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Centralized power and seismic change?
- Posted on May 3, 2012
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This past week I covered a plethora of topics and, having baited the hook, got some bites from readers. Forthwith, the topics I plundered and the responses from more knowledgeable sources, i.e., my readers.
In Monday's column, "Do Regulated Monopolies Still Have to Compete?" I essayed that utilities need to determine a rational policy for microgrids adopted by their (potentially former) customers. Do utilities want synergy or a standoff? I predicted that grassroots' use of energy storage would gather steam, that utilities will compete with other verticals for talent in new areas (trusted energy advisors and analytics practitioners, to name two) and new surveys that continue to show that the utility customer is open to overtures—whomever might make them.
Yes, all this in one column. I survived, while readers found the piece a veritable Rorschach card.
"As long as regulated utilities view electricity as a commodity to be delivered over a grid, they will struggle with new business models that are likely to appear in the next few years," wrote faithful contributor John Cooper, principal at Ecomergence and NextWatt Solutions. "The analogy I've used in my public speaking lately is to compare commodity kWh delivery to the provisioning of dial tone by AT&T in 1982. After the breakup of AT&T in 1984, the competitive market began to influence telecom and retail services, which led us to the emergence of the iPhone and Android smart phones, and the iPad and other smart tablets.
"As you conclude, Phil, some utilities will take on the mantle of energy service competitors, change their business model, hire from other industries and aggressively defend their territories. On the other end of the spectrum, other utilities will hold on to their `low risk' rate-of-return business, where they will either shrink and become targets for acquisition or seek mergers and growth to lower costs and risks. And of course, there will be those in the middle who remain muddled, who will likely then be acquired at some point."
Another longtime correspondent, industry commentator and consulting engineer (and Californian), Jack Ellis, took my headline to heart. I found his answer refreshing, if startling.
"I'll answer Phil's question," Ellis wrote. "It's likely to be solar photovoltaics (PV), especially in areas of the country with high electric rates and lots of sunshine (California). For residential consumers with spas, pools and/or air conditioning, PV is competitive for at least a portion of their needs today, and the utilities know this. For commercial consumers, there are also many cases where PV makes sense.
"The impact of rapidly falling PV prices could be quite dramatic in California, as the wealthier and more profitable residential consumers who are paying in excess of 35 cents per kWh during summer peak periods start looking at cleaner, cheaper options. Inexpensive storage will only accelerate this trend."
Cooper's use of the telco analogy, while making a point about competition and innovation at a high level, didn't quite work on the ground in more concrete terms—a point deftly made by another reader who remained anonymous. That reader suggested—and I think the other correspondents and much of the industry probably agree—that despite rabid competition, innovation and market shifts—tending the nation's existing electric grid infrastructure and delivering centralized power is highly unlikely to disappear from the scene.
"Interesting points, John," our unnamed correspondent wrote. "I use the telco parallel often when looking forward on the utility approach to services and customers. The one thing I struggle with, however, is the tie that electricity has to fixed infrastructure. The phone companies really didn't start to innovate quickly until wireless technology broke the stranglehold on delivery infrastructure. Prior to wireless, innovation was limited to re-packaging local and long distance service. The first dial-up ISPs were the most creative in figuring out how to tap into the monopoly infrastructure and create a new business model.
"I don't see a day yet when electricity gets delivered wirelessly at commercial scale," our correspondent continued. "So the tie to the monopoly infrastructure appears strong to me. Innovators will wrap cool services around that core, wired offering, but nothing that will be a game changer like wireless telecommunications that threatened the very need for hard wired service from the phone company."
Great stuff and I thank my readers for widening and deepening the discussion initiated by my Hail Mary column.
On this last readers' point we could certainly build another discussion. And that is: just what does the regulated monopoly hold on wired infrastructure look like after the industry is ravaged by the gale force of digitally induced change over, say, the next generation? Will it be a bedrock 50 percent of market share? As always, I turn to our readers for informed discussion.
Intelligent Utility Daily
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