Utility Modernization Is Key to Avoiding Death Spiral
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- Sep 13, 2019 5:49 pm GMT
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Utilities are in the unique position of wanting customers to use less of their services so they can cut costs (and therefore rates) and have the resources to continue operating during peak demand times. Yet, utilities also need customers’ business to keep their doors open. As utilities seek to find the right balance in how they operate between these two opposing needs, they may begin to experience what’s known as the Utility Death Spiral. While it may sound a bit over-dramatic, the Death Spiral is something utilities take seriously. In a recent Black & Veatch survey, 71 percent of utilities saw it as a real possibility under certain conditions.
What Is the Utility Death Spiral?
The Death Spiral happens when customers get so good at energy efficiency that they need less of it. They also find outside sources for electricity, including distributed energy resources (DERs), which also leads to a decrease in their use of utility services. Decreasing prices for storage options and mandates from cities and states for new construction to be green construction are contributing factors. All these conditions, when presented by numerous customers, cause utilities to lose revenue. When that happens, they’re forced to increase rates, which makes customers more likely to increase their efficiency and use of outside energy resources, starting the cycle all over again.
Keeping Up With Customer Needs
The key to avoiding the Death Spiral is pivoting to services and resources that will keep customers as customers. Energy Networks Australia notes that utilities across the globe “are making significant changes to their business models and in the process innovating to develop and provide new services for customers. They are [modernizing] the 20th century electricity grid.”
Other options include working with customers in getting the most value from DERs and helping them sell excess energy back into the grid. With these strategies and others, utilities still have advantages in their size and resources. An American Public Power Association report states, “Not only will the utility continue to play a role in the future, the grid and the utilities managing it are essential in navigating the evolution of the energy industry.”
Developing New Payment Models
In addition to modernizing customer care and the grid, utilities should rethink their payment structures. Twenty-first-century customers have become accustomed to a subscription model for all types of products and services, including entertainment (Netflix), software (Microsoft Office 365), clothing (Stitch Fix), and meals (Blue Apron). A subscription-style payment option for energy is appealing to customers and may help utilities guard against the death spiral.
Under the Energy as a Service (EaaS) model, customers don’t pay for how much energy they consume but, rather, how they use it. As with other subscription services, customers can pick a service level based on their needs and habits. Plans can include other sources of energy customers use, such as photovoltaic (PV) panels and electric vehicles (EVs). In this way, customers get to expand their energy options, but utilities still play an important role.
There is some good news for utilities concerned about the Death Spiral. For one thing, the proliferation of EVs is replenishing some of the revenue utilities are losing as a result of other factors. For another, according to Energy Networks Australia, “going off the grid simply doesn’t make sense for most electricity users. The cost, space and planning issues make it impractical at best.” The organization suggests that utilities see this transformation as an opportunity rather than a challenge, and to think of it as a reincarnation rather than a death.
Are you concerned about the utility death spiral? If so, what is your utility doing to prevent it? Please share in the comments.