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The Future of Electric Utilites

What is the future of the traditional business model?

Continuing advances in the smart grid and related communication and control technologies, enhanced distributed generation and storage options such as solar photovoltaic cells (PV) and on-site combined heart and power, the emergence of electric vehicle charging, and other technological innovations are creating new opportunities for investment and value creation that are very disruptive, especially to those utilities committed to operating under the traditional business model.  For example, nimble third party entrepreneurs are stepping in to provide new services ranging from solar leasing to emergency back-up power systems. Microgrids and community solar projects are emerging to help integrate and manage distributed resources at the neighborhood level. New innovations and approaches to energy efficiency are opening the door to low and net zero energy buildings. 

What happens in a future where more customers are generating their own energy, or purchasing very little, but still expect their local utility to provide the same reliable and resilient power delivery system whenever they need it? We will explore this and related questions with the help of representatives of the major stakeholders. We will also explore ways to adjust the prevailing utility business models and regulatory structures to better align the profit incentive of utilities with the emerging social interests of greater efficiency, a more positive environmental footprint, greener and more sustainable energy options, and enhanced grid resiliency.  We will invite experts from on this topic to help us think through the implications and explore solutions. 

Customers are increasingly able to generate their own electricity via on-site distributed generation, gain more control over the amount and timing of their electricity use, and select and manage their own on-site energy resources in ways that are more consistent with their personal financial and environmental values. While these developments are a blessing for some customers and create exciting new business opportunities for entrepreneurial companies, they raise important and legitimate concerns for the utility industry. For example: 

  • Entrepreneurs and customers can own and provide distributed generation resources on the customer side of the meter that are beyond the purview of the local utility.
  • Since distributed energy resources are smaller in size and located much closer to the end user, they “behave” differently than conventional centralized energy resources.  And to the extent that they are powered by variable renewable sources such as wind and solar, their output is variable and uncertain, and must be backed up in some way by the utility or another entity charged with ensuring a safe and reliable electric grid. Currently, the additional cost of maintaining grid stability is passed on to all customers, including renters and less affluent residents who are less likely to be able to afford the benefits of owning and managing their own distributed generation.
  • Distributed generation reduces the amount of power customers will purchase from their local utility. Traditionally, regulators expect utilities to bundle their fixed and variable costs into a simple cost per kilowatt-hour (or something only slightly more sophisticated). As a result, reducing power sales makes it more difficult for the utility to recover its fixed costs.