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What is the future of utilities?

5 min read
For business

Electric utilities have been cornerstones of the United States’ energy grid. In most states, energy consumers must sign up through their local utilities to keep the lights on in their homes and businesses. Even states with deregulated energy systems still rely on local utilities for delivery and maintenance of grids, lines, and power technologies.

However, recent advancements in renewable energy accessibility, net metering programs, battery technologies and more have left many wondering whether the current utility model is sustainable, or even necessary, for the future of energy.

What do utilities do?

Today, most utilities function as the main power source for the communities they serve. Often operating as monopolies, utilities set their electricity and natural gas rates according to several factors, including:

  • Fuel costs
  • Weather conditions
  • Power plant costs
  • Consumer demand

Utilities also oversee their communities’ energy infrastructure; they build and maintain power plants, power lines, natural gas pipelines and are responsible for grid connectivity.

Utility rates vary not only by state but also by community, since supply, demand and distribution costs are different in each utility area. Because public utilities are regulated by Public Utilities Commissions, or PUCs, they cannot arbitrarily set rates. To raise customer rates, utilities must get approval from their governing PUC.

Therefore, utilities must find other revenue streams. Funding for utilities comes partly from power delivery and maintenance charges that are passed on to the consumer through monthly energy bills. Investor-owned utilities, or IOUs, rely on backers’ money to build power plants and other energy infrastructure. Adding to, and leasing out, the energy grid’s infrastructure to other utilities and power companies is their largest source of revenue.

Challenges facing utilities today:

In 2017, electricity sales in the United States fell by 80 billion kWh.; not since the 2009 recession have sales fallen by more than 2 percent.

A combination of reasons, including efficiency improvements, renewable energy utilization and on-site power sources, halted the century-long increase in U.S. electricity demand. Even with society’s increasing reliance on the newest technology, demand levels are – for the first time – flat.

Developments in distributed energy resources (DERs) have turned energy consumers into energy producers. Residential solar panels, electric vehicles, smart thermostats and energy-efficient appliances have all helped consumers save energy and generate energy of their own.

Stagnant demand reduces the need for new infrastructure. Why is this a problem? Without the need for new infrastructure, utilities have little-to-no new revenue coming in.

Amy Simpkins, CEO of Golden, CO-based muGrid Analytics, which uses high-level math to address problems at the intersection of energy technology and economics, expresses the situation a bit differently. “It’s not so much that there is a decline in demand as there has been a rise in distributed generation, particularly behind-the-meter distributed generation,” Simpkins says. “The rise of solar power over the past decade along with the rise in battery energy storage that we are currently seeing is causing ripples for utilities.”

The whole model is changing, Simpkins says. “It’s more than a blip. Energy consumers are starting to produce a non-trivial portion of the energy that they consume, offsetting the demand on the grid. We are seeing the rise of the prosumer – energy consumers who produce energy as well as consume it.”

Can utilities adapt to our changing energy needs?

Researchers are unsure. While utilities are not quite obsolete, many experts believe they are on that path. To survive in an increasingly self-sustaining system, utilities will have to refocus on meeting society’s new energy demands.

In Hawaii, the PUC is attempting to do just that. The state’s goal of 100% renewable energy sourcing by 2045 is by far the most ambitious in the nation, and will push Hawaiian utilities to compete on reducing electricity demand. The so-called “infrastructure bias’ forces utilities to invest in energy efficiency, green technologies and new customer services over investments that favor fossil-fuels, such as power plant construction.

Part of any movement toward renewable industry includes wind power. Andrew Swapp, director of wind energy technology at Mesalands Community College in New Mexico, says the cost of production of energy from wind is competitive with coal. And, he says, it makes sense to worry about the continued viability of utilities.

“We need a strong economy, and we need strong companies that provide security to their employees. Security in another sense is a huge issue when we talk about electricity that keeps hospitals running, military bases training and protecting, and keeps us cool in the summer and warm in the winter,” Swapp says. “Some would put it like this: Do you want base load or do you want power when the wind blows or when the sun shines?”

Are utilities too big to fail?

While Swapp says no business or entity is too important to fail, he does have words of caution for utilities. “No utility can keep status quo and expect to stay viable for long. If one fails another will be there to pick it up and keep it going,” he says.

What could change look like? “Cities may gain confidence to become their own utility again and run municipal power production and keep things on a microgrid, so to speak,” Swapp says. “In my opinion, military bases should already be on their own microgrid and have 24/7 security on the system. Renewable energy could be a huge player in these microgrids and make our grid so much more reliable and secure.”

Simpkins agrees that change is necessary for the survival of utilities. “If they can adapt to new ways of doing business and find ways to innovatively work with customers to create this new energy marketplace, utilities most certainly will have a role, especially if they can continue to provide stability and frequency regulation in an increasingly distributed system. They can also manage redistribution of energy, time shifting of energy, and other stabilization services, to ensure power reliability for everyone, even in a distributed generation environment.”

But she also points out a different potential future. “If they cannot adapt or innovate, they may, indeed, fail. Innovate or perish, as it were.”

As the times change and energy demand across the country stays flat or even falls, price and location are no longer the only determinants in what makes a “good” utility; quality of service, range of offerings, efficiency upgrades and more are all necessary to attract and retain customers. In their race for power, only the strong will survive.