Utilities of the Future: New Hope, New Business Models
The utility sector is under pressure on many fronts, facing challenges that could dramatically change how the sector evolves. Rising costs, aging infrastructure, aging workforce, and growing consumer interest in clean energy are forcing utilities to re-evaluate their product and how they will connect with a more discerning consumer. This session provides insights from industry professionals at the forefront of these coming changes.
The two themes for this session were the shifting landscape/business model for electrical utilities, and the empowerment of the consumer. Panelists identified a number of factors that are shaping the immediate future for utilities, changing the business environment they operate in and making planning for the future more important than ever, among them:
- – a dramatically increased level of interest in environmental policies and sustainable, cleaner energy sources
- – heightened interest from consumers, who are becoming empowered and involved in their energy buying as well as the way in which they’re engaging with their utilities
- – increasing competition
- – pricing pressures; for example, solar prices falling and natural gas prices being very competitive
- – demand in many markets across the country flattening or falling
- – storage
- – distributed generation coming online
- – solar
- – demand response
- – Smart Grid
Jules Kortenhorst, CEO of the Rocky Mountain Institute, addressed the growing issue of defection from the grid and the challenges this poses for utilities. Kortenhorst pointed out that it’s generally a utility’s more valuable and high revenue consumers who are looking for ways to defect. He gave a real-world example from Hawaii: a company is producing LED lampposts with solar panels and built-in storage. These are not only cheaper to operate, but cheaper to install than traditional light poles and are not connected to the grid. The company approached a Hawaiian municipality with a proposal to assume the installation and operation of street lighting. The city would simply pay a fee for service, without having to secure capital investment or financing.
This initiative raises an important question – if it’s now cheaper for the customer to cut the cord to the utility, what will be the impact if the customer does so? When customers start defecting on a large scale from the grid, it undermines the common network that allows the sharing of burdens and benefits. In order for utilities to provide a service such as the one in the example, there has to be a regulatory framework where that is feasible, and the utility has to learn how to provide services in a more entrepreneurial way.
According to Jim Burpee, Canadian Electricity Association (CEA), change is also afoot in the utility’s relationship with the customer. The customer now has more power and choice in generation options than ever before, leading to a more significant role in how the system evolves. “But at the same time, it’s a very capital-intensive, integrative grid that, for economics, has to operate as an integrative option. Even if you start moving away from centralized generation, there’s still a need for the buyers to make the other parts work properly.”
Looking at the future of generation, Burpee explained “In Canada, we’re 63% hydro-electric based …there’s no question from a Canadian viewpoint, you’re always going to have a large component of hydro that will still be there and can still be expanded in a lot of provinces. The question is whether we’re going to fill in the other bits. And how much do we need to fill in? And think of it as a North American grid. [Looking out to 2050], on a North American basis, all the fossil fuel, whether gas or coal and essentially all the nuclear generation, will be at end of life and will have to be replaced. So that’s an opportunity.”
The panel looked at the changing utility business structure and where growth will come from. Paraphrasing Winston Churchill, ‘the current model is the worst model out there, except for all the others”, one panel member noted that utilities will be forced to look at what matters to customers, to understand customers, and provide them with something of value. But the underlying issue is still the regulatory environment and the difficulty of reaching beyond the meter to offer services that customers are going to want from somebody. One Ontario example highlighted potential electric vehicle pilot projects that had been denied because, under the current regulatory framework, the utilities’ relationship with the customer must stop at the meter.
Looking at the long-range view, the audience questioned the evolution of centralized versus decentralized power, especially considering the presence of renewable power that has to be incorporated into the system, but that does not necessarily align with demand. The response was that not only is the price dropping for both renewables and renewable power storage solutions, but that there are innovations already in the pipeline that will take the available technologies ahead by leaps and bounds, so that in five years’ time, we’ll all be wondering how we didn’t see the changes coming sooner.
“All models are wrong, but some are useful.”
George E.P. Box, British mathematician
Touching again on the empowerment of the consumer, the panel recognized that today’s customers bring a very different perspective. They have grown up in a world of powered technology at a far greater rate of consumption than their parents and have different expectations and ideas about what they want. The increasing cost of power will only enlarge the difference in how they view power generation and consumption. As electricity costs rise, they may be more open to embedded technology within the home that manages the functioning of, for example, heating systems, air conditioning, etc.
In the session wrap up, panelists were asked what gets them excited when they look at what utilities are doing in a new or different way. The consensus was that it’s no longer business as usual. New imperatives for utility leadership include: getting on the customer’s side of the meter, providing services beyond just electricity; understanding and engaging customers in ways utilities have not done before; and grappling with survival in a world where everything they believed would continue along in the same way no longer will.
Session Moderator: Bryce Yonker, Clean Edge; Panelists: Jim Burpee, President and CEO, Canadian Electricity Association (CEA); David Heliwell, CEO Pulse Energy; and Jules Kortenhorst, CEO Rocky Mountain Institute.
HH Angus Publications on Globe 2014
- Globe 2014 Conference Highlights
- Innovation and the Clean Technology Future
- The Growing Role of the C-Suite in Sustainability: Is Green still the new Black?
- Utilities of the Future: New Hope, New Business Models
- Extreme Weather and the Case for Cogeneration
- The Long View: where do we go from here?