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Investing Management Utilities

2 Reasons to Look Behind the Meter

It’s cheaper and you don’t need your own capital, to provide behind the meter solutions!

Behind the meter is a relatively new term for most business and home owners. It means what is on your side of the utility’s electric meter that they bill you with.

This concept of paying attention to what you can do behind the meter is a convergence of two distinct and traditionally disparate industries; electric utility and HVAC/Building Controls.

Let’s start with “why should we care about behind the meter strategies?”

Despite recent Ontario announcement to reduce monthly charges by 25%, the trend in North America is that the cost of electricity (natural gas is a separate discussion) is going up for a number of reasons:

  • Electricity generation renewal
    • These assets cost much more to build today than they did 40 years ago
  • Transmission/distribution utility renewal
    • These assets have also not gone through a renewal strategy, and the decades of delay is costing more as it’s being done now, with more smart technologies incorporated- higher costs!
  • Movement towards incorporating green technologies whether large or micro have their own complexities of connecting to grid
  • Movement towards reducing carbon is also having impact of reducing overall electric loads but has the perverse effect of having the local utility raise rates to meet their costs to serve those assets and customers
  • History has proven that governments take their foot off the gas pedal during recessions as loads reduce, but only to come back with a vengeance. This global recession took longer to recover.

There are many valid reasons why electricity rates are going up, and with the innovation of new technologies to reduce electric loads and even self-generate electricity, there is a growing need to manage these systems/tools behind your meter, because they are going to help you reduce your need of electricity from the grid.

Here’s where it gets interesting.

For electric utilities and their regulators, there is of course a desire and belief that the electric utility becomes the default provider and traffic cop of these behind the meter solutions, but as I’ve realized for some time, it is not a given that the utility is a cost-effective provider of even back up generation…

Utilities, today, absolutely understand that solutions will be installed behind the meter to help the customers, but it is in their best economic interest as a utility to maintain a commercial relationship with those assets and customers, or other integrators will in very short order start designing and installing systems that enable customers to cut the cord of electricity from utility.

It sounds farfetched because there is sense of security of supply from the utility that can’t be replaced. While there exists a concern by building owners that they can’t risk being without a connection from grid, it’s certainly not based on economic risks but on risks that the designed solutions can’t keep the lights on better than the utility can. If you assess the costs associated with installing your own back-up systems compared to connecting to grid with switch gear and ongoing stand-by charges, you would come to the conclusion quickly that utilities price themselves out of competing.

So, there are good reasons why utilities are now engaging on behind the meter solutions, but now it comes down to ensuring that the commercial terms of this early mover advantage an withstand the competition that will come their way from non-regulated utility providers.

One reason why I believe that some utilities don’t appreciate the threat is that they’re not understanding the sequence of events to follow, such as cost of solar panels/roof tiles and the general cost of self-generation is coming down so quickly, coupled with the ability to store and control supply and loads, that utilities cannot justify now-old model of net metering. Net-metering now seems to be a utility-led concept with no economics for the consumer. The mere fact that the more the consumer self-generate ensures that the distribution costs climb because of the reduced loads in the system, confirms that it is not a viable construct.

The HVAC/Building Controls industry have been just as slow to react and adapt. It seems that they cannot adapt and cultural change quickly enough to provide these solutions to customers, thus my belief has always been that a new line of customer-centric integrators will fill this void with customers.

In the past year since I’ve written about this, and I’ve seen great signs of proven technologies to be deployed and fewer signs of integrators ready to take it to market.

I have seen a few electric utilities take it more seriously and are moving to take their share of behind the meter customers.

If you’re a customer, you need to appreciate that there are solutions that are more cost effective than your current model, and if you’re not driven by carbon, but solely cost, then natural gas can easily put the death nail in your connection with your electric utility.

You can also appreciate that there is no need for you to take any risk on these system configurations; give the risk to the integrators, and there are number of funds looking to convert your solution into long term service contracts so there is no outlay of capital.

For integrators, my money is on you demonstrating success and selling to high bidders between HVAC and Utilities. So long as utilities have these high valuations, I see the utilities winning the battle, and customers will win with better risk adjusted prices.