Clean Power

Published on June 24th, 2014 | by Nicholas Brown


Will Renewable Energy Cause A Utility ‘Death Spiral’? No Need For That

June 24th, 2014 by  

Last year, the Edison Electric Institute predicted that the widespread adoption of renewable energy (especially on-site electricity generation) is going to destroy the traditional utility business model that power companies have been using for all these years. New research says: not so much.

Photo Credit: snre.

People do not want to have to pay electricity bills for eternity anymore. With net metering, incentives, and new solar panel technology which is cheaper than ever, they can now seriously cut if not eliminate their electricity bills. That doesn’t sound good to electricity/utility companies.

Fortunately (for utility companies), a report from the American Council for an Energy-Efficient Economy suggests that this ‘death spiral‘ won’t happen after all. It says that national electricity sales would decrease only 10% by 2040 (at most), translating to an annual decline of only 0.4%.

In addition to that, utility companies have been fighting tooth and nail to suppress on-site electricity generation, further reducing the probability of rapid decline.

According to Green Car Reports:

If sales remain flat, the report’s authors recommend that utilities offer optional energy-related services to customers–including technical help and financing for larger customers installing and operating high-efficiency combined heated and power systems.

They also recommend that regulators adjust rates to allow companies to recover fixed costs more easily, incentivize increased energy efficiency, and modify the rules governing rates and services for added flexibility.

The report also advises utility companies to curtail the expansion of their infrastructure for now, unless they clearly foresee a rise in electricity demand.

Some utility companies may take their advice, although it is likely that many of them will continue business as usual and continue to fight rooftop solar and distributed energy storage (which helps people get off the grid altogether and drop utility companies for good).

Do you think the utility business model will be destroyed soon, or will it gradually transform as the American Council for an Energy-Efficient Economy said?

Sound off in the comment section below.

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About the Author

writes on CleanTechnica, Gas2, Kleef&Co, and Green Building Elements. He has a keen interest in physics-intensive topics such as electricity generation, refrigeration and air conditioning technology, energy storage, and geography. His website is:

  • Doug

    A link to the report:

    Forecasting electricity demand growth is speculative. At least from the slides, it appears that the analysis merely propagates current trends to demonstrate an appearance that demand growth will continue unabated. Thus, no driver for a death spiral.

    What I didn’t see was an economic analysis of the impact of falling PV and small scale storage costs. It doesn’t look like this research considered “defections” as DG becomes cheap and utilities become increasingly expensive.

  • Its Obvious

    It will change the industry for sure. Some utility companies will adapt, open their own branches/companies to provide these services. That started first in New Zealand from what I have read. Others will take the dinosaur approach and fight it tooth and nail. See APS in Arizona. Those will do the worst. Its human nature really.

  • sault

    We have community solar popping up all over the place. What about community grids too? I’m sure 10 or so families going in on a rooftop solar and storage installation could be feasible in the coming years. If the rest of the grid goes down, you’ very likely to still be able to keep the lights on. And you’re also immune to all of the utility’s BS…until someone pays off a politician to crack down on all those “community grid freeloaders”. I can see it now!

    • Rick Kargaard

      Community grids are really just another utility business model. However they could break the back of huge monopolies.

  • mds

    All good comments. 10% by 2040 is one of the lamer predictions I’ve read. Solar is still dropping in cost. Globally Solar PV production/installation continues to grow at an erratic exponential rate. Low-cost storage is now coming to the market in a very big way. Solar PV is the cell phone of the power industry. Some utilities will adapt to new business models and survive. Other utilities will try to keep their old paradigm alive and perish.

    • Larry

      Good riddance to the utilities with dinosaurs for Management

  • Ronald Brakels

    National electricity sales will decrease by 10% at most by 2040? What an interesting prediction. Especially since Australia’s grid electricity use has dropped by that much over the past few years. And only about a fifth of that decrease has been the result of rooftop solar.

    • vensonata

      “10% decrease by 2040” How can people say things like that and keep a straight face? Why even guess? Just keep me updated every 4 months on what actually happened and you are in reality-land. Of course these types of “predictions” are actually subliminal suggestions, corporations attempting to plant self fulfilling prophecies.

    • Don’t forget that electrification of transportation will significantly increase demand for the utilities so not only demand destruction will happen in the period till 2040.

      A lot of people will buy electric cars while they will not be able to install solar panels (condos for example).

      • Ronald Brakels

        Good point about the electrification of transport, Sola. I’d be interested to know how many electric cars they think will be on the roads by 2040. But widespread electric cars will probably mean low cost home and business energy storage. However, they could be right in their estimate of only a 10% drop by 2040 in the US. People aren’t going to go off grid in towns and cities unless power companies are dumb enough to give people an incentive to do so. It just that such a small drop seems unlikely to an Australian given we’ve already had a decrease of about that much and all while having the fastest growing economy in the developed world and a gradually growing population.

        • Rick Kargaard

          Australia seems to be a little unique with long distances and other factors contributing to high electricity costs. Weather may also play a significant part in increasing the efficiency of solar PV generation. In my area, Alberta, Canada, low electrical costs do not encourage self generation. Usage is likely considerably lower as well, with little need for air conditioning. Heating is almost exclusively supplied by Natural gas.

          • Ronald Brakels

            Well, it was only a handful of years ago that Australia’s electricity prices were low by world standards despite the long distances and hot climate. It’s not anything unique about Australia’s geography or climate, the reason why we have the highest pre-tax electricity prices in the world is basically incompetence, repeated attempts at privatisation that always go badly for hurt consumers and increase both inefficiency and stupidity levels, and a massive over investment in transmission infrastructure to deal with an increase in demand that never occurred. Electricity demand instead dropped. Grid demand is now something like 30% below where it was predicted to be at this point or something ridiculous like that. How did they make such a collossal mistake? Simple – they knew that whatever happened they would be permitted to pass on the cost to comsumers. A heads I win, tails you lose situation. It’s not like the United States where a company that builds a substation that is never used might actually lose money. But don’t worry, our state governments have a solution to fix our electricity woes – more privatisation. Yay.

          • eveee

            That’s about the size of it. But what happens when all those EV owners wake up and realize how much unused storage they have under the hood? For about 2k they can get a charger/ inverter for V2G. I don’t think people see this yet. The glut of solar will lower daytime rates. ( unless the utilities get greedy) workplaces will offer daytime charging as an incentive perquisite. It’s already happening….

      • eveee

        Yes. For many of the community solar will be an option. More and more, utilities are needed for grid, not generation. With grid only 10 % of billings now there has to be a lot of restructuring in the utility market. Change means pain for those unprepared or those who deny it.

  • JamesWimberley

    The utilities can play this smart or stupid. Stupid hasn’t been working out so well for them recently, so more will try smart.

    • Kyle Field

      Let’s hope so. I’m personally at the point where, if my local utility prevented / severely restricted my ability to install rooftop solar, I would buy a volt battery pack for the house and cut the cord…

    • Larry

      I wouldn’t hold my breath. Stupid reigns supreme in most utility companies

  • Offgridmanpolktn

    From what has been seen in some places then yes with some changes to their operating model it is entirely possible for the utilities to survive and be profitable.
    However with some and their protection and or encouragement of fossil fuel generation, refusal to adopt alternative generation, millions spent on policies to stop or slow solar, wind, and distributed generation. And just on a personal note that they thought to get away with charging twenty thousand + and to take 12-18 months to get power turned on at my home so that they can start charging me a monthly bill that has gone up an average of forty percent for my neighbors in the eight years since then. Is it so wrong to hope for the demise or failure of some of these greedy ones?

    • Calamity_Jean

      “Is it so wrong to hope for the demise or failure of some of these greedy ones?”


    • Larry

      Bravo to YOU!

  • Dimitar Mirchev

    Utilities should embrace community renewables – owning PV or wind at a different location – and fully support the energy democracy. If they do and focus only on transporting energy they will survive.

  • Hans

    It would be good if the US follows the EU example and splits utilities into separate companies for production, transmission, distribution, and retail.

    • Steven F

      It is happening. Most power production plants in California are not owned by the utilities. The main transmission lines are managed Caliso. The utilities in california can only charge you for the money they pay to purchase the power, the cost to manage and maintain the local grid,

      • Hans

        Sounds like a good first step. However, from the stories here at Cleantechnica I get the impression that distribution (the medium and low voltage grids) and retail are still intertwined and monopolistic. This still gives the distribution part of the utility an incentive to sabotage the connection of small scale renewables, because it hurts their retail part. In countries like the Netherlands and Germany, retail is separate from distribution, and as a consumer you can choose between many retail companies. These retail companies do not get a guaranteed profit, but operate on a free market.

        • Calamity_Jean

          Electric utilities that both generate and distribute power need to start thinking of wind farms and rooftop solar as opportunities to permanently shut down old, inefficient, high-polluting, high-maintenance, expensive to run coal-fired power plants. State regulators can help this happen by establishing appropriate rates. There will always be a market for electric power, because there will always be residences with no good place to put solar panels, and large buildings that can’t generate enough power even if every square milimeter of roof is covered by PV panels.

          • Hans

            The problem is that old, inefficient, high-polluting, high-maintenance, coal-fired power plants are cheap to run:

            the investment is already written of, coal is dirt cheap and the price for emission rights is zero or negligible. Why do new investments if you can further milk out investments done 50 years ago?

        • Rick Kargaard

          Retail and distribution has been separate in Alberta for some time The Idea is to encourage more free enterprise competition and lower overall costs. Sometimes it even works.

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