Distributed Energy Disrupts the Traditional Utility Business Model

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Small scale solar energy installations are gaining in popularity, and the big utility companies are scared. Thanks to a practice called net metering, some consumers generate their own power via solar panels, and sell the excess power back to the utility at retail prices. Such consumers are increasingly relying on the grid only for backup.

Because utilities traditionally make money by selling more kilowatt hours, net metering puts a big dent in their revenue streams. Utility companies predict a doomsday forecast for their industry. According to this recent New York Times article, “…utility companies are moving to roll back government incentives aimed at promoting solar energy and other renewable sources of power. At stake, the companies say, is nothing less than the future of the American electricity industry.”

This article on Motherboard sums it up well; “…utilities companies fear net metering will lead to a so-called “utility death spiral,” in which more and more customers generate their own power, forcing utilities to charge higher rates to maintain infrastructure that was intended for a much larger pool of energy consumers, which will in turn encourage more people to turn to distributed energy options-which in most cases means solar panels.”

It‘s not quite a sea change yet—the U.S. Energy Information Administration states that solar power accounts for only 0.11% of total electricity generation in the US—but the tide is turning. Not surprisingly, many utility companies are digging in their heels, trying to figure out ways to stop the tide rather than go with the flow. What are they doing to fight the change?

According to Motherboard, “Over the last year, utilities have challenged net metering policies in at least 11 states, asking regulators to impose new rate structures that would lower the amount utilities pay to buy back excess power from renewables consumers, and in some cases impose new grid-use fees on solar customers.” Also, some companies aim to reduce the benefits of net metering for consumers and to lobby governments to roll back solar incentives. (To read more about how utilities are trying to scale back net metering benefits and fight against government incentives for renewable energy, see this Clean Technica article, “The Utility vs Solar Fight – Why? What‘s At Stake.”)

It certainly won‘t be the first time that an industry has had to adapt to disruptive technology; telephone companies, for example, had to adapt to cell phones. “Going with the flow” might mean adapting to this changing utility landscape by adopting a new business model, perhaps one that is focused on providing service (grid maintenance) rather than a product (kilowatt hours of energy). So the question is, which utility companies will evolve in the future of decentralized, distributed energy, and which will experience a Darwinian die-off?