Seventeen-year cicadas and disruptive business models

by David Sweet

Every 17 years there is a phenomenon that takes place in the northeast of the US when swarms of cicadas ” a locust-like insect ” emerges from the ground after almost two decades of subterranean slumber. For around one month there is a non-stop, high-decibel cacophony of mating calls as these insects fly around with one thing on their simple pre-programmed minds. I mention this because this 17-year cycle will soon be upon us and will disrupt the lives and sleep patterns of many until the cicadas mate, lay their eggs and die. I also mention this because it seems that CHP and distributed generation seem to move in and out of favour in cycles (perhaps not as long or as predictable as the mating seasons of cicadas) and can cause a great deal of disruption to the existing utility business model.

As a result of Hurricane Sandy and low natural gas prices it seems like there is a high degree of chatter about the potential for CHP and distributed generation throughout the US, and especially in the northeast. Virtually every energy conference now seems to have some mention of distributed generation, as if the concept just hatched from the ground.

It seems that the utility industry is beginning to take serious notice that its traditional business model faces a mounting challenge from the distributed sector. In a recent report prepared for the Edison Electric Institute, Disruptive Challenges: Financial Implications and Strategic Responses to a Changing Retail Electric Business, the threat of distributed generation is thoroughly examined from a financial and strategic perspective. Much of the report is focused on the competitive threat from solar photovoltaics (PV) as a result of the rapid decline in panel costs and availability of government programmes and benefits, including tax credits and state renewable portfolio standards. However, there is surprising candor about the possibility of customers ‘cutting the cord’ as was done in other industries such as telecoms.

While legacy utilities will not be easily disrupted by distributed technology, especially PV, there is a growing recognition that the true threat of disruption could come from distributed gas-fired generation which is not subject to the intermittency that limits solar and wind. The report notes:

‘Due to the variable nature of renewable DER, there is a perception that customers will always need to remain on the grid. While we would expect customers to remain on the grid until a fully viable and economic distributed non-variable resource is available, one can imagine a day when battery storage technology or micro turbines would allow customers to be electric grid independent.’

Would a customer cut the cord from the utility if viable options for self generation were affordable and readily available? Fuel cells, micro-chp, microgrids all supplied by natural gas could offer reliable options for round the clock power. One thing that we have seen time and time again, is that the new breed of consumer is not afraid to do things differently from previous generations. Younger consumers who are more tech savvy and ‘untethered’ feel little compunction about life without a landline. We are at the point now where multi-billion dollar companies can be run by executives without even a laptop computer ” using just tablets and smartphones. Reliable and affordable electricity will become ever more critical to our digital society. There has been a transformation in how that power is provided. Still to be determined is who will be the provider of that power.

David Sweet
Executive Director, WADE

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