Utilities: Transformation or Die-Off?

April 21, 2014

It’s a big question.

As disruptive technologies of energy production and efficiency take greater shares of the energy service business, can traditional electrical utilities survive? Should they survive?
The most desirable outcome may be that they change to accommodate and facilitate the new world. Whether they will or not is anyone’s guess – some look ready to make the leap, others drag their feet.

Suggest following links to help get the whole scope of this issue.

Amory Lovins at RMI Blog:

Laments for Europe’s money-losing electric utilities were featured in an October 2013 cover story in theEconomist. It said Europe’s top 20 energy utilities have lost over half their 2008 value, or a half-trillion Euros—more than Europe’s banks lost. Many utilities therefore want renewable competition slowed or stopped. Indeed, some European giants, like Germany’s E.ON and RWE, are in real trouble, and five of Europe’s top ten utilities have suffered credit downgrades. So have some U.S. utilities—most recently Jersey Central Power & Light and Potomac Electric Power Co.—from the likes of Fitch, Moody’s, Standard & Poor’s, Credit Suisse, and others.

Should old, long- and often still-subsidized oligopolies be bailed out or shielded from competition when they bet against innovation and lose? Those big European utilities were supposed, but failed, to prepare for renewables by reinvesting their hundreds of billions of Euros’ windfall from billing customers for the first decade’s tradable carbon emission credits they’d been given for free. Now they’re griping that disruptive technologies are upending their old models—just as innovators had warned them for the past few decades.

Disruptive technologies are meant to upset the status quo to bring worthwhile change. Should we have rejected mobile phones because they threatened to displace landline phones? Didn’t digital cameras make film cameras largely obsolete? Shouldn’t print newspapers have to invent new business models to confront the rise of the Internet?


Ken Munson, CEO of Stockton, Calif.-based startup Sunverge Energy, doesn’t want you to think of his company’s product as a “battery in a box,” backing up a roof full of solar panels — even if that’s one very accurate way to describe what it packages up into a closet-sized, UL-certified form.

Instead, he’d like you to consider the Solar Integration System as an energy manager for the modern, solar-PV-equipped home — and, importantly, one that utilities see as an asset, not a threat.

“We’re very utility-centric,” Munson said in a March interview. “We believe that, inherently, a utility focus, utility ownership, even utility rate-basing [of] our devices as an asset, is where the industry is moving.” That’s a view that doesn’t align with the ‘customer-owned solar+storage=utility existential threat’ views we’ve seen expressed lately. It’s also a departure from the way thatcompetitors like SolarCity or Stem have targeted building owners as their storage customers.

But with 2 megawatts of its systems deployed from Sacramento, Calif. to Auckland, New Zealand, Sunverge is on its way to getting a pretty broad set of test utilities for its behind-the-meter storage platform. In fact, Sunverge ranks third behind SolarCity and Stem in terms of total megawatts of advanced battery projects planned in California, according to the state’s Self-Generation Incentive Program records. With California regulators moving to break a year-long impasse between utilities and customers over how to connect battery-backed solar systems to the grid, those projects could accelerate in the months to come.

Now Sunverge is turning to the next phase of its plans: networking those distributed solar-storage systems into a virtual power plant that is able to store, shift and balance electricity at grid scale. “Stuffing lithium-ion or flow or any kind of battery in a box and putting it in as a simple backup device is not that exciting,” Munson said. “But putting a cloud layer with real-time energy services on top, and being able to aggregate and control a fleet of devices on the grid in near-real time — that’s something special.”

Sacramento Municipal Utility District (SMUD) is tapping Sunverge’s systems for a 34-home “net-zero-energy” development, which means each home is expected to generate more energy than it takes from the grid over the course of a year. That’s not exactly a welcome prospect for utilities that make money by selling electricity to homeowners, unless the units can simultaneously serve a purpose for the utility.

Patrick McCoy, SMUD’s solar program planner, told us in an October interview that the utility is looking at several potential uses for Sunverge’s systems, including the potential to shift solar energy from midday to late afternoon, when it’s in highest demand on the grid. SMUD is also involved in state- and federal-funded pilot projects that are modeling the ebb and flow of solar power on distribution circuits, as well as linking up advanced inverters to utility communications networks.

In New Zealand, Sunverge is partnering with Vector, an Auckland-based provider of both energy and telecommunications services — a hybrid type of utility that’s rare in the United States. This structure allows it to offer no-money-down solar-battery deals to its customers.

Vector CEO Simon Mackenzie said in a November interview that the company sees its role as a solar-storage provider in several ways. From the traditional utility perspective, “it allows us to manage the utilization and peaks on our network, to focus on how we better manage demand, and mitigate the risk longer-term,” he said.

From the perspective of making its customers happy, Sunverge’s platform supports iPhone and Android applications that allow customers to track how much solar’s being generated, how much battery storage is available, and how much the combination has saved the customer, he added.

Jon Fortune, director of regulatory and energy services for Sunverge, said at aFebruary storage conference in Santa Clara, Calif. that the company has about 150 units, representing 600 kilowatts of aggregated capacity, installed with Vector so far. “All the communication happens in the cloud,” he said. “You can access all the units, full command and control — we have a set of APIs that can integrate with any utility.”

Lovins again:

The Economist article stated, “The growth of renewable energy is undermining established utilities and replacing them with something less reliable and much more expensive.” Undermining stubborn established utilities? Yes, to achieve important public benefits. But shifting to less reliable and much more expensive generators? Hardly.

Well-stoked fears of grid instability and unreliability due to renewable power are as widespread as evidence for them is unfindable. In the Central European grid, where pervasive electricity trading helps operators choreograph the ever-shifting mix of renewable and nonrenewable supplies, German electricity (23 percent renewable in 2012) and Denmark (41 percent) are the most reliable in Europe—about ten times better than in the United States (whose 2012 electricity was 6.6 percent hydro and 5.3 percent other renewables). Even on the edge of the European grid, Spain (48 percent in the first half of 2013) and Portugal (70 percent) kept their lights on just fine. This experience might help the puzzled Economist writer who claimed, “No one really knows what will happen when renewables reach 35 percent of the [German] market, as government policy requires in 2020.” Answer: probably nothing except lower emissions and lower prices.

The “much more expensive” claim, too, evaporates on scrutiny. In the U.S., new Midwestern windpower now sells at a 25-year fixed nominal price (thus a declining real price) as low as $22/MWh, and new Western solar power at below $70, both net of subsidies generally less than nonrenewables get. In many states, wind and solar beat efficient new gas-fired power plants. In countries like Brazil and Chile, unsubsidized wind and solar power routinely win power auctions. In Europe too, they have a strong business case; cloudy Germany has installed 35 GW of photovoltaics but hasn’t subsidized them since 2004. The Economist agrees that German solar power now costs less than residential tariffs (which are half taxes), and less than the feed-in tariff it still receives (because it still costs more than wholesale prices)—so solar power could keep growing even without the tariff.

“Much more expensive” is a more apt description for much nonrenewable generation, especially as the misdesigned European carbon market gets repaired so emissions are no longer nearly free. Exhibit A is the Hinkley Point nuclear plant that the British government wants 84-percent-state-owned Électricité de France to build, supposedly with part-Chinese financing, to generate 7 percent of U.K. electricity. To get ÉDF to agree, the British government had to offer a 35-year inflation-adjusted fixed power price twice today’s wholesale market level, plus a 65-percent loan guarantee, plus other concessions, many still secret.

Even if this extravagance survives EU scrutiny as “illegal state aid,” the project may not win private construction financing. Investors may reason that nuclear electricity costing seven times the unsubsidized Midwestern-U.S. windpower price (the U.K. has Europe’s best wind resources) or 3–4 times the unsubsidized western-U.S. solar price, both falling, is so ridiculous that a subsequent U.K. government could wriggle out of the deal, putting private capital at risk—or simply that forcing the market to absorb so much extraordinarily costly electricity could prove unworkable. If the British government let all options compete at transparent prices, it could find such cheap efficiency, demand response, renewables, and cogeneration that this year alone in America, five old operating nuclear plants have been terminated as uneconomic just to run, even though their high capital cost was paid off long ago. New reactors’ capital costs are so prohibitive that eight years of 100-plus-percent construction subsidies have failed to make them privately financeable, and nine proposed new units were also terminated this year.


One of the world’s leading solar company CEOs, Arno Harris of Recurrent Energy (a US arm of Sharp), has backed up Warren Buffet and said that much of the hype over solar’s threat to utilities is an exaggeration.

“You can’t just take on the utilities and destroy them,” Harris, who is also the chairman of the Solar Energy Industries Association (SEIA), said in an interview at the Bloomberg New Energy Finance (BNEF) conference in New York. “To get to any significant solar penetration, we’ll need more and better utility services.”

Despite the fact that the trade association of investor-owned utilities, the Edison Electric Institute, released a report last year explaining how distributed (rooftop) solar could lead to a utility company death spiral, many utilities have since then come around and conceded that solar energy is a big part of the future of energy and they can help enable that future without killing themselves.

“Now they’re ready to have that conversation about how to integrate more solar,” said Harris. “It’s inevitable that solar will become a bigger part of the energy mix and we need the utilities to help manage the grid as it does.”


21 Responses to “Utilities: Transformation or Die-Off?”

  1. cyhalothrin Says:

    I know my comment is going to be taken wrong, but here goes…

    A friend of mine just returned from the Kerguelen Islands. Never heard of it? Yeah, me neither, other than (barely) noticing those dots occasionally on a map or world globe. Here’s some info:


    Turns out to be quite a fantastic place to judge from my friend’s photos. Less than 100 people live there (actually, none live there, but they just do research for brief stints). But over one million penguins make Kerguelen their home.

    Anyway, my friend got there on the supply ship that visits four times per year. They only take a few passengers, and there is a waiting list at least 10 years long. My friend got lucky when somebody cancelled at the last minute.

    Well, here’s the thing that surprised me, and I know most of you don’t want to hear. Kerguelen is one of the windiest places in the world. After reading about their climate, I fully expected that the research stations there would be using wind power. If there’s any place in the world where I expected wind power to be supplying nearly 100% of energy needs, it would be there.

    Turns out they don’t. They exclusively burn diesel. Basically, the infrequent supply ships carry food and diesel and little else.

    I asked my friend if he knew why wind wasn’t being used, and he thought that maybe the winds are so severe that the turbines wouldn’t hold up to the weather. But he wasn’t sure about that.

    OK, I expect to be accused yet again of being a Fox News stealth agent and AGW denier. But I’m just reporting what he said. If anyone’s got any more insight into the issue, I’d like to hear more. Isn’t it possible to make wind turbines that are designed for high winds?

    • dumboldguy Says:

      I don’t think that’s the issue at all. The human presence on the Kerguelens is a throwback to the days of imperialism, and the French may be hanging on only to maintain their territorial “claims” there, and more importantly, in Antarctica. As long as ships have to visit and diesel remains relatively cheap, why spend a bunch of money on a wind farm that you may end up abandoning before too long?

      I seriously doubt that anything that goes on there provides meaningful “research” data for the French (unless they’re planning to go worldwide with a penguinburgers fast food chain)

      • cyhalothrin Says:

        Hi and thanks for the reply. I can’t really say what motives the French might have. On thing that my friend mentioned is that they vigorously enforce the 200 mile fishing exclusion zone. He said that the guide told them how the French navy came several times and towed/impounded fishing boats that intruded into the area – biggest violators have been the Koreans and Taiwanese (in that order), a bit embarrassing to both of us since we live in Taiwan.

        As for abandoning the place though, I think the French are very determined to stay. It’s not like they have to contend with a hostile “independence movement” since – outside of the small crew of French researchers – no humans live in the Kerguelens. The penguins don’t seem to clamoring for independence either. However, I do wonder how long the French taxpayers want to go on funding the research station.

        As for the value of their “research,” I too wonder what they’re doing. You can study penguins and albatrosses for just so long before you know just about all there is to know about them.

        • cyhalothrin Says:

          Oh yeah, one thing I forgot. In terms of the economy, the small number of tourists (limited to about 400/ year, my friend thinks) are charged something like US$10,000 each. So that’s $40 million. Not sure if that covers the cost of the research station, but it no doubt helps.

          Also, the French have made a business of selling Kerguelen postal stamps. Even if you never visit the islands, you can purchase postcards and stamps and have them sent to the Kerguelens and they will be canceled there (my friend said the tourists even help with the canceling operation). Take a look:


          • Gingerbaker Says:

            Yeah, I would imagine $40 million a year would cover the costs of a research station. Or two. And champagne baths, Russian caviar, covergirl twins party rentals, and the second-largest crystal bowl of cocaine you have ever seen.

          • MorinMoss Says:

            “covergirl twins party rentals, and the second-largest crystal bowl of cocaine you have ever seen”

            You must have been to some awesome parties but with a handle like Gingerbaker, I guess I shouldn’t be surprised.

    • MorinMoss Says:

      Short answer: Yes.

      America’s Tornado Alley is a very windy place and there are (tens of?) thousands of turbines from the Texas Panhandle up through Oklahoma & Kansas to western South Dakota and across to central Iowa.

      Here’s a story from last year about 2 turbines in Oklahoma being hit by an EF5 tornado.


    • rayduray Says:

      Re: ” Isn’t it possible to make wind turbines that are designed for high winds?

      All modern wind turbine designs incorporate dynamic feathering of the blades as part of the basic design. Thus, if a stately 10 MPH wind is blowing, the blade is set to catch as much wind as possible. As the force of the wind increases, the system is designed so that less and less of the blade surface is exposed to the wind, ideally keeping a uniform rate of rotation except when winds are calm or should they exceed a set level somewhere around a howling gale in which case the turbine is dynamically braked to avoid damage to the apparatus.

    • Fascinating that you posted this.  I discovered the existence of the Kerguelen islands when I went to a website which shows you what’s on the opposite side of the world from you, and just kept blowing it up until some land appeared.  The Kerguelens were the closest thing to the antipodal point.

      I note that there’s a glacier on the main island, which suggests that there is meltwater for a substantial part of the year and the potential for hydropower as well.

  2. rayduray Says:

    Earth Day reading suggestions…

    I found this to be an interesting collection put together by USA Today. More activist friendly than I’d have expected.


  3. rayduray Says:

    Government policy knocks the wind out of Spain’s burgeoning wind industry.

    When is a tax an attack? This seems to be a case in point.


    “”There used to be 41,000 wind energy jobs in Spain; now there are only 23,000. The politics of this have been really toxic.” — Pierre Tardieu, of the Brussels-based European Wind Energy Association (EWEA) commenting on the abrupt turnaround in Spanish wind power prospects.

  4. redskylite Says:

    These large utility companies should take their business model from IBM, IBM have consistently survived and kept up with times, still producing large centralized mainframe systems, but branching out into the modern world with smaller robust distributed systems. A few other companies like Unisys (Univac in times past) have kept up with them, but many others have failed along the road and are long gone. Finance and economics will dictate the direction, but it seems to favour newer technologies. Petroleum is reaching towards peak and aching to be out-priced, and times they are a changing. Coal is the big menace and the sooner we replace it the better our future will be. Note to coal – well done fossilized forests of era’s past, you served us well now begone, you are no longer required.

    • Congrats. The first post on topic. Should we bail out anachronistic utilities that refuse to change with the times? Sure. Bring back pay phone and telephone books. Tack a cell phone tax on to discourage use and pay for land lines. 🙂

  5. redskylite Says:

    NZ local report on the solar deal.

    “Vector is building power stations all over Auckland – they’re tiny ones on people’s roofs in a scheme proving popular with homeowners. ”


  6. Vector seems to be looking at making itself a vertically integrated energy company and utility model of the future (eliminating much of the need for the utility layer): a clear move. Generating as much energy as close as possible to the point of use seems very efficient so long as the consumption pattern matches: if not that’s where storage bridges some of the demand/supply gap. This approach reduces the ‘production to point-of-consumption’ infrastructure needs, costs and transmission power loss inefficiencies. However, there will remain an important role for an evolved ‘grid-of-grids’ national infrastructure.

    IMHO, legacy power and utilities need to wake up and smell the coffee, or wither and die if they want to be power companies in 20 years time. Hub and spoke energy infrastructure will not be fit for a low carbon energy future.

    • dumboldguy Says:

      A second on-topic comment while E-Pot makes jokes about using meltwater from a glacier in the Kerguelens to generate power. Can we PLEASE forget about the Kerguelens?—-only the French, with their memories of lost empires and Napoleon, care about them. We have missed a pretty good article here while we dithered with antipodes.

  7. […] 2014/04/21: PSinclair: Utilities: Transformation or Die-Off? […]

  8. Maybe this will revive this thread. Remember all that about renewables reducing peak loads so utilities could lower transmission, distribution, and generation costs?
    Well, duh.

    With solar power, “we can avoid that $100 million investment in transmission lines, distribution lines, in capital infrastructure…”

    That was Vice President of Environmental Affairs Michael Deering of the Long Island Power Authority in a remarkable podcast interview, explaining how local solar energy can help offset expensive grid upgrades for bringing in remote power generation, as much as $100 million worth

    Read more at http://cleantechnica.com/2014/04/28/solar-cutting-grid-costs/#xuWF3CrsKMuLgaWU.99

    • dumboldguy Says:

      “….meet 3% of peak demand with solar in 2014….”? How exciting!

      • If it continues to double every 2 years, … How much in 10 years? The point of the quote is that distributed solar displaces transmission, distribution, and generation – those are the direct words of a representative of the Long Island Power Authority. Not blog speculation.

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