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Utility Business Models Must Evolve to Meet Modern Needs and Opportunities

Electric utilities operating within an increasingly distributedand decarbonized power system must evolve their business models to determine both the appropriate range of services they can efficiently provide, and the role third-party providers have to play in the energy ecosystem to best meet the demands of customers, according to a new report by Rocky Mountain Institute (RMI).
 
As the adoption of distributed energy resources (DERs) like distributed rooftop solar, energy efficiency, storage, and electric vehicles increases—and as policymakers elevate the importance of carbon and greenhouse gas (GHG) mitigation—utilities and regulators must adapt to these new conditions as they meet the long-standing requirement for affordable, universal energy supply and grid reliability. Balancing these requirements will become even more important as electricity becomes more central to the economy and to other energy sectors, including for electrification of transport and heating, according to the report.

Representing two ends of a spectrum, utilities can evolve to be a platform for integrating services from other providers, or they can provide these services themselves through expanded ownership of assets. In either case, third parties will play an essential role in the future system, in some cases as direct partners or contractors with utilities, and in other cases as participants in a competitive marketplace. Both models have merit, and hybrid approaches are available.
 
 
However, delaying the evolution of legacy business and regulatory models, which were built for different infrastructure investments and operating structures, will inhibit the growth of DERs and the corresponding economic, environmental, and grid benefits these technologies can provide, RMI’s report, Reimagining the Utility: Evolving the Functions and Business Model of Utilities to Achieve a Low-Carbon Grid, said.

“Utilities are confronting a rapidly changing landscape that challenges traditional business models and operating strategies at a time when customers are demanding more choice over their energy use, emerging DER technologies grow in popularity, and as state and local policymakers prioritize the reduction of greenhouse gas emissions,” Dan Cross-Call, a manager at RMI and one of the report’s authors, said. “Determining what functions utilities perform in the future, and how utilities and third parties are paid for their services, is a critical determinant of how well these larger systemic transitions are managed.”

A version of this report was previously submitted to the Smart Electric Power Alliance’s (SEPA’s) 51st State Initiative, Phase 3 (Perspectives on the Role of the Utility), in October 2017.  To access a copy of the Reimagining the Utility report, see:
 
 
Rocky Mountain Institute (RMI)—an independent nonprofit founded in 1982—transforms global energy use to create a clean, prosperous, and secure low-carbon future. It engages businesses, communities, institutions, and entrepreneurs to accelerate the adoption of market-based solutions that cost-effectively shift from fossil fuels to efficiency and renewables. RMI has offices in Basalt and Boulder, Colorado; New York City; Washington, D.C.; and Beijing.

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