The energy industry is witnessing one of the biggest shakedown in history and some are not embracing change. In every society, if companies don’t change to adapt to modern times, they are doomed to fail. Unfortunately, when they do, it can sometimes mean a workforce without employment, as well as the dreaded bail out system.
The utilities business model is one of the most threatened in the U.S. today and it hasn’t changed much over a century while technology has advanced in leaps and bounds.
When alternative energy became affordable
The biggest threat to slow-to-evolve utilities is that now alternative energy is becoming affordable. More homes and businesses are installing solar panels on their rooftops to offset their energy bills. SolarCity, as we mentioned yesterday, promises at least a $25 drop in your electricity bill by simply leasing their photovoltaic (PV) panels and installing them on your roof. A newer threat to utilities is that now, energy storage is coming to parity with plugging into the gird. This means anyone with a good calculator can buy solar panels, buy an energy storage system and enjoy their own utility on a roof. That also means a utility’s worst nightmare, people wanting to unplug from the grid.
What utilities can do
If people create their own energy, this means a serious loss of revenues for utilities. They now not only have to add more alternative energy to their portfolio to meet the rising demand for cleaner energy, but also contend with defecting customers wanting to take charge of their own energy production. All of this is happening while the writing on the wall shows utilities have to switch from being energy production to energy management.
Unfortunately, utilities haven’t raised the price of electricity, nor updated the grid. The grid needs to evolve to a smart grid from currently sending energy to homes, to one that works both ways, sending and receiving energy.
The excellent Rocky Mountain Institute painted a utility defection scenario last year in their report that turned out to be more optimistic than the reality of things. It now finds solar energy and on-site storage has reached parity with grid energy. This means, people who create their own energy and storing it at home costs as much as getting electricity from the grid. Add to this that our electricity is fairly cheap, compared to other countries and you can see the bigger problem for utilities.
According to the website: “The report discussed not only a base case scenario—which assumed no drastic changes in technological price, capability, or customer behavior—but also several more aggressive scenarios: one in which the price of solar-plus-battery systems drop drastically from today’s costs and faster than our base case projections, another where the solar-plus-battery systems are bundled with investments in efficiency and load flexibility, and a third that considered both of these scenarios together.”
The electric vehicles and vehicle to home threat
With the advent of electric vehicles (EV), both cars and motorcycles sold in urban areas, another problem looms for utilities. Vehicle to home (V2H), means drivers will be able to power their homes with their vehicle at night. With a little ingenuity, you could feasibly charge during the day and power your home at night with your EV, depending on how big the battery pack is and how many miles you need to travel.
The next few years will be tough for consumers and utilities as each face off with basic survival instincts, one wants freedom of energy, the other revenues. One has to change, and I don’t see customers going back to the happy spending years in such a morose economy.