If regulated electric utilities are going to survive, they need to do very specific things.
We can debate what the “how” electric utilities will meet the growing demands of the energy transformation, but what we shouldn’t be debating is whether this tectonic industry shift is even occurring.
Due to a number of factors, customers will have way more control than they’ve ever had to choose the energy they want, and to the majority of the monolithic industry, it’s as if they will allow change when they’re good and ready.
The dropping cost of renewables behind-the-meter are getting eye-poppingly low, and at min, they have become more competitive than the all-in-cost of electricity being delivered to customers.
Another factor is that the regulated model continues to enable the over-capitalization in their distribution infrastructure. It’s simple. They spend more because they push the envelope on sunk capital per customer, and the only way to verify its effectiveness, until now, is for regulators to compare them against their non-competing cohorts. But guess what? If their cohorts are gaming the system the same way, then the sunk capital per customers looks reasonable.
For the last few years, I have seen pro forma models of behind-the-meter alternatives be more cost-effective for customers and more profitable than electric utilities. That’s just messed up.
As well, FERC, through Order 2222 and some system operators, are preparing to allow DERs (Demand Energy Resources) to have access to broader competitive markets for their power. That means a customer can choose to sell its excess or load managed resources back to grid-related buyers for more money and options than current. Great for customers.
The digitalization of real estate assets also means that there is more real time data of dozens and dozens of equipment to load manage or generate supply per facility.
Electric utilities do have a few options.
- Stifle the transactive energy model and force customers to only deal with you for power and storage
- Enable the grid to accept DERs and become a low-cost option ubiquitous distributor, and arguably less meaningful to customers
- Enable the grid to accept DERs and become the customer Trusted Advisor
It’s interesting, because most customers would just say become our low-cost option ubiquitous distributor, but that’s because they don’t actually think their utility could actually become a Trusted Advisor of best real-time options and policies, better than any other transactive energy participant.
I can see many utility execs and boards accept the role of low-cost ubiquitous distributor, but…. the devil is in the details. They are not even remotely operating under that kind of model.
If a utility wants to be the low-cost option distributor for all the energy transactions, it would like require a massive reduction in future capital spend- not maintaining the current capital program they’re on, and it would include reducing opex in half… It would require a change of thinking at the top away from a “how do we get to invest more capital every year” to a more LEAN manufacturing mindset of constant effort to eliminate costs from the delivering model.
If utility wants to be a Trusted Advisor then it’s means they fundamentally shift away from viewing customers as a meter to cash play, and move away from just servicing your assets to a model of actually servicing customers.
If you know what the needs are of a customer, and if you have the most data of what is happening in real-time in the grid- which you do- then how have you not turned it into being the most obvious to deliver real-time value to customers with options and models that work for them.
Here’s the problem. If customers don’t see value in your grid because they can stay self-sufficient, they’ll leave. Better yet, if they can be relatively self-sufficient and they can share diversity of loads via unregulated assets like DC connections between facilities, they’ll disconnect.
To all of you who don’t believe that customers can disconnect yet, schedule a meeting with me and I’ll walk you through technologies that will disrupt your model.
If your utility isn’t changing its business model today, and not changing processes, and not changing the outdated CIS and insights to match how you need to go to market, you’ve already lost, and don’t even know it.
For over 20 years I have appreciated one simple rule: Learn what you don’t know…
I am an Executive Consultant to Blue Heron Consulting, and I have used my time in last several months to really hone in on what energy transformation means to utilities and municipalities, and the unregulated energy services platforms will eat everyone’s lunch sooner than later, if utilities don’t adapt quicker.
There is this one CEO I was dealing with. His company was an energy services company that sold for over $4 billion. I asked him why his company wasn’t moving quicker to adopt more customer options and data and overall value to customers beyond the traditional servicing assets model, and his response was that his Project Managers were at capacity. My next question was why he wasn’t hiring more of them…
Change isn’t easy, and pulling the energy industry through this energy transformation is more like pushing rope, but if it doesn’t change quickly enough, then customers will have their needs met by others. Period.