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Electricity Utilities Must Evolve or Die: Are They Up to the Task?

It’s a tough time to be an electricity utility in Europe. A confluence of factors, including the rising use of renewable energy, falling wholesale market prices, and the growth of distributed generation and energy efficiency are eroding traditional utility market shares and sending profits into free fall.

While European energy policy priorities have exacerbated several of these factors, current trends in Europe may simply preface broader revolutionary forces under way across much of the global electric power sector. 

With market shares and profitability of conventional centralized generation assets declining, electricity demand growth stagnating, and emerging technologies enabling new ways to meet consumer demands, electric utilities may be facing a stark new reality: they must evolve or die.

Profound Changes

“The EU power sector is going through one of the most profound changes in its history,” according to a recent report authored by Eurelectric, the trade association representing the electricity industry in Europe.

While the introduction of competitive retail and generation markets in the 1990s and early 2000s brought about a dramatic restructuring of the electricity industry and regulatory environment, the underlying power sector paradigm changed little. Large, central-station power plants continued to supply the vast majority of electricity, delivered to customers over a hierarchical chain of high-voltage transmission lines and lower-voltage distribution networks.

Today, new forces are upending much of that traditional paradigm, sparking changes at least as profound as those unleashed by the earlier era of industry liberalization.

According to Eurelectric, four major trends are reshaping the power sector.

1. The Growth of Renewables

The increasing penetration of renewable energy sources, including wind, solar, and biomass, are eroding market shares for conventional generation and depressing wholesale market prices. The result is declining revenues for owners of conventional generation.

Since 2000, renewable energy sources (RES) have accounted for the large majority of new capacity additions in Europe (see graphic). The share of non-hydro renewables has grown more than five-fold in Europe from 2 percent in 2000 to 11 percent as of 2011, on track to reach an EU-wide target of 20 percent of electricity from renewable sources by 2020. Many nations have already reached higher renewable shares, including 31 percent of electricity in Denmark, 22 percent in Germany, and 21 percent in Spain and Portugal combined. 

Renewable energy accounts for the majority of capacity additions in Europe
Source: Eurelectric

In many European markets, renewable energy generators receive preferential treatment, with grid operators required to purchase available renewable energy outside of normal wholesale markets, often at premium rates known as feed-in tariffs. This arrangement reduces the available market for conventional generators and lowers wholesale market prices. Where renewables do bid into markets, their near-zero marginal costs of operation have largely the same affect. German year-ahead power prices dropped 27 percent over the past 12 months, for example, according to data compiled by Bloomberg.

At the same time, the variable nature of wind and solar energy is putting new pressures on the operation of conventional generators and electricity systems. Much greater system flexibility is needed to match the varying output of renewable generators.

As a result, power plants originally designed for baseload operation are being put into service providing variable output, reducing their efficiency and increasing wear and tear. Some 13 GW of new flexible hydro capacity has been added throughout Europe since 2000, and owners of many gas-fired plants are also making investments to increase the flexibility of their assets. These all present new cost drivers for owners of conventional generation assets, even as declining wholesale power prices are reducing operating revenues.

2. A More Decentralized System

While much of the recent growth in renewable energy capacity consists of large, centralized wind farms, the European power sector is also moving in parallel towards a more decentralized system of electricity generation.

According to Eurelectric, “Small generation units with capacities of below 10 MW grew significantly in prominence, from around 10 GW in the year 2000 to more than 70 GW currently installed.” Solar photovoltaics (PV) are the strongest factor behind this shift, with 59 GW installed in Europe at the end of 2012, but other distributed generation technologies are emerging as well, including small wind turbines, combined heat and power or “co-gen” units, biogas-powered generators, and microturbines.

As technology costs fall for these new distributed energy resources, Eurelectric envisions an increasing decentralization of power generation in Europe. This implies important changes to the operation of distribution networks, which must now evolve to accommodate bi-directional power flows, changing profiles for system use, and the growth of “prosumers” – system users that may shift between being a producer or consumer at different times of the day or season.

Small-scale power producers are also giving rise to new ownership structures and business models, some of which directly compete with conventional utilities. More than 3 million households have started producing their own electricity with solar PV, says Eurelectric, while 133 “bio-villages” have emerged in Germany since 2000, generating more than 50 percent of their electricity and heat from bio-energy resources. Community-owned wind farms are also common in Denmark and other markets. 

3. Foundations of the Smart Grid

The EU has also taken large steps towards a smarter grid. The European Commission’s Third Electricity Directive requires all EU member states to equip at least 80 percent of consumers with intelligent metering systems by 2020, wherever cost effective, and 49 million smart meters have already been installed across Europe as of the end of 2012. European utilities are also taking steps towards a more intelligent and controllable distribution grid.

Smart-meter roll-out plans in Europe
Source: Eurelectric

 

While these changes do not present direct challenges to traditional utilities, they do represent new cost drivers for distribution network companies. More importantly, the growth of smart metering and smart grid capabilities can support innovative new business models, from demand response programs to “virtual power plants” (aggregations of multiple distributed generators). This puts further pressure on utilities to evolve – and take advantage of new ways to deliver value to their customers – or see new challengers emerge to seize the opportunities created by a smarter grid.

4. Retail Competition and New Services

Finally, the emergence of competitive retail electricity supply in European markets “has given customers a new, active role in managing their power supplies,” says Eurelectric. More than 510 million customers in Europe reside in markets with liberalized supply and retail markets, nearly five times as many as in the United States. In 2011, around 6 percent of European households exercised their new freedoms and switched to a different electricity suppliers.

Increasing liberalization of electricity markets in EuropeRetail electricity competition in Europe compared to other markets
Source: Eurelectric

Increasingly competitive retail markets are creating new opportunities – and pressures – for innovative ways of delivering value to electricity users. Greater product differentiation is possible now than ever before, and consumers are becoming more engaged, looking for ways to get more out of their relationship with their retail supplier. Those retailers who evolve to meet customer demands will thrive, while others will see their market share wither away.

Core Utility Profit Center Under Threat

Together, these “profound changes” are hitting European utilities right where it hurts: the traditional focus of their core business and historical source of the majority of their profits, conventional generation assets.

“Between 2011 and 2012, the profit pool in this [conventional generation] segment fell by nearly 10%,” reports Eurelectric, “from an aggregate EBIT [earnings before interest and taxes] of €62 billion to €55 billion, and it may fall to less than €50 billion in 2020.”

Declining profit from centralized electricity generationSource: Eurelectric

Largely as a result, European utilities’ stock market performance has rapidly deteriorated, falling much faster since the European economic crisis than just about any other sector besides banking.

Declining stock performance of European utilitiesSource: Eurelectric

Bloomberg recently reported that two of Germany’s largest electric utilities, EON SE and RWE AG, saw their combined market values fall 76 percent since 2008. Both firms saw stocks slump to a decade-low in the last month.

EON reported this week that earnings for the first half of 2013 that are almost halved from the year prior, and profits are down 40 percent.

“A significant part of our business model is now facing new challenges,” RWE Chief Financial Officer Bernhard Guenther told Bloomberg. “Whatever we do in terms of cost and capex-cutting won’t fully compensate the profit loss we see in conventional power generation.”

Eurelectric points the finger at several factors, including  “slow underlying demand growth, energy efficiency gains, and the entry of new [renewable energy] capacity.”

These forces may spell the end of the traditional source of utility profits in Europe. “Even with possible changes such as the introduction of capacity payments, higher commodity prices, or large-scale industry consolidation, the 2020 profit pool appears unlikely to grow larger than that seen in 2012,” concludes Eurelectric.

Evolve or Die

With the European electricity industry itself pointing to a potential peak in profits from traditional generation assets, utilities must now become “powerhouses of innovation,” says Eurelectric.

With declining profitability in their core business areas, the future of the electric power sector rests on capturing the growing pool of value associated with renewable and distributed energy generation and other emerging technologies, capitalizing on their existing relationship with customers, and finding novel ways to serve customer needs through new business models and services.

“As change in the [electricity] sector accelerates, it will also increase the importance of innovation,” the Eurelectric writes. “In order to capture the opportunities related to the growing value pools, the power sector will need to create new products, processes, and business models. Innovation will be a precondition for the sector to grow.”

The large-scale renewable energy sector will continue to grow in value, says Eurelectric, with the EU adding 135 GW of new renewables capacity by 2020, creating an additional €14 billion value pool.

So far, European utilities have failed to capture a substantial share of these new value pools. Germany’s four largest power producers control less than 5 percent of renewable capacity as of 2012, for example. According to Eurelectric, utilities will have to do better in the future at capturing value from the growth of renewables and other emerging technologies that “have the potential to transform the utility landscape.” This includes energy storage, electric vehicles and charging, demand response and home energy management systems, and a growing set of distributed generation technologies.

At the same time, a smarter power network and a changing set of technology options will enable new services and solutions to customer needs. Eurelectric identifies several possible new “downstream products and services” which the evolving utility of the future may be poised to deliver:

  • “The ongoing take-up of distributed generation creates business opportunities to provide, install, and maintain new equipment at customers’ premises, as well as additional potential services, such as virtual power plant generation models.
  • Continued energy efficiency improvement will create a market for a wide range of technical solutions and, equally importantly, new business models to unlock the potential value that energy-saving solutions entail.
  • As part of providing system flexibility, the importance of demand response aggregation will grow. A market involving B2B [business to business] customers is already emerging and is likely to extend to the B2C segment through two-way digital communication enabled by smart grids and the increased penetration of smart appliances and home control technologies.
  • Future adoption of electric vehicles will require e-mobility solutions for private and fleet customers, spanning the development of charging infrastructure (public charging stations and private charging boxes), power supply, and automatic billing and data management.”

Eurelectric estimates that these new downstream market opportunities could collectively be worth €10 billion by 2020.

Capturing these opportunities may require a fundamental shift in the way utilities view their primary product, from electricity suppliers to electricity service providers.

As Eurelectric describes it, for the energy user of the future, “energy services (heating and lighting, but also mobility, etc.) would be met not solely, or even primarily, through the supply of energy – but through a range of channels including decentralised generation technology, improved energy efficiency across a range of applications, and sophisticated control technologies. At the end of this journey, therefore, lies a potentially dramatically different business model for serving customer needs, defined not in terms of energy supplied, but directly in terms of the benefits that end-users perceive themselves to be deriving from various energy-consuming services.”

Europe the Bellwether?

Europe’s aggressive suite of energy policies, from renewable energy incentives and climate mitigation efforts to energy efficiency and smart grid roll-out targets are driving or at least accelerating many of the forces described above. It’s tempting then to dismiss Europe’s struggling utilities as the casualties of fast-moving policy measures. 

Yet Europe is not all that unique.

A majority of U.S. states have implemented renewable portfolio standards or targets driving the increasing uptake of new renewable energy sources. Federal and state incentives further encourage solar and other renewables, electric vehicle adoption, and smart meter installations. While the United States may lag Europe in some regards, the EU may be more a bellwether of things to come than an unique outlier.

Don’t take my word for it. Here’s the Edison Electric Institute, the industry association representing America’s large investor-owned utilities, in a recent report that echoes their European counterparts:

“Recent technological and economic changes are expected to challenge and transform the electric utility industry [in the United States]. These changes (or “disruptive challenges”) arise due to a convergence of factors, including: falling costs of distributed generation and other distributed energy resources (DER); an enhanced focus on development of new DER technologies; increasing customer, regulatory, and political interest in demand-side management technologies (DSM); government programs to incentivize selected technologies; the declining price of natural gas; slowing economic growth trends; and rising electricity prices in certain areas of the country. Taken together, these factors are potential “game changers” to the U.S. electric utility industry, and are likely to dramatically impact customers, employees, investors, and the availability of capital to fund future investment.

Trends in Japan, Australia, and many other developed economies are similar, where markets are characterized by growing renewables, increasing efficiency, and stagnant or declining electricity demand.

At the same time, the steadily declining cost and improving performance of many emerging technologies, from solar PV and smart grid technologies to batteries and electric vehicles, are driving the electric power sector towards a variety of key tipping points. At a certain price point, what were formerly policy drive trends become self-perpetuating forces.

Across much of the electric power sector, then, the imperative facing utilities will be clear sooner or later: they must evolve and thrive or retrench and die.

Are utilities up to the task? 

Further reading:

Jesse Jenkins's picture

Thank Jesse for the Post!

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Discussions

Bob Meinetz's picture
Bob Meinetz on Aug 20, 2013 3:27 am GMT

In reality, it’s wind and solar which need to evolve into something that’s competitive, minus subsidies, minus fossil fuel backup. As things stand now, they’re completely useless without sunshine or wind, and that’s a more frequent occurence than most renewables advocates would care to admit.

Utilities “die”? It will never happen, because within one week of closing their doors people would begin to understand what enables them to put a plug in the wall and have a consistent voltage available 24/7/365. Historians might remind them of the Current Wars of the 1880s, when the forerunners of utilities were founded to solve the very problems so-called “independent generation” is creating now. These are lessons of history many advocates have failed to learn, as they chase the illusion renewables are remotely viable as a standalone solution.

Then, with precious time lost in the fight against climate change and solar panels rusting on the roof, they will beg for their utility power back. Do we really need to go there?

 

donough shanahan's picture
donough shanahan on Aug 20, 2013 9:18 am GMT

Also I would be very slow to use Japan as a poster boy considering that it has added more coal and oil than any other source by a long way since shifting from nuclear. In fact one could say that the failure of renewables to plug the Japanese gas is a valid argument against the abilitiy of renewables to provide consistent power.

Elias Hinckley's picture
Elias Hinckley on Aug 20, 2013 1:26 pm GMT

I think you underestimate the scope and evolving pace of distributed technologies. A stack of coordinated technologies can absolutely replace the electric utility (especially if the gas utilities get smart about the potential to gobble market share).

With that said, it’s really a question of whether there is adequate adaptability in the current regulatory structure that governs utilities as they inevitably face declining demand – and without rethinking rate-design I am confident that Jesse is right on this (and so are many other experts in the energy marketplace – a long and growing list) – the model doesn’t work.

This should come as no suprise – it’s a decades old business model that has never had to evolve, and effectively retarded new competative technology (part of the argument for why monopoly is an ineffecient business model). Eventually the economic (and social) benefits of new technology got high enough (and we have crossed that threshold) to pull adequate investment despite the barrier to entry. So now we’re seeing the front edge of a wave of catch up technology. The result when layered against this old business/regulatory model, as Jesse points out, is as likely revolutionary as evolutionary. 

Jesse Jenkins's picture
Jesse Jenkins on Aug 20, 2013 4:36 pm GMT

Thanks Eli. And yes, Bob, I’m not talking about the end of the electric power sector, rather its evolution. You are right that modern civilization doesnt last long without reliable electricity access. The question is what kind of business models and technology systems will provide that reliable access in the future? Will that system look the same as today? Will today’s business models be up to the task? Or will many go bankrupt (aka “die”) while others evolve and capture the rewards (aka “thrive”)? Those are the kind of questions I’m probing here. Cheers,

Jesse

Rick Engebretson's picture
Rick Engebretson on Aug 20, 2013 4:46 pm GMT

IMHO, Renewable Energy technology must evolve or die.

20 years ago I had the honor to help initiate a meeting at Northern States Power research in Minneapolis. Two good friends also helped; one the former head of research at Control Data Corp, the other then head of the MN House ag. committee (and later head of the state PUC). As we entered the security area, some political activists were heading to the corporate offices to push windmills and solar panels. Well, NSP fired research and put up windmills and solar panels.

The electric grid is not a “business model” or “policy.” It is the heart of a developed nation. It sustains life. Most utilities want a more robust, reliable, cost effective, environmentally sensitive service.

Our electric effort was to (in my opinion) parallel the food production system. Again, using bioresources. The National Rural Electric Cooperative Association had some great renewable energy ideas and literature. It takes electricity to run a farm, and farmers can contribute to national electricity solutions.

In my experience, if the technology exists, the utilities will be interested. They might skin your hide to steal it, but they will be interested.

Bob Meinetz's picture
Bob Meinetz on Aug 20, 2013 5:27 pm GMT

Elias, your post exhibits quite a bit of confusion, about both the basics of utilitiy service and their history.

When gas utilities “gobble market share” will we return to gas lamps instead of light bulbs, and use gas to power our televisions and computers? At some point, gas must be converted to electricity, and that is exactly the function electric utilities perform right now – quite efficiently.

Knowing the history of utilities is critical to understanding why they even exist. The electric utility industry is over a century old (not “decades”) and the idea it “has never had to evolve” is nonsense. In the 1880s Americans not only had two incompatible currents to deal with – alternating and direct – but a hodgepodge of plugs, wires, bulbs, and codes. Service was (not surprisingly) unreliable. Utilities introduced standards which were essential to the adoption and spread of electricity across the U.S. Now it is the most highly regulated industry in America, and CEOs have the lowest average salaries. In California, where I live, utilities are limited to marking up their prices by 10% of cost. Their existence has always been an uneasy blend of socialism and capitalism, but in general they have served the public extremely well. That model, which you claim “doesn’t work”, is a model which has been emulated by every country in the world, and it has been the source of most of the modern distribution technologies which we take for granted.

Eliminating electrical utilities might be the fastest way to time-travel to the day when electrocutions, outages, and fires were frequent occurrences. I’m afraid this is another case where our ignorance of history will doom us to repeat it.

Jesse Jenkins's picture
Jesse Jenkins on Aug 20, 2013 5:32 pm GMT

Bob, Eli is referring to natural gas competing with electricity for various household and business energy services, including heating and cooling (HVAC), which gas can easily provide today, as well as electricity generation, which gas may also soon be competitively providing via fuel cells, microturbines and other gas-fueled distributed generation technologies. 

No one is talking about returning to the “dark ages” before the advent of electricity! I’d challenge you to step out of this binary between electric utilities as they exist today (and basically have since the days of Edison and Tesla) and the kind of dark age you envision a pre-dating the emergence of the electric utility sector. There are any number of possible “utilities of the future” that may emerge through an evolution of the power sector. What’s happening now in Europe is likely just the first glimpse of what may come, or at least the kinds of forces driving evolutionary change.

And remember, this isn’t just my speculation: my article cites two reports from the electric power sector itself – Eurelectric and Edison Electric Institute, which collectively represent the largest utilities in the world. So I’d encourage you to check out those reports for more…

Jesse

Bob Meinetz's picture
Bob Meinetz on Aug 20, 2013 6:45 pm GMT

Jesse, I have to wonder whether you’ve read Edison’s report, which focuses entirely on the disruption renewables and net metering will cause to utilities’ bottom lines. It looks at strategies to bring about regulatory change, without a word about evolving to include renewables or independent generation.

The mantra that monopolies are bad may apply to tablet computers or cellphones, but in any kind of enterprise which involves a shared infrastructure worth hundreds of billions of dollars they’re invaluable. They create order from chaos. More importantly, their economies of scale keep prices low and efficiency high, with huge implications for the environment – in the case of gas, there is no way that millions of microturbines stopping and starting as needed can provide electricity more efficiently than a centralized plant with turbines running 24/7. As utility generation gets cleaner, everyone’s energy gets cleaner along with it, obviating the need for upgrades to millions of independent systems.

If there is such a “utility of the future” which can practically address these problems I haven’t seen anything described, even in outline form. Maybe what’s happening now in Europe is indeed the first glimpse of what may come, but if that’s true we’re in big trouble:

German Utilities Hammered in Market Favoring Renewables

Jesse Jenkins's picture
Jesse Jenkins on Aug 20, 2013 6:48 pm GMT

I have indeed read the Edison report, and while it is focused on effectively playing defense against emerging challenges, please read the Eurelectric report for a decidedly more proactive stance. And I also read the Bloomberg article you linked to; it is cited several times in my article above. What it says is that traditional generation assets are no longer the profit centers they once were. That doesn’t spell the end of the electric power system as a whole! It means business will evolve to find new ways to deliver value to end consumers and returns to shareholders. Read the Eurelectric report to see how European utilities are thinking about this challenge.

Steven Collier's picture
Steven Collier on Aug 20, 2013 7:44 pm GMT

Sheesh, more moaning and groaning about federal subsidies for renewable energy! Nobody seems to recall that, thanks to Ed Teller and all the other scientist who were horrified by the consequences of the use of nuclear weapons, the nuclear generation industry, via a “swords into plowshares” initiative was heavily subsidized by the federal government. Every participant in the energy business benefits from federal tax credits, special grants and subsidies, R&D programs, etc. And think of all the industry participants who lined up for ARRA Smart Grid Grants. The federal government funds many things for the public good from education to highways to national defense. Why not support something as critically important to our environment, our energy future, even our national security, as energy sustainability through renewable resources?

Jesse Jenkins's picture
Jesse Jenkins on Aug 20, 2013 7:47 pm GMT

Hi Steven,

Was this in response to the article or one of the comments below? Thanks,

Jesse

Steven Collier's picture
Steven Collier on Aug 20, 2013 7:50 pm GMT

And, of course new technologies and new market models distrupt industries and lay waste to incumbent participants. The steam engine did that to human and animal powered transportation and then the steam engine industry was wiped out by gasoline and diesel engine innovations. The telegraph industry was wiped out by the telephone business. The gas lighting industry was destroyed by the electric industry. Who hated it? The incumbents in the obsoleted industry. Who loved it? Consumers!

Steven Collier's picture
Steven Collier on Aug 20, 2013 7:58 pm GMT

Jesse, 

My comments (perhaps a bit too vigorous) were in response to the statement, “wind and solar which need to evolve into something that’s competitive, minus subsidies, minus fossil fuel backup.” Plus, I meant to mention that every single fossil fuel or nuclear fueled generator on the grid also has fossil fuel and nuclear fuel and even renewable fuel backup for the times that it is out of service for planned maintenance or an unplanned outage.

Excellent post on your part, by the way. And your reply comments are excellent as well.

Steve

Jesse Jenkins's picture
Jesse Jenkins on Aug 20, 2013 8:01 pm GMT

Thanks for clarifying. In the future, if you hit Reply below a particular comment, your comment will appear as a threaded response to that original comment. Makes the conversations easier to follow!

Jesse

Steven Collier's picture
Steven Collier on Aug 20, 2013 8:06 pm GMT

Bob, 

As we learned in 1929 and afterwards, electric utilities and electric utility holding companies going out of business does not mean that the lights will go out. The grid transcends the business viability of individual and collective owners of the equity and profits (or losses). The current cost-plus monopoloy, centrallly planned / monitored / controlled, giant power plants sending power one-way to distant load centers business model is being supplanted by a new decentralized, market-driven, two-way power flow model. The companies that adapt soon enough and profoundly enough can remain in business, but those who won’t will go out of business. That’s the way capitalism works.

Bob Meinetz's picture
Bob Meinetz on Aug 20, 2013 8:57 pm GMT

Steven, I have no beef with federal subsidies for clean energy, as long as they’re proportional to the potential value that energy brings to society.

After decades of federal subsidies solar still provides less than 1% of U.S. energy – we’re subsidizing 8x as much as its contribution (see below). It has a meager output, a massive footprint, no practical storage solution, and will always be dependent on fossil fuels for backup. With the new IPCC report coming out soon showing climate change accelerating along with energy demand, we don’t have time to waste on avenues which are not carbon-free and have no realistic prospect of panning out.

Paul O's picture
Paul O on Aug 21, 2013 4:06 am GMT

Devil’s advocate time.

When I look at the premises of this post, I had to wonder whether the current situation in Europe is neccessary or wise. I don’t see intermittent renewables as neccessary or inevitable, and I wonder what would become of them were the Utilities to Chose to die rather than Evolve?

The Utilities are bearing the brunt of supporting a difficult to work, perhaps even ultimately unworkable system of intermittent renewables. Perhaps the question should be the inverse of that premised by this article.

In other words, perhaps it is Renewables which should evolve and become more dependable, and more workable, because were the utlities to die, the renewables industry would surely die with them.

The renewables industry needs Utilities as much as, or even far more (IMO) than Utilities needs renewables.

Elias Hinckley's picture
Elias Hinckley on Aug 21, 2013 1:43 pm GMT

The model worked until it didn’t.

Not suggesting this won’t be disruptive – the transition will almost certainly be hugely disruptive – and we’re already seeing instances of relaibilty being compromised b/c this shifting landscape is undermining the economic stability of of some utilities. 

Asking smart questions about this disruption like Jesse is doing is exponetially more valuable than refusing to even consider the possiblity that the world has changed (and will continue to do so). I do understand change is uncomfortable for a lot of people, and especially those with vested interests in the status quo, but pretending it isn’t happening doesn’t make it not change.

 

 

 

Rick Engebretson's picture
Rick Engebretson on Aug 21, 2013 3:50 pm GMT

Having now read the Edison link, it again seems useful to comment on this interesting post.

While I might sound like a country bumpkin, I was in some of the “technology disruptions” mentioned in the report warning investors of “stranded assets.” Nobody understood the potential of fiber optics better than the “Baby Bells.” The last thing a manager said to me was find a compatible network protocol between Apple and others (before TCP/IP), and IBM provided me ARPAnet programming books which I could not read. It moved fast and was no accident.

Also, I gave semiconductor “retina” datasheets to medical people who did not understand Kodak film had competition (like the report says) and that seeing medical images realtime could be cheap and small.

So I’ll say it yet again, the energy industry is foolish not to understand or even mention (in this article) the enormous, continuous changes in agriculture. Recombinant DNA is a “game changer” for better or worse, as is the tractor, as is electricity. And that was the point of the Edison paper; be aware of technology and don’t burn your investors.

Bob Meinetz's picture
Bob Meinetz on Aug 21, 2013 5:11 pm GMT

Elias, the world has obviously changed and in many ways not for the better, but there’s not one real-world instance of large-scale distributed energy you can present to show the concept is even viable. In fact, the experiments so far have been just a bit short of disastrous.

By blindly accepting change it is very possible to go from less-than-optimal to terrible. Apparently you believe that customers will be willing to sacrifice reliability – to experience disruption of service, including brownouts & blackouts – to accommodate a grand thought experiment which has never been shown to actually work. I disagree. Any shift to cleaner forms of energy which does not maintain reliability is doomed from the start.

Elias Hinckley's picture
Elias Hinckley on Aug 23, 2013 2:26 am GMT

So you’ll be shorting NRG I assume? http://buswk.co/12u7Q7i

Been trying to come up with an example of where technology allowed successful distribution of infrastructure that required a regulated monopoly as its operating model because distributed technology could never replace old infrastructure, but can’t think of one…however, pardon my typos, I wrote this on my iPhone while taking a conference call at my house which isn’t connected to a land line.

George Stevens's picture
George Stevens on Aug 23, 2013 11:13 pm GMT

I was thinking the same thing. The idea that the utilities will die when the renewable agenda is completely reliant on them for grid regulation is pretty much non-sensical. We already see a German utility threatening to relocate:

http://www.forbes.com/sites/williampentland/2013/08/19/german-utility-re...

The government would have no choice but to pay them not to leave if the threat is real, or blackouts would ensue. Fair compensation paid to utilities for essential grid regulation services is inevitable. So maybe profits are dipping now and downsizing will occur but utilities are not truly at risk. Net metering a FiTs are a temporary concession to enable the deployment of renewables, they aren’t sustainable in the longterm. Until renewables can generate electricity that follows demand there will be no choice but keep large amounts of conventional generation online by any means necessary.

The idea that wholesale prices are truly dropping in Germany due to renewables is also non-sense, its just a crafty and slanted way at presenting the numbers. Yes the advertised price may be dropping, but we cannot dismiss the costs associated with deploying the renewables and compensating for their intermittency as though they aren’t a part of the electricity costs. It is a purely political move to remove these costs from the public eye similar to how wind and solar costs estimates never include land and transmission costs.

Basically this is a bunch of hogwash.

I dont mean that as an insult Jesse as I know you are probably aware of the above mentioned facts.

George Stevens's picture
George Stevens on Aug 23, 2013 11:11 pm GMT

because supporting nuclear energy is a much more practical and cost-effective way to provide clean energy on a national scale.

How about that answer?

George Stevens's picture
George Stevens on Aug 23, 2013 11:20 pm GMT

When a electric utility goes out of business it is replaced by….another electric utility.

Renewables cannot load follow, they are reliant on conventional generation now and for the foreseeable future. Since the conventional generation and grid regulation are essential then fair compensation for some sort of utility is inevitable and utilities as we know them will not die, unless the government simply steps in to act as utility.

either way you skin the cat the costs of grid regulation remain the same.

George Stevens's picture
George Stevens on Aug 23, 2013 11:51 pm GMT

The flaw in your logic that utilities will have to make drastic changes is that there is no certainty that (aside from Germany) other countries will heavily deploy variable generation sources. I think based on what we are learning from the germany and other instances of large deployed wind and solar, other countries will opt to provide as much mandated renewable energy from non-variable sources as possible on an economic basis. The capacity factor and large deviations in seasonal output of Germany’s wind and solar fleets incur an enormous need for generation capacity redundancy which severly hampers the comprehensive economic-case for both of those options.

I also believe that nuclear will become a much more viable option in Europe given the pending move to enable state aid for nuclear projects:

http://www.reuters.com/article/2013/08/14/eu-nuclear-idUSL6N0GE0YH20130814

Why do we pretend that a distributed network of variable sources is more efficient than the conventional grid system with centralized power plants? The opposite is true. A distributed network of dispatchable sources would be most efficient and there are many ways to provide clean energy which do not require such costly and drastic modification of the grid system and the utility model.

The Eurelectric report is not an authoritative projection and its assertions don’t pass economic scrutiny. It is far from a foregone conclusion that the current trend of variable energy deployment will continue to play such a prominent role now that preliminary results are available.

Doug Payne's picture
Doug Payne on Sep 4, 2013 2:30 am GMT

Retail solution

I am a generator of power on the energy market.

I suggest we invest in the development of batterries.

We eventually put our batteries into cars, and appliances of all manner.

Part of the battery is a smart metterring device that enables us to smart switch this device when ever it is connected to the grid. In this way we provide energy for cars and we have storage for our wind generation.

 

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