“The U.S. utility sector was built around the presumption of perpetual growth.” This is the point of departure in a recent article by Vox on how utilities are going through a period of uncertainty. This “presumption” is not unique to the utility industry. Most industries assume perpetual growth. As long as global population and GDP go up, it seems like a well-grounded assumption.
The problem for utilities, however, is quite different. Although global demand for power is on the rise and will continue to be for the foreseeable future, the new electricity reality means that the demand that the utilities are seeing is flat and is projected to decline. The Vox article explains the situation: “Thanks to a combination of greater energy efficiency, outsourcing of heavy industry, and customers generating their own power on site, the demand for utility power has been flat for ten years and most forecasts expect it to stay that way.”
Innovation eventually forces all industries to bridge into new business models.
Is this a good problem to have? No industry stays static for long. Especially today. Innovation disrupts, and all industries, sooner or later, face disruptive market inflection points. The result of disruption over the long run is usually positive. From digital photography to digital payments, technology lowers friction for users and gives rise to innovative business models and companies that move us all forward. Utilities are going through that transformation right now, and many are adapting their business models to ensure that they remain valuable and relevant.
Are Utilities Really “Freaking Out?”
The Vox article is titled, “After Rising for 100 Years, Electricity Demand is Flat. Utilities are Freaking Out.” While it makes for a catchy headline, the ‘freaking out’ part seems exaggerated. Utilities are actively adapting to the transformational changes in the industry, while evolving their business models to the new electricity reality to stay relevant. This hardly seems like panic.
Like any industry that gets disrupted by innovation, there will be winners and losers. When digital technology disrupted the photo business model, Cannon thrived by rapidly adapting while Kodak practically ceased to exist. Similarly, there will be utilities that adapt and thrive, there will be ones that don’t change fast enough and disappear, and there will be new companies filling in the voids.
The Vox article points the way that utility companies can continue to play a key role, “The new electricity paradigm is to match flexible, diverse, low-carbon supply with (increasingly controllable) demand, through sophisticated real-time sensing and software.”
A New Paradigm for Energy
Happily, this “electricity paradigm” is already underway. In January, the Rocky Mountain Institute published a report on the emerging business model of the utility of the future. This report goes straight to the heart of what the outlook for the new energy industry looks like, “As new roles and services emerge in the electricity sector, the total energy services market has the potential to grow, regardless of who performs those roles (be it a competitive marketplace or monopoly utilities). This can provide new activities around which to orient the future utility business, and create new earning opportunities as traditional revenues might decline or be subject to competition.” The opportunity for growth is there, like the rest of the economy. The issue for utilities is how to adapt their business model so that the energy they source and deliver makes economic sense for their business and for their customers.
There are many reasons to believe that utilities will continue to play an important role in the emerging new energy market. Back in December, we published an eBook, Changing the Energy Game, where we explored how utilities, cities, and consumers are partnering to incorporate the generation of power at the edge of networks into the electricity grid in ways that make sense for all. (You can download it here). For example, off-the-grid power generation, using solar, wind or hydrogen to produce electricity on-site benefits everyone. Consumers get lower costs and better reliability, cities become more sustainable and better places to live, and utilities no longer have to struggle with peak demand periods.
No Need for Panic
The way forward for utilities does not seem to be in the perpetual expansion of the electricity grids. This way of growing has, as pointed out in the article from Vox, reached its peak. The new paradigm for growth involves new technology, efficiency, off-grid power generation, and powering the digital economy in innovative ways. This means continuing to lead in the adoption of new clean energy sources, such as Hydrogen 2.0, which can be produced on-site from water, as electric companies are the major users of renewables when it comes to wind and solar installations. It also means new ways of interacting with consumers through value-add software and services, new forms of incorporating big data to manage power generation more efficiently, and even new machine learning technologies by adding artificial intelligence to make the whole system flexible and resilient to real-time conditions.
All these innovations mean that ‘freaking out’ is not necessary for utilities. Technology to help utilities thrive under today’s new energy reality is available and accessible. Many utility companies throughout the world are already crossing the bridge to the new way of powering life in the 21st century, and some are even leading the way through partnerships with enterprising companies that innovate sustainable, on-demand options like solar, wind and hydrogen. The way forward is already being paved.
As the Hydrogen 2.0 ecosystem gains momentum, we’ll be sharing our views and insights on the new Hydrogen 2.0 Economy. We also update our blog every week with insightful and current knowledge in this growing energy field.