The “utility death spiral”: The utility as a regulatory creation

Knowledge Problem

Unless you follow the electricity industry you may not be aware of the past year’s discussion of the impending “utility death spiral”, ably summarized in this Clean Energy Group post:

There have been several reports out recently predicting that solar + storage systems will soon reach cost parity with grid-purchased electricity, thus presenting the first serious challenge to the centralized utility model.  Customers, the theory goes, will soon be able to cut the cord that has bound them to traditional utilities, opting instead to self-generate using cheap PV, with batteries to regulate the intermittent output and carry them through cloudy spells.  The plummeting cost of solar panels, plus the imminent increased production and decreased cost of electric vehicle batteries that can be used in stationary applications, have combined to create a technological perfect storm. As grid power costs rise and self-generation costs fall, a tipping point will arrive…

View original post 1,136 more words

Advertisements
This entry was posted in applied price theory on by .

About Jim Rose

Utopia - you are standing in it promotes a classical liberal view of the world and champion the mass flourishing of humanity through capitalism and the rule of law. The origin of the blog is explained in the first blog post at https://utopiayouarestandinginit.wordpress.com/2014/03/12/why-call-my-blog-utopia-you-are-standing-in-it/

One thought on “The “utility death spiral”: The utility as a regulatory creation

  1. Riley Adams

    The utility death spiral was supposed to be in full swing by now with distributed generation and other distributed energy resources (e.g., energy efficiency and demand-side management) disrupting the utility business model – a model that depends on kWh sales growth to drive profits. The high cost of traditional utility service in America, combined with the increasingly affordable energy alternatives becoming available, would drive customers off the grid in droves. The result would be increasing utility rates that would continue to reinforce the incentive to go solar and leave utility assets and shareholders stranded. Customers would eventually self-supply their power needs and pay far less for it. The utility, meanwhile, would all but perish. So, at least, many in the industry thought.

    Instead, the death of the utility industry has not begun to materialize, at least not as predicted, and the utility business model is being guided down the path of evolution instead of revolution. This disruption likely will lead to a change in the utility business model, but the industry itself will not face an existential threat. It is far more likely that distributed generation and distributed energy resources will serve as complements, not substitutes for utility service. Overall, Americans are looking to pay less for their energy needs while having reliable, clean (i.e., “green”) service and letting the business model for this vision be formed through stakeholder collaboration.

    The utility business model of old requires tweaking because utility sales growth has stagnated in many parts of the country (with the notable exception expected in the Southeast, an area with low energy efficiency regulatory requirements and a growing population and industrial base ) due to a multitude of reasons, the most pressing of which are customer investments in energy efficiency, improving appliance standards, and distributed solar PV. These trends are likely to continue and threaten to upend what has been the best business model in the utility industry’s history. Utilities have delivered non-discriminatory, reliable service to everyone at the least-cost, reasonable price and relied on a growing customer base (and usage) to fund future investments, also to the benefit of customers. Customers, however, are increasingly less captive with today’s technology at their disposal. Utilities’ flintiness needs to soften and be more embracing of change or risk being permanently on the defensive.

    Utilities are keenly aware of what fighting to maintain the status quo could cost them. They are very cognizant of the history of the telecom industry in the 1980s and will do what they can to avoid being replaced altogether.

    Like

    Reply

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.