Emerging utility business models

This article is from our latest Energy Spectrum and the January 2022 issue of EEnergy Informer, a newsletter edited by Fereidoon Sioshansi of Menlo Energy Economics and editor of Variable Generation, Flexible Demand.

As numerous prior articles have pointed out, the traditional utility business model seems to be on its last leg in markets with competitive wholesale and/or retail. Moreover, as consumers discover and exercise options to migrate away from total reliance on upstream generators to produce electricity and on the delivery network for its transmission, the “utilities” – be they distributors or retailers – must go to Plan B. How would they find sufficient revenues to cover their fixed and variable costs as volumetric consumption declines when some consumers become prosumers – or go a step further and become prosumagers?

The debate about the future of net energy metering in California and similar debates in Australia and elsewhere with significant rooftop solar penetration is very much focused on this issue – namely how would the investor-owned utilities (IOUs) or the distribution companies survive as increasing numbers of customers self-generate and/or store some of the excess generation in batteries, electric vehicles (EVs), hot water tanks or other devices? What if they invest in more efficient buildings, appliances, lighting, HVACs, etc. – all compelling options – cutting down their net consumption and reliance on grid-supplied electricity? As this happens, the distribution utilities’ reliance on the volumetric bundled regulated tariffs will not suffice. And if they raise the retail rates to recover lost revenues more customers will flee, leading to the dreaded utility death spiral.

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