Utilities in the US and Europe are having to take a hard look at their business model – will it continue to be viable in an era of rooftop solar and distributed energy?
As people finally realize the value of solar – that it can make them independent energy generators that don’t rely on the grid – the rapid rise of small solar systems is chipping away at utilities’ monopoly.
Last year, the world crossed the threshold of 100 gigawatts of solar and the wind industry grew 20%.
The model for how we produce electricity is changing from centralized production owned by utilities to distributed production, owned by energy consumers – households and corporations alike. One might call it the democratization of energy.
“Unless they reinvent themselves soon, these [utility] giants risk becoming the dinosaurs of the energy market,” says Geert De Clercq, in an analysis on Reuters.
Although utilities in the US and Europe have been investing in solar projects, they haven’t been doing it anywhere near the pace that’s needed to retain their role as the dominant source of electricity.
Now, those decisions are coming to roost. In Europe, utilities’ stocks are at the lowest level in a decade and they carry enormous debt from mergers.
In Germany, 22% of electricity comes from renewables and utilities own just 7% of the 71 gigawatts (GW) installed as of 2011 (a typical nuclear plant produces 1 GW). The situation is similar in Italy.
Most of Germany’s biggest manufacturers are investing in renewables to produce their own power. In fact, the majority of the Fortune 100 companies are switching to on-site power generation.
In the US, Walmart currently tops the list for on-site renewables (almost all solar), followed by BMW, Coca-Cola, the US Airforce and Kohl’s Department Stores.
Who owns most of the renewable energy in Germany? Individuals own 40%, energy niche players 14%, farmers 11%, industrial companies 9%, and financial companies 11%. Small regional utilities and international utilities own 7%, according to Reuters.
“We have to adjust to the fact that, in the longer term, earning capacity in conventional electricity generation will be markedly below what we’ve seen in recent years,” Peter Terium, CEO of utility RWE, told Reuters.
Worse still, demand for electricity is dropping too because of energy efficiency efforts.
Gerard Mestrallet, CEO of French gas utility GDF Suez calls it a “real revolution” – consumers are becoming producers.
Add to that the latest trend – adding energy storage (batteries) to solar systems. Germany is encouraging that by including energy storage in their feed-in law.
“Germany and Italy will be explosive markets for residential storage and big energy users are also starting to show an interest. This is a game changer,” Nicola Cosciani of Fiammhe, a leading industrial battery manufacturer, told Reuters.
What’s a Utility To Do?
The ultimate role for utilities could be very different than today. Rather than selling energy directly to individual customers, they could end up aggregating electricity across the grid, in the same way Google aggregates content.
They would act more like an insurance company, making sure the power stays on and balancing energy sources such as solar and wind.
France, Spain and the UK are already looking in that direction, preparing legislation that would pay utilities based on keeping the grid at full capacity.
For now, companies like GDF Suez are playing catch up by buying and building renenewable energy projects, while expanding into markets that have high energy demand without much renewable capacity yet. 40% of Suez’s capacity is now in those markets, where it can continue to provide energy under a traditional centralized role.
And almost a third of the employees at Suez work at a new division that implements efficiency upgrades for institutional clients and operates their renewable energy systems.
Besides the boom to individuals and businesses in owning and generating their own energy, this transition also benefits all the companies that make buildings more efficient – those that make, sell and install insulation, efficient windows and the huge range of energy efficient equipment.
“As if to illustrate the power shift from once-mighty utilities, GDF Suez this month lost its place in the blue-chip Stoxx Europe 50 index to Schneider Electric, a specialist in energy management systems and smart grids,” says Reuters.
Is Renewable Energy Pressuring the Utilites? originally appeared in Green Chip Stocks. Green Chip Review is a free 2x-per-week newsletter, is the first advisory to focus exclusively on investments in alternative and renewable energies.