Recent reports released by UBS, the largest private bank in the world and Citi Research, a division of Citigroup offer compelling investment guidance based on Smart Grid innovation trends that have been described in many previous articles from the Smart Grid Library. The ongoing trends of decreasing costs for innovative technologies such as solar generation and energy storage; decreasing costs of manufacturing these technologies; and increasing effectiveness/efficiency of these technologies form the basis for many of their observations and recommendations regarding the future of the electric utility ecosystem. Financial analysts aren’t known for wild proclamations. That makes it even more noteworthy that UBS writes: “Large-scale power generation, however, will be the dinosaur of the future energy system: Too big, too inflexible, not even relevant for backup power in the long run.” While the UBS report focuses on Europe, it’s reasoning and conclusions have equal applicability to North American markets given the similarities in supply chains as well as technology innovations, and to a lesser extent, policy drivers. The report mentions that these trends create opportunities for utilities that are given the regulatory frameworks to deliver new services in end customer supply and distributed power generation.
There’s an implied threat in the UBS report – if utilities cannot or do not change their business models, their direct relationships with consumers will be intermediated by new entrants coupled with reductions in electricity revenues. The Citi Research report spells out that potential for confrontations between tech giants (notably Google and Apple) and utilities in value-added services (specifically energy management services) to consumers.
In North America, these trends enable the emergence of a new class of consumer – the prosumer. As noted in our previous articles, prosumer actions challenge existing regulated utility constructs by democratizing generation of both kilowatts and negawatts. Progressive regulatory agencies are taking notice of this erosion of the monopoly position – the New York Department of Public Service published The Reforming the Energy Vision document that starts discussion about how regulators can help utilities adapt to changing technologies and market expectations, and the California PUC is requiring its three regulated utilities to present plans for distributed energy resources and appropriate valuation of DER assets by mid 2015.
Utilities can no longer count on revenue growth based on centralized generation – Citi Research indicates that demand for utility-provided power will flatten or even decrease as a result of energy management technologies, improved energy efficiency and prosumer activity. The strategy for utilities is to create new services that deliver new revenue. Taking a page from the communications service providers’ playbooks and experiences, could utilities create a value-added service that combines solar with fixed energy storage (both individual and community) and electric vehicles (EV) into an energy triple play? It’s an idea floated in the UBS report. This combination of technologies leverages solar power to “fill the tanks” of the fixed and mobile batteries. The EV gets charged with solar power creating another potentially-recognizable carbon reduction benefit for utilities.
Many consumers would like to add solar panels and energy storage, but without the hassle of sourcing, financing, deploying, managing, and maintaining the equipment. A triple play electricity service certainly offers possibilities to address the Smart Grid benefits gap experienced by consumers in multi-family residential and rental situations. Utilities would be well-positioned to organize and manage these types of services to ensure grid reliability and safety. Many of them are already experienced in working with contracted third parties who deliver energy efficiency and other demand reduction services. An extension to generation wouldn’t be a huge stretch. However, it will take regulatory revisions to create the playing field that allows this type of development. The good news is that the first regulatory agencies are starting that investigatory process. Which utility will be the first to make a move into an electricity triple play?