Transforming the Utility Sector with New Business Models

The “utility death spiral” is a term that is becoming all too familiar as distributed energy technologies expand. But how real is it? Are regulated utilities going way — or are they on their way to new business models?

According to a new study by Berkeley Lab, distributed solar photovoltaics (PV) are the most immediate threat to investor-owned utilities and their shareholders, by depleting revenue from demand growth and need for capital investments in traditional power plants. A recent New York Times article highlights the effect solar and wind industries have had in Germany, a leader in renewable energy technologies and business models, with utilities now finding themselves unprofitable.  In the U.S., as policies that encourage distributed energy models — such as net metering — increase and PV prices decrease, utilities are starting to push back. But they are just the start. Policy makers — and customers — are putting pressure on the utility system to address environmental, sustainable, resiliency, and customer control issues.

Is this really the death of the utility sector? Or is it the beginning of a utility of the future?

According to the Lisa Frantzis, Senior Vice President, Strategy and Corporate Development, at Advanced Energy Economy, “there is a tidal wave coming over the utility sector.” There is tremendous opportunity for the utility sector to reform and recreate a business model that will work for them and for a growing distributed energy resources industry.

About 40 percent of the carbon emitted in the U.S. is from stationary power generation, Frantzis points out. New regulatory and business models can help to foster environmental sustainability, resiliency, greater customer control, and more customer service options.

Modeling after Proactive States

Three states — Massachusetts, Hawaii and New York — are at the forefront of activity making changes, encouraging a transformation of the utility sector that will keep all parties alive and thriving.

The Massachusetts Department of Public Utilities has two major dockets creating a shift in the utility sector including: grid modernization and time varying rates. Other initiatives in Massachusetts, such as dockets for rebate programs for electric vehicles, are also increasing activity in distributed energy.

In Hawaii — a state with some of the most expensive electricity prices — after a huge solar push, the PUC was put under pressure to overcome issues in connecting PV to the grid.  An recent article said that, “as part of the PUC order, the plan outlined ‘a growing role for non-utility energy service providers that can intermediate the relationship between the utility and the customer’ by aggregating distributed resources into virtual power plants.”  The PUC addressed these issues with the 2014 IRP (Integrated Resources Plan) that will triple rooftop solar in Hawaii by 2030.

But New York State is especially pushing the envelope. The state’s Public Service Commission is conducting the most comprehensive proceeding to shape the future utility business model with its Reforming the Energy Vision (REV) proceeding.  

Challenges ahead

As New York’s energy leadership takes steps toward a utility business model for the future, certain questions arise. Who has access to customer data? What about security as utilities share customer data with third parties? How do you transition from a cost of service model to an outcome or performance based model, and what are the metrics to be used?

Those are the details yet to be worked out. But change is coming, Frantzis says, and done right, it can make winners of all. “Business and regulatory changes can help to provide additional revenue opportunities for both the utility companies and third party suppliers.” 

This discussion will continue as Frantzis moderates a panel titled “Utility of the Future” at Forum 20/20, hosted by GTM and MassCEC in Boston, MA on October 29th. To attend Forum 20/20 and partake in the discussion on “The Utility of the Future” register here with REW10 with an exclusive 10 percent discount.

Lead image: Transmission via Shutterstock

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Danielle is an avid cleantech communicator. She works for Eco Branding, a cleantech integrated marketing communications boutique agency. A graduate from the University of Maryland, College Park with a B.A. in Communication and Psychology and a focus in public relations, Danielle has put her communication skills to the test in both national and international arenas. Danielle previously worked for for Halstead Property and START (the Department of Homeland's Security's National Consortium for the Study of Terrorism). She is based out of the New York area.

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