Since I’m originally from the Netherlands and spent several years living in Brazil, the semifinal results of this week’s World Cup soccer (or football, as we Europeans call it) matches have been disappointing, to say the least. One thing that’s clear from the tournament ‑ one of the most exciting World Cups in my memory, by the way ‑ is that to succeed at this level, teams must play well on both ends of the field: offense and defense. The Netherlands squad, the Orange, played superb defense on Argentinean superstar Lionel Messi, but failed to muster a goal in 120 minutes of regular and extra time and lost on penalty kicks. As for Brazil, it played neither offense nor defense.
The same is true for utilities in today’s rapidly transforming power sector. Playing defense – by sticking with established ways of operating and traditional forms of customer service – is no longer enough to succeed. Utilities must also play offense; they must proactively develop new capabilities and innovative business models to thrive in a world of proliferating distributed energy resources (DER), greater customer choice, and rising competition from new players.
A Shifting Landscape
Widespread coal plant retirements, stiff renewable portfolio standards in many U.S. states, and the spread of renewable generation are all irrevocably changing the mix of generation assets while increasing the need for load balancing and frequency regulation on the grid. Navigant forecasts that cumulative solar capacity in the United States will reach nearly 70,000 MW – 60% of it distributed – by the end of 2020.
At the same time, the U.S. Environmental Protection Agency’s (EPA’s) proposed limits on CO2 emissions from existing power plants will drive further changes in the generation landscape. These limits will bring new natural gas capacity online, put upward pressure on wholesale electricity prices, and make demand response and energy efficiency programs key parts of the answer.
(Source: Navigant Consulting)
Today’s centralized, one-way power system is quickly evolving into an energy cloud in which DER support multiple inputs and users, energy and information flows two ways across the system, and market structures and transactions grow more complex. The energy cloud is more flexible, dynamic, and resilient than the traditional power grid, but it also brings new challenges to a power sector that until recently has changed little in its fundamental structure for almost a century.
Lead or Lose
Facing declining revenue as customers consume less and produce more of their own power, utilities are faced with large investments to build new transmission capacity, upgrade distribution systems, and invest in new DER businesses. Given these challenges, utilities must be adept at playing offense and defense. An updated defensive strategy will entail:
- Engaging with customers and regulators to understand customer choices vis-à-vis price and reliability
- Improving customer service and grid reliability at the lowest prices possible
- Finding equitable ways to charge net metering customers for transmission and distribution services
- Developing utility-owned renewable assets to appeal to environmentally conscious customers
Playing offense is even more important. Utilities must:
- Create new revenue streams through the development of new business models, products, and services
- Transform their organizations and culture in order to fully integrate sales, customer service, and operations
- Upgrade the grid and operations to facilitate the integration of DER
These objectives can only be accomplished by implementing new business models that include developing, owning, and operating DER such as rooftop solar, customer-sited storage, and home energy management systems; providing third-party financing for DER; and offering new products and services focused on energy efficiency and demand response.
There is no going back to the old ways of doing business. Utilities must lead – by playing both offense and defense – or they run the risk of being out of the competition.
Tags: Conferences & Events, Demand Response, Distributed energy, Energy Efficiency, Policy & Regulation, Smart Energy Program, Utility Innovations
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