The utility death spiral, stupid utilities and grid defection

Much has been written so far this year, including in these pages, about the “utility death spiral,” in which electric utilities that fail to adapt to changing technologies and electricity delivery systems like rooftop solar and distributed generation generally will gradually (or quickly, depending on one’s perspective) wither away and disappear. Warren Buffet thinks the “utility death spiral” is bullshit, so he’s on a utility buying spree--although he’s looking only at small, regulated utilities, not the Entergys and Exelons of the world that are at most risk of being unable to compete in a transformed utility sector. Buffett says “society will forever need massive investments in both transportation and energy,” which is undeniably true. But that doesn’t mean the traditional-minded, behemoth-plant baseload power-oriented utilities aren’t on the way out….

This article from SmartGridNews argues that utilities aren’t really “shockingly stupid” as NRG Energy CEO David Crane observed recently. Rather, the author argues that utilities respond rationally to existing regulations–some of which are decades old–and this prevents them from quickly adapting to new technologies like rooftop solar. But, the author says, the utilities could be faulted for not working to change those regulations. Still, the article concludes: “Jigar Shah, founder of solar company SunEdison, has a dimmer view of utility survivability.

“There are 300 public utilities in this country and six might be successful on the other side. By 2020, this whole market will be firmly disrupted.”

Shah said pension funds have started divesting shares of utilities because they are losing growth. With distributed generation and energy efficiency, the only way to prosper is by investing in those opportunities. But the utility mindset and business model was not designed to accommodate innovation.

“Hedge funds managers are calling me on whether they should be shorting utilities,” Shah said. “When we are having that conversation that means the end is near.”

If the survival of utilities requires changing regulations, it looks like utilities better get moving….We suspect most won’t.

Speaking of utility survival, as we noted here February 26, the Rocky Mountain Institute released a major report: The Economics of Grid Defection, in which it predicted that–sooner than most people have realized–it will be just as cheap or cheaper for consumers to leave the electric grid and power their own homes and businesses. But RMI has now posted a follow-up piece in which it points out a) that consumers economically can leave the grid doesn’t mean they will and b) that widespread grid defection would not necessarily be a good thing–in fact there are numerous drawbacks to the possibility. RMI says “We need not face an electricity future with an either/or dichotomy of two extremes: total utility/centralized dependence and total defection/independence. There exists another path, one in which central and distributed resources are complementary, connected and supported by a nimble grid.”

Michael Mariotte

March 14, 2014

Permalink: https://safeenergy.org/2014/03/14/the-utility-death-spiral-stupid-utilities/

Comments are welcome! Say your piece above. Start a discussion. Don’t be shy; this blog is for you.

If you like GreenWorld, you can help us reach more people. Just use the icons below to “like” our posts and to share them on the various social networking sites you use. And if you don’t like GreenWorld, please let us know that too. Send an e-mail with your comments/complaints/compliments to nirsnet@nirs.org. Thank you!

You can also now support GreenWorld with your tax-deductible contribution on our new donation page here. We gratefully appreciate every donation of any size–your support is what makes our work possible.

Note: If you’d like to receive GreenWorld via e-mail daily, send your name and e-mail address to nirsnet@nirs.org and we’ll send you an invitation. Note that the invitation will come from a GreenWorld@wordpress.com address and not a nirs.org address, so watch for it.

Advertisements

We welcome your comments here!

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com 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 )

Google+ photo

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

Connecting to %s