Monday, September 15, 2014

Leaving Utilities Behind

A New York Times article on September 13, 2014, points to a trend we have mentioned before:  the increasing competitive strength of solar and wind power are now an existential threat to the legacy utilities and their business models.

Electric utility executives all over the world are watching nervously as technologies they once dismissed as irrelevant begin to threaten their long-established business plans. 

On the impact of Germany's Feed-in-Tariff:

By creating huge demand for wind turbines and especially for solar panels, it has helped lure big Chinese manufacturers into the market, and that combination is driving down costs faster than almost anyone thought possible just a few years ago.

The transition creates new businesses, not only in renewable generation.  It requires huge new investments in the power grid ... to be funded how?  It requires highly sophisticated demand response programs, supported by flexible regulation and IT investments.  It requires on grid storage and suppliers of balancing power.

The "energy transition" creates disruption and problems.  The utilities hate it. Big business dislikes it.  The politicians in Germany now are listening to the utilities and big business ... and want to slow down what they have started.

But the public likes it.  The public is willing to pay a renewable surcharge (some of the cost of which is offset by LOWER wholesale peak electricity prices, for which, sadly, there is no visible "discount" on electricity bills).

The transition is here.  And those who ignore it will eventually find themselves left behind.  In some countries, these left-behind players will swiftly be acquired, restructure, or file for bankruptcy protection; creditors will take their lumps, debt be restructured, assets mothballed, and things will move on.  In Japan?  If not handled with extreme care, we may see decades of a "zombie" electric power sector.  We already seem to have a "zombie" electric power sector.


Update:  Interestingly, but Citigroup and UBS have recently issued research to their clients that highlights the trends mentioned above, and the issues they present for existing electric utilities.  UBS actually sees the changes as a "net positive" for the well-positioned utilities that know how to deal with end-customers and have good distribution systems and plans for how to cope with the new realities.  For generation-heavy utilities ... not so positive.

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