Last week (June 3) Business Insider published an article by Rob Wile titled “How Solar Will Destroy The Power Companies, In 5 Easy Steps.” Yesterday American Council for an Energy-Efficient Economy (ACEEE) Executive Director Steven Nadel came out with a sort of response in a blog “Utilities are frightened of a ‘death spiral.’ They shouldn’t be.”
The first article observes that Barclays recently the entire U.S. electric utilities sector because of solar power. It looks at five steps that could impact utilities causing them to essentially fold. Those start with the drop in costs of solar and the anticipated drop in costs for energy storage, then move to utilities seeking relief from the states, while having to upgrade generating facilities to peaked plants rather than base generating power plants, which could lead to massive stock losses for the utilities. So, basically the utilities, for not being prepared for solar and renewable energy to compete with their traditional business model, are starting to realize they could face a real threat.
Nadel referee to ACEEE’s recent report “The Utility of the Future and the Role of Energy Efficiency, which looked at how utilities can work with the changing times to remain effective. He responded: “For decades, rising sales have contributed to increasing revenues and profits, but the combination of improved energy efficiency with the growing use of solar electric systems and other forms of ‘distributed energy’ has reduced growth rates, which could lead to small declines in future sales. But these potential small declines will not lead to the kind of ‘death spirals’ claimed by some industry alarmists.”
“The most extreme scenario includes levels of energy efficiency now being achieved in only a few states plus the use of solar electric power that eventually uses nearly all available roof space,” Nadel wrote. “Under this extreme scenario, national electricity sales decline about 10 percent by 2040, an average reduction of 0.39 percent per year. Under a more likely mid-range case, sales grow 0.04 percent per year, while under the reference scenario, developed by the Energy Information Administration, sales grow 0.7 percent per year.”
As such, Nadel and ACEEE contended that utilities will not see the death spiral portended in Wile’s article. “Still, the industry and their regulators will need to make substantial changes in the next few years in order to continue providing quality service at a reasonable price, while providing utilities reasonable returns on their investments.”
Nadel suggested utilities consider new business models to boost their profits. Such models could include offering: “optional energy-related services to their customers, including energy efficiency and technical help and financing for larger customers installing and operating high-efficiency combined heat and power systems. Such efforts can contribute to utility profits, reduce customer bills (since consumption is lower) and also provide services that customers value, positioning the utilities to offer additional services.”
That could also require regulators to change the way they do things, according to Nadel. Those changes include adjusting rates for fixed costs, providing financial incentives to utilities, change ratemaking to fairly allot costs and allow utilities to offer optional services.