Let the games begin

By David Sweet

The recent WADE Conference in Boston brought together hundreds of the world’s leading authorities on decentralized energy, CHP, microgrids, efficiency, energy finance, project development, regulation and other topics for two days of learning, networking and associating. The main take-away is that the decentralized energy revolution is definitely underway and that a number of companies and business models are jockeying for leadership.

The direct consequences of the shale revolution in the US are by now fairly well documented with respect to increased supplies of natural gas, falling prices and the race to build gas liquefaction and export facilities. However, the secondary effects are still being sorted out as power generation, transportation, manufacturing and other users determine the best path forward to capture this new abundance of fossil fuels.

In the power sector the competitive landscape is especially interesting as natural gas-fired distributed technologies reach grid parity, especially in those markets characterized by rising costs for poles and wires as a result of Superstorm Sandy and the need to invest in greater system resiliency.

This shifting competitive landscape in turn has massive consequences for the business model of the traditional utility if customers are able to ‘cut the cord’ to the grid and bypass the system in favour of on-site power. The much feared and talked about utility death spiral could materialize in those markets with access to cheap gas supplies and relatively high delivered power costs. One of the featured speakers at the WADE Conference was Jim Rogers, the legendary utility CEO of Duke Energy, who stated that ‘there is a place for a new utility with a new business model for the 21st century, as well as a place for decentralized generation’. Rogers also observed that ‘virtually every power plant in the US will be retired or replaced by 2050’.

This will not only create new opportunities for new generation assets but will also change the competitive dynamics as new generation will not be competing with the same existing fleet of generating assets. In that case what is the role of the grid? According to Rogers, ‘the utility will primarily be a battery for the entire system’.

If the grid does in fact become the battery backup system to a wide ranging assortment of distributed generation technologies, then the utility becomes an enabler and not just a service provider. While distributed solar technologies might require grid battery support for half the day, gas-fired technologies will require different ‘battery backup service’ from the grid as they can run continuously for thousands of hours a year, coming off line for scheduled maintenance and repairs. Thus, Utility 2.0 business model becomes a shifting sand of roles, responsibilities, cost allocation, legal liability, and market penetration. The decentralized energy revolution is not necessarily a single destination, but will be an evolving and ongoing process, and the winners and losers are yet to come into focus.

New entrants and legacy utilities can co-exist, but it will be on different terms and under different rules of engagement.

David Sweet
Executive Director, WADE

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