is changing so quickly that the traditional energy utilities are facing their “Kodak moment”. Either they change quickly, or they will lose their “right to survive”, even as the providers of what is usually considered an essential service.
“As little as five years ago electricity was something that most people and, to a lesser extent businesses, took for granted and cared little about. In marketing terms electricity was a ‘low involvement’ product,” PwC writes in a new report on the future of utilities.
“Now that power prices are rising and climate change is widely accepted, almost everyone has a view on the energy sector and what it does well and, more importantly, what it doesn’t,” it writes.
Some customers are loyal and will never change supplier for any service whether that is for energy or for banking, whereas others are always searching for the best and cheapest deal. New technologies such as solar and storage offer that avenue.
“These customer and technology factors will shape the electricity market of the future. Utilities will need to respond to the changing needs of the market or risk losing relevance or even more drastically their right to survive,” it writes.
“Those that respond will preserve or increase enterprise value, those that don’t face a very bleak future and their own ‘Kodak moment’. In the majority of cases there will be radical changes to business and operating models.
“We contend that the utility of today is outdated and is struggling to meet the needs of its customers while maintaining acceptable returns to shareholders. The so-called ‘death spiral’ is a prime example. Traditional large scale power utilities are losing relevance as customers take greater control of their own energy supply needs.
“To survive and prosper the ‘utility of the future’ will have to provide much more than reliable energy supply – it must respond to a diverse range of customer, business and community demands and do so in a rapidly changing regulatory and technological environment.
“The utility of the future is unlikely to control the value chain but will need to enable or facilitate customer energy solutions – they will become ‘energy enablers’.”
PwC identifies five value drivers that will be fundamental in the future utility market:
1. Customers are looking to take control over their energy supply and demand – they will look to manage their energy far more effectively than they can today.
2. Power generation and networks will be transformed – the energy value chain is currently subject to disruption, and this will accelerate over the next five years – those that innovate will protect and increase their value.
3. The role of the utility will transform into that of a service company that enables ‘energy solutions’ and in many cases ‘home solutions’ – this will require major transformation of business and operating models.
4. Data will play a dominant role in the future energy value chain – new value will be found within the data underlying customer energy usage patterns.
5. Governments and regulators will need to reshape energy and related services markets to keep pace with customer and ‘energy enabler’ needs.
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This Kodak effect is also feared in parts of Germany, some states (usually the lignite states) suffer under a de-population problem.
Thefore the costs for using the electricity grid (which is charged per kWh consumed) is increasing in these states.
Up to € 0.11/kWh gridcharges can be expected by 2023, esp. in eastern part of Germany.
http://bizzenergytoday.com/tillich_will_einheitliche_netzentgelte_durchsetzen
The minister Tillich from Saxonia calls for a levelized national grid charge.
If this national grid charge isn’t achieved PV + battery will be the cheapest option for most householders.
The remaining industry would be left with the entire burden to cover the grid’s costs.
PS
Germany has subsidised so far 4,000 small scale batteries ( <10kW) for PV-owners within this year, if this trend continous it won't take until 2023 🙂
http://www.klimaretter.info/energie/nachricht/16387-schon-4000-solarstromspeicher-gefoerdert
Is it really a good idea to allow utilities into the home energy management business? there are real and under-discussed issues of privacy and autonomy here. The home energy computer – when she has a voice, call her Vesta, after the Roman goddess of the hearth – should be the householder’s agent, not the utility’s.
Ultimately, utilities may need to be replaced by a nonprofit government regulated grid operating service that maintains the grid and maintains a few emergency peaker plants for when the solar PV, offshore wind, geothermal, hydropower, nuclear, wave, solar thermal, onshore wind, and natural gas power plants can’t provide enough power.
Kodak used to own a huge cold storage facility in Melbourne Australia. It cover about an acre of land.
It operated for about 10 years and always had a problem with its electricity
costs.
The hired a consultant to see why their power costs were so high. He walked from one side of the warehouse to
the other and, looking up he asked why they had heating vents high up along one
wall.
It turned out that when Kodak bought the warehouse it had offices along that wall,
which were heated. Kodak demolished the
offices, but never turned off the heaters!
It had cost them something like $10 million over the term of their operations.
Kodak’s response? They closed the warehouse, sacked all the staff and negotiated a $10 million subsidy from the federal government on the way out of the country.
As the dinosaur carbon industries die we will have to be vigilant that they don’t
pull the same stunts.
That’s an awesome story
The utilities have depended on steady and dependable growth in consumption, primarily increases in household formulation (population), GDP (economic) or both. Utilities have also been protected from competition, either through protectionist regulations or through sheer economies of scale that favor centralized distribution. A sea change is coming.
A generalized SWOT analysis clearly shows their problem.
1. Strengths. Large, loyal customer base. Extensive low cost generation capacity and local to regional infrastructure. Low cost of capital.
2. Weaknesses. Fixed, very expensive, inflexible assets. Rates set by third party. Costs dependent on highly variable coal and natural gas prices.
3. Opportunities. Electric cars. Smart meters/grids. National infrastructure investment.
4. Threats. Low cost renewables. Distributed generation and micro grids. Reduced household, industrial and commercial consumption.
I don’t think low cost renewables is a threat to utilities. I would consider it an opportunity. It is a source of energy as available to them as to anyone. They are only a threat to conventional fuels.
The problem with renewables for the utilities is their current high capital investment in property, plant and equipment using fossil fuels. Low-cost renewables undermine that investment.
I agree that the utilities should be embracing the potential opportunities in renewables and distributed generation. Don’t fight change – roll with it!
True, but as plants reach the end of their useful life or fuel costs go up, I think most utilities will strongly consider renewables. The cost of renewables just have to be competetive, either through lifetime lower cost or subsidies.