Barbarians, death spirals and distributed power

Have the rebellious decentralized energy barbarians reached the illustrious utility city gates yet?

The blogosphere is awash with articles suggesting that the rise of renewables and distributed generation have helped to spawn a ‘utility death spiral’ in which falling revenues from their own central generation plant will kill off utilities as we currently know them. Another factor contributes here – the recession and modern energy efficiency techniques have combined to help create steady or falling, as opposed to traditional growth, overall electricity consumption patterns. If distributed generators are getting a larger serving of a shrinking pie, that’s going to hurt incumbent utilities.

The latest analysis, by the US-based and appropriately-named Institute for Local Self Reliance (ILSR), suggests that the death spiral is not a forecast but, for some utilities, a post mortem. The ILSR has pursued its vision of a ‘democratized’ energy system since the 1970s, in particular watching the growth of, first, local solar power, then wind.

The vigorous growth of both technologies, plus CHP, promises to decentralize the US grid system. But, adds the ILSR: ‘the greater transformation is the democratization of the electric grid, abandoning a 20th century grid dominated by large, centralized utilities for a network of independently-owned and widely dispersed renewable energy generators, dispersing economic benefits as broadly as electricity generation.’

Utilities have traditionally built infrastructure (power lines and large power stations) as long-term investments, relying on income from growing electricity demand to recoup their investments. But flattened and falling demand, plus the trend for customers to install their own small-scale generation capacity, is making this model obsolete. The business model first cracked 20 years ago, says the ILSR, yet utilities have only recently noticed.

It was at a recent Washington DC gathering organised by consulting firm ICF International, that the ‘barbarians’ tag was used in the event title – either the barbarians have arrived, or we are looking a new ‘utility 2.0’ model. Of course, death spiral or not, utilities have the choice to develop their own renewables and decentralized generation portfolios, as many have done. 

But maybe the independents are showing the way forward for utilities here? The confident move last week by GE to create a single business focused on distributed power, bringing together its engine and gas turbine technologies, has been well-documented. Launched in Indonesia, the new GE company will both allow consumers in remote areas and with unreliable grid supplies to access a modern electricity service, but will also help mainstream consumers around the world to improve their energy efficiency and be ready for power system outages. Not much there to cheer incumbent utilities.

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