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The Demise of Utilities

Posted by Sara Gutterman

Feb 27, 2014 12:19:49 PM

Last week, I wrote about the Fossil Fuel Bubble, a possible future economic scenario that could be realized if oil, gas, and coal companies are forced to abandon fossil fuel assets as a result of a potent combination of increased regulation, divestment, consumer demand for renewable energy, and price parity pressure from clean technology.

The effects of a fossil fuel bubble would reverberate throughout every fiber of our economy. Financial casualties would be extensive. The fossil fuel companies themselves will be compelled to either transform or become extinct, and industries far and wide—from transportation to agriculture to manufacturing—would be required to change their modus operandi.

But, even without realizing the full dystopic extent of a fossil fuel bubble, some sectors are already feeling the pressures of change.   Take, for example, the utility industry. Increased clean technology innovation has led to declining technology costs for renewable solutions; entrepreneurial activity has resulted in alternative business models with built-in efficiencies; and growing consumer demand for sustainability and resilience has placed the traditional utility model under siege.

According to the Rocky Mountain Institute (RMI), it’s a “do or die” moment in time for utilities. In order for the utilities to survive, they must meet the complex challenge of delivering reliable, cost-effective, and environmentally responsible power while meeting their stakeholder fiduciary responsibilities. However, they are engaged in a high-risk trapeze act, in which they are juggling the realities of aging grid repairs, essential resiliency upgrades, and inevitable investments in smart grid technologies, all while balancing growing renewable energy requirements, increasing rate pressures, changing regulations, and diminishing cash supplies.

Utilities are, for the first time, facing a dynamic that is unchartered territory for them: consumer defection. Pioneering renewable energy solutions offered by companies, developers, and communities are enabling consumers to finally make a choice about how and where they source their power.

Solar leasing and creative financing options from companies like SolarCity and OneRoof Energy have changed the game—by leasing solar system equipment, installation, and ongoing maintenance at no (or low) upfront cost, securing monthly electricity bills, and guaranteeing performance, these companies are dramatically reducing (in some cases even completely eliminating) monthly utility bills and eradicating the obstacles for renewable energy adoption.

RMI believes that effective solar-plus-storage systems will be the key to major paradigm change. As these systems improve in performance (attributable mostly to the mass production of batteries for electric vehicles), the economics of grid defection will shift so that homeowners will have financial incentivize to defect from the traditional utility model.

According to RMI, with solar-plus-storage systems “customers can take or leave traditional utility service with what amounts to a ‘utility in a box’. This ‘utility in a box’ represents a fundamentally different challenge for utilities. Whereas other technologies, including solar PV and other distributed resources without storage, net metering, and energy efficiency still require some degree of grid dependence, solar-plus-batteries enable customers to cut the cord to their utility entirely.”

The solar industry isn’t alone in the development of creative solutions— Bosch’s Thermotechnology group recently announced a partnership with Seattle-based Orca Energy to provide geothermal system leasing to developers, builders, and homeowners.  

According to Bosch, “while geothermal heat pump systems can save between 30%-50% in heating and cooling costs when compared to a conventional furnace or air conditioner, the industry has been plagued with the problem of overcoming builder and homeowner resistance to the initial capital cost barrier of installing the ground heat exchanger.” By offering a geothermal leasing program, Bosch and Orca Energy can finally surmount resistance caused by financial concerns.

As the cost for renewable energy systems declines and the price of retail energy increases, the financial playing field is being leveled. Hawaii has already reached grid parity, and with the growing demand for power reliability and low-carbon electricity, grid defection is projected to become a reality in states like New York and California within the next 6 years.

Will you defect from your utility? Write to me at sara.gutterman@greenbuildermedia.com or follow me on Twitter or Facebook.

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