How Real is the New Energy Economy?

With utilities now shifting their attention to the new energy frontier and investments in distributed assets, a central question remains: Can those energy companies embrace such changes and build new revenue streams at the same time?

Two general views are emerging. The first remains focused on the current business model - one that has been around for more than a century and one that has vertically-integrated utilities generating and distributing electricity for passive customers. The other eyes new technologies now coming to fore that are changing that scenario and empowering customers to generate their own electricity on site - a move that could eat into utility sales.

Other scenarios are also possible, however, and involve partnerships between utilities and enterprising companies - all to facilitate more rooftop solar panels, energy storage devices, and micro-grids. But that foretells of a different world, one that combines the resources of traditional utilities with the more nimble-footed technology providers to meet customer demands and to remain relevant. Two such utilities now poised to make that leap are NRG Energy and Green Mountain Power.

"Everyone will have to create more value with fewer sales," says Steve Corneli, senior vice president for NRG. "People are getting more energy efficient and the competitive marketplace is providing those tools. We need to support this in a way that does not pit regulated monopolies against competitive innovators."

Corneli, who is speaking at a Public Utilities Fortnightly conference to be held in Washington on April 9-10, says he pictures a clear role for both the regulated utilities that distribute electricity to customers and the competitive suppliers that are giving consumers better products and services.

Potential Scenarios

Generally speaking, utilities are charged with delivering reliable electricity at the most reasonable prices. A centralized generation and transmission system has enabled them to achieve that mission while at the same time, having virtual monopolies over their service territories and guaranteed revenue streams.

By contrast, distributed energy is challenging that model. Beyond the likely erosion in sales, there's also the issue of how the current grid would be maintained and how the allocation of those costs would take place. To this end, utilities are concerned that if more people generate their own electricity, the cost of running the current networks will fall on fewer people. That, in turn, would impede investment in new plants and wires.

With these kinds of scenarios, Bryan Hannegan at the National Energy Renewable Laboratory will outline at the Fortnightly conference the range of potential paths: The first is business-as-usual, in which retiring assets are replaced with natural gas that remains cheap, while the second sees those aging assets replaced with utility-scale wind and solar plants that can deliver electricity to the masses.

Yet a third route would more rapidly advance the growth of distributed generation and energy storage - all pushed along by more progressive policies and higher natural gas prices. Here, utilities would partner with technology innovators and would make bets in a number of areas to create potentially rich revenue streams, as Southern California Edison is doing to diversify its risks.

A fourth scenario assumes that utilities would become energy service providers, selling a package of technologies that extend beyond rooftop solar panels and into entire home management systems. It envisions a new kind of utility that requires federal and state policymakers to be open to allowing new energy markets. And a fifth possibility is "all-out grid defections" - to a so-called grid-in-a-box.

"The dramatic decline in rooftop solar panel prices and other component technologies" will facilitate the movement from the business-as-usual phase to those that are further along the curve, Hannegan explains.

Just where utilities fall on that curve is becoming less a function of where they are today and more a wager on where they expect markets to be down the road. With that, Hannegan points out that wind farms and solar plants could well serve as 30-year investments - supplementing any utility's generation mix. "Do your planning in a way that anticipates changes in policies and economics," he notes, "and makes it durable against a wide range of futures."

One energy service provider going "all-in" is Vermont-based Green Mountain Power. Customers want more renewable power, it says, but also at a fair price. So Green Mountain Power cut its rates by 2.4 percent last year.

Mary Powell, chief executive of Green Mountain Power, told this reporter that the customer revolution started with energy efficiency - even before it spread to rooftop solar panels and distributed generation. Now there's a move afoot to accommodate more electric vehicles. And it is all predicated on changing the way energy is deployed and consumed.

"We want to accelerate the adoption of a radically different model to make distributed generation and renewable energy more cost-effective," says Powell. "We see the current grid at the back of the system - around for a long time but not the primary system."

"The more companies that are in this space, the better we will get," she adds. "We are accelerating this adoption and it is the one our customers want. If everyone was focused on this - instead of resisting it - I feel we would all get there faster. There's room for multiple participants."

Some utilities will go all-in while most will stick their toes in the water. Either way, it points to an evolving energy marketplace.

Lead image © Can Stock Photo Inc. / silversky2212