From utility to futility?
Utilities Unbundled - Issue 15
Will homegrown power doom traditional power companies? NRG’s David Crane thinks utilities face a mortal threat.
“Over the next decade … three trends will doom the rate-based regulated power industry as we know it.”
— David Crane, NRG
When people ask me how I expect utilities to survive and thrive in the future, I tell them that I don’t expect them to thrive. Indeed, channeling my inner Goldfinger, I tell them “that I expect them to die.” Of course, I am speaking half in jest, but only half…
Over the next decade, I believe three external trends will doom the rate-based regulated power industry as we know it:
- Cheap solar panels installed beyond the meter (distributed generation). Solar panels are dirt cheap…and they continue to get better and cheaper.
- Automated conservation. Once conservation behavior is fully automated through the deployment of technology such as motion sensitive thermostats, electricity demand will fall…and keep falling.
- Extreme weather. Storms as serious as Sandy are expected to become more the norm, not the exception. ‘Grid independence’, grid autonomy’ or grid resilience’ – whatever it ends up being called, is coming.
The parallels between where our industry is today and the telephone industry was in the mid-1980s are uncanny. The then-incumbent US telephone monopoly AT&T misunderstood the real threat, which came not from MCI and Sprint, but from the disruptive technology of cell phones. By the time AT&T woke up to the true nature of the existential threat, it was too late.
I’m not the only one thinking these thoughts. In January, Peter Kind was commissioned by the Edison Electric Institute (EEI) to produce a paper, in which he evaluated in stark terms the threat distributed power poses to our basic business model. What shocked me about Peter’s article wasn’t the Cassandra-esque nature of his warnings (which I totally agreed with), but the fact that his article was published by EEI, historically the great bastion of our industry’s status quo.
I do not mean to imply that utility CEOs do not see the same threat as I do. As more utilities recognize the existential threat caused by distributed technologies, a further layer of complexity resides in determining from exactly where the beyond-the-meter threat originates. Off-grid solar needs a reliability partner if it is going to be part of a grid-independent solution to energy consumers.
However, we already have a viable partner for solar power in the distributed generation-dominated future. A Trojan horse to the future primacy of the electric grid lies in the unheralded natural gas distribution system, which reaches 34 million homes in the US alone.
So why and how does the gas distribution system supplant and replace the electric distribution system?
All you’d need is one device in your home that will reliably, economically and cleanly convert gas to electricity. It could be a fuel cell, a micro-CHP, or another type of energy conversion appliance.
I predict that within the next year or two a wave of distributed generation technologies will be in the market with the express goal of displacing grid-based power. One of the most promising of these gas conversion appliances is a machine we're working on with Segway inventor Dean Kamen.
The Beacon 10 – operates like a refrigerator compressor running backwards. Heat goes into the compressor and out comes 10 kilowatts of electricity to power your home. And because the Beacon 10 throws off an enormous amount of heat as a byproduct, its functionality will replace or supplement your hot water heater, pool heater and possibly your home heating system.
Prepare to be disintermediated
Clearly there is a role for utilities and the grid as a backup system – but after dominating the electric supply business for so long, many utilities will resist rather than embrace the future. Of course, a few utilities will embrace the future and will seek to lead this new energy paradigm. Certainly, NRG hopes to be one of the leaders in creating and serving this distributed energy future.
Will we succeed? I don’t know, but what choice do we have? Adapt or die is the immutable law in both nature and business.
The future of our industry is completely up for grabs. In my mind, the only thing I am sure will NOT happen is that our sector will continue to be dominated by traditional utilities that keep thinking and acting like traditional utilities.