Is it already too late for traditional utilities?

A leading US energy analyst has warned that the conventional electricity industry is facing a major “thunderstorm” from distributed energy resources, and it may already be too late to save the traditional business model.

Fereidoon Sioshansi, from the California-based Merlo Energy, told representatives of Australia’s incumbent energy industry at a conference in Sydney that their traditional business were being rapidly eroded.

There were clouds on the horizon from the reduction of demand from the grid that was occurring in most developed countries, and the growing increase in renewables.

“But the news gets worse,” he told the Eastern Australia’s Energy Markets Outlook 2013 conference. The major threat – the thunderstorm – was coming from distributed energy resources, which included self generation from solar and fuel cells, energy storage and the impact of energy efficiency.

“Together, they are the perfect storm,” he said. Even if the “regulatory fiat” afforded the incumbent industry could prevail, it was clear that efficiency was growing, “negawatts” (reduced consumption) were cheaper than building new “megawatts of power, and many countries had reached saturated markets for energy.

“The golden days are over,” Sioshansi said. “Those were the days when we could build larger plants, and new plant comes into service bring down average cost of network. But rising prices are forcing consumers to conserve and it forces them to self generate.”

He cited developments in California, where the regulator was targeting “zero net energy” for new homes by 2020, and for commercial buildings by 2030. In Japan, 80 per cent of new houses had solar PV, and one half had fuel cells.

“We are going to see a revolution. It is happening rather dramatically,” Siosanshi said. “I believe that the electric supply industry will soon approach a tipping point where consumers will provide electricity cheaper than industry can deliver.

“Some people think this is disruptive technology and there is not much we can do to turn it around.”

He said it was clear that the traditional business model is unsustainable, and if incumbents responded by introducing higher fixed tariffs, consumers would be tempted to “cut the chord” altogether.

Consumers would put in solar, fuel cells and storage.  “It is not as far-fetched as some people say,” he said. “Millions have done it with land lines and mobile phones. Utilities have got to rethink the value proposition. Things are happening much faster than we thin.  We will see more change in next 5 years than in previous 50.

And it may already be too late for utilities, because as the Edison Power Institute in the US said recently, the industry failed to get ahead of the game.