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Utility Modernization Is Key to Avoiding Death Spiral

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Karen Marcus's picture
Freelance Researcher and Writer Final Draft Communications, LLC

In addition to serving as an Energy Central Community Manager, Karen Marcus has nearly 25 years of experience as a content developer within the energy and technology industries. She has worked...

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  • Sep 13, 2019 5:49 pm GMT

Utilities are in the unique position of wanting customers to use less of their services so they can cut costs (and therefore rates) and have the resources to continue operating during peak demand times. Yet, utilities also need customers’ business to keep their doors open. As utilities seek to find the right balance in how they operate between these two opposing needs, they may begin to experience what’s known as the Utility Death Spiral. While it may sound a bit over-dramatic, the Death Spiral is something utilities take seriously. In a recent Black & Veatch survey, 71 percent of utilities saw it as a real possibility under certain conditions.  

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What Is the Utility Death Spiral?

The Death Spiral happens when customers get so good at energy efficiency that they need less of it. They also find outside sources for electricity, including distributed energy resources (DERs), which also leads to a decrease in their use of utility services. Decreasing prices for storage options and mandates from cities and states for new construction to be green construction are contributing factors. All these conditions, when presented by numerous customers, cause utilities to lose revenue. When that happens, they’re forced to increase rates, which makes customers more likely to increase their efficiency and use of outside energy resources, starting the cycle all over again.

Keeping Up With Customer Needs

The key to avoiding the Death Spiral is pivoting to services and resources that will keep customers as customers. Energy Networks Australia notes that utilities across the globe “are making significant changes to their business models and in the process innovating to develop and provide new services for customers. They are [modernizing] the 20th century electricity grid.”

Other options include working with customers in getting the most value from DERs and helping them sell excess energy back into the grid. With these strategies and others, utilities still have advantages in their size and resources. An American Public Power Association report states, “Not only will the utility continue to play a role in the future, the grid and the utilities managing it are essential in navigating the evolution of the energy industry.”

Developing New Payment Models

In addition to modernizing customer care and the grid, utilities should rethink their payment structures. Twenty-first-century customers have become accustomed to a subscription model for all types of products and services, including entertainment (Netflix), software (Microsoft Office 365), clothing (Stitch Fix), and meals (Blue Apron). A subscription-style payment option for energy is appealing to customers and may help utilities guard against the death spiral.  

Under the Energy as a Service (EaaS) model, customers don’t pay for how much energy they consume but, rather, how they use it. As with other subscription services, customers can pick a service level based on their needs and habits. Plans can include other sources of energy customers use, such as photovoltaic (PV) panels and electric vehicles (EVs). In this way, customers get to expand their energy options, but utilities still play an important role.

There is some good news for utilities concerned about the Death Spiral. For one thing, the proliferation of EVs is replenishing some of the revenue utilities are losing as a result of other factors. For another, according to Energy Networks Australia, “going off the grid simply doesn’t make sense for most electricity users. The cost, space and planning issues make it impractical at best.” The organization suggests that utilities see this transformation as an opportunity rather than a challenge, and to think of it as a reincarnation rather than a death.

Are you concerned about the utility death spiral? If so, what is your utility doing to prevent it? Please share in the comments.

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Michael Ashford's picture
Michael Ashford on Sep 17, 2019

This is an excellent summary, Karen, thank you. Fifteen years ago I was discussing with utilities in the northwest US how to "decouple" from kwh and MMBtu sales as a means to reduce GHG emissions across the power and energy sector (for gas and electric utilities). Today, "decoupling" is going even further (please read Karen's piece!). Very interesting to think about for me today as I seek ways to help utilities in developing countries understand how they can perform better -- starting with the most basic notion of "asset management". If someone has more ideas for "leapfrogging" business models in utility services, let us in the development world know... still looking (and smart phones are not going to do it, I'm afraid).

Karen Marcus's picture
Karen Marcus on Sep 25, 2019

Thank you, Michael. I look forward to seeing your future posts as you continue to research this topic. Cheers, Karen

Mark Stover's picture
Mark Stover on Sep 19, 2019

Thank you for the post, Karen.  I recently finished reding Gretchen Bakke's book The Grid which is an in-depth look a the peculiar position in which utilities find themselves as the market changes rapidly.  Energy as a Service is a fascinating concept.  I wonder, how much can utilities do to weather the storm of the changing marketplace by looking at other customer facing processes and applying concepts of process excellence? Faster turnaround on outage repair, quicker resolution of billing disputes, and other ways to add value that they can charge for.  Maybe the EaaS concept drives a different business model in many ways? 

Karen Marcus's picture
Karen Marcus on Sep 25, 2019

Thanks for your thoughts, Mark. I'll have to put The Grid on my reading list. I agree, EaaS is fascinating, and you raise some interesting questions about how utilities can use it and other "borrowed" business strategies to become more responsive to customers' needs. Cheers, Karen

David Svarrer's picture
David Svarrer on Sep 23, 2019

Dear Karen, 

I cannot but think, that you are writing with a background of, that for some reason, you feel or think or opine, that the Utilities are a necessity of some sort? 

When that happens, they’re forced to increase rates, which makes customers more likely to increase their efficiency and use of outside energy resources, starting the cycle all over again

Is there any argument for keeping any utility alive, provided that everybody creates their own Distributed Energy Resource? There will be a break-through point, where it will suddenly go very fast - when utilities have become so expensive so that it pays off even within a year or two to change (completely) over to DER?

Isn't it rather true, that the centralized approach was very good at a time when there was no DER's present, as the DER technology was not mature?

Isn't it rather true, that the AC generated power did its job upto 2015 and that the new DC-based MOSFET driven DC-to-DC converters and the omnipresent DC-storage capacities makes it very little interesting and/or feasible to maintain any of the centralized AC-powering energy monsters? 

Isn't it rather true that the good need of AC was due to the need of transforming up and down for long distance transmission lines - and that with massive use of DER's - the presence of AC is rather a nuisance?

Isn't it rather true, that the 12 milion cubic metres of concrete necessary to build a typical Nuclear Power Plant which has a maximum usable lifespan of 50 Years before they are so radioactively polluted so that they must be decomissioned (1 GigaWatt), would be better replaced by 2,400 tons of stainless steel to build 1 GigaWatt of solar concentrator power, with a minimum 50 years life span, and which can be recomissioned for another 50 years without any much dangerous materials to store for 70,000 years and without any emissions beyond the 4,800 ton of CO2 from the stainless steel production.

Isn't it rather true, that rather than one 1 GigaWatt utility which has a limited life span of 50 years, it is better with 100,000 family-sized per-house powerstations for indiviual homes - each one of then 10 kiloWatt and 50+ years life span - delivering some 18,000 kWh (heat) per home per year based on DER - storing the energy in plain stones - at a rate of 70.8 kWh per ton of stone? (keeping the operational stone temperatures within the range of 300 to 600 ° C)

Isn't it rather true, that - what certain utility companies, including NVE-SE and RISOE and others - are researching on while writing these lines here - namely to assist DER owners to manage massively distributed DER's - online - and provide apps for the same purpose - is maybe one of the greatest opportunities for the Utility corporates to maintain relevance?

Isn't it rather true, that our current view of central utility systems could need some restructuring, such that we made use of the millions of experience-years amongst the worlds hundreds of thousands of highly specialized energy specialists - to see the DER's as a new way of providing utility power?

Therefore - as a conclusion - isn't it true, that the death spiral is something we should welcome and embrace as a 4th generation of energy provision for the world - thereby - instead of calling it a death spiral - we ought renaming it to "restructuring spiral"?

My question was - is there any reason to keep the old, centralized energy-/utility power generation systems alive? Is it not so, that any business should primarily serve the people, and secondarily serve its owners as a source of profit?


David Svarrer

Renewable Energy Design Architect

Rational Intuitive, Denmark

Karen Marcus's picture
Karen Marcus on Sep 25, 2019

Hi David, thanks for your thoughts. You bring up some good points and I agree that the primary purpose of utilities should be to serve people. I also agree that as we get closer to the ubiquitous adoption of DERs, the role of utilities should change to become less about power generation and more about DER organization. Based on my research, the "death" of utilities will only occur for those that aren't able to make the transition to a new organizational structure. For those that do make it, their experience will be less of a "death" and more of a "restructuring," or, as I wrote in my conclusion, a "reincarnation." Cheers, Karen

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