By JAMES NOBLE
May 15, 2014
As distributed energy resources gain steam, the traditional power sector will come under increasing pressure to adapt their business models, or face a future similar to that of landline telephone service providers.
Today, solar panels, fuel cells and combined production of heat and power reflect the move toward distributed generation, in which small, local, energy-generating sites offset the energy generated by large, centralized power generation plants. As a result, utilities will increasingly feel profitability erode as customers adopt distributed energy, cutting revenue from usage-based utilities.
A new report by Ernst & Young offers strategies that utilities can follow in dealing with changes associated with distributed energy. The report suggests utilities' first step ought to be embracing distributed energy technologies and offering new products and services to compete against the new entrants. Then utilities may set about trying to recover costs for legacy assets and educating customers on how a merger of new and old technology can benefit them.
The more successful operating models, the report predicts, will develop new products and services to compete against new entrants to their market. It also notes the importance of grid changes to become a more distributed, digital system that provides two-way communications between customers and the utilities.
Utilities will need to work with regulators and stakeholder groups to develop products and services for different customers, if they are to adjust to the sea change. A business model predicated for a century on creating and shipping power will have to accommodate a cacophony of energy sources, and design pricing structures to suit.
People are beginning to invest in alternative energy. Yet traditional utilities have been slow to adapt—some have even lobbied against investment in distributed energy in order to preserve an aging business model. But evolution is inevitable. Utilities still have a chance to lead, before individuals sidestep them on the way to a cleaner future.
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