The picture at the top of this post is a coin-operated electric meter. In days past, if you wanted electricity, you put in a few coins, and voila! electricity was yours … until the coins ran out. After which, you put in more. Which is exactly the model that the utilities want to continue, pretty much indefinitely. Who can blame them? Regrettably, all good things come to an end, and their unchallenged, century-long run is coming to an end. They knew this long ago.
The Sanctity of Our Present Hub-and-Spoke, Time Share Grid – Utilities have great resources (the best that money can buy) and are well-aware of the market forces that they face. Peter Kind’s (Energy Infrastrcuture Advocates) Disruptive Challenges: Financial Implications and Strategic Responses to a Changing Retail Electric Business, prepared for the Edison Electric Institute in January 2013 explains:
But, even if cross-subsidies are removed from rate structures, customers are not precluded from leaving the system entirely if a more cost-competitive alternative is available (e.g., a scenario where efficient energy storage combined with distributed generation could create the ultimate risk to grid viability). While tariff restructuring can be used to mitigate lost revenues, the longer-term threat of fully exiting from the grid (or customers solely using the electric grid for backup purposes) raises the potential for irreparable damages to revenues and growth prospects. This suggests that an old-line industry with 30-year cost recovery of investment is vulnerable to cost-recovery threats from disruptive forces. (page 3)
The Fundamental Business Model is Facing Disruptive Challenges — PG&E published a rate schedule in which certain regions and customers could face $0.54 per kWh TOU (time of use) rates. If you were a consumer, and knew that you could enjoy the same quality of life, would you buy your own distributed energy system (read “DC Microgrid”) and generate your own power (within 6-8 years, your stable per kWh costs estimated at sub $0.10) or would you continue your reliance on the time-share grid, knowing full well that you cost per kilowatt hour is going to increase year-after-year, with no end in sight?
The Utility Industry have been aware that their business model is facing disruption. Again, quoting Mr. Kind:
A disruptive innovation is defined as “an innovation that helps create a new market and value network, and eventually goes on to disrupt an existing market and value network (over a few years or decades), displacing an earlier technology. The term is used in business and technology literature to describe innovations that improve a product or service in ways that the market does not expect, typically first by designing for a different set of consumers in the new market and later by lowering prices in the existing market.”
Disruptive forces, if not actively addressed, threaten the viability of old-line exposed industries. Examples of once-dominant, blue chip companies/entities being threatened or succumbing to new entrants due to innovation include Kodak and the U.S. Postal Service (USPS).
When Barclay’s Bank downgraded all U.S. Utility paper (bonds) in May of 2014, they did so because they recognized that the utilities were not moving fast enough to protect their businesses. One again, according to Mr. Kind:
Participants in all industries must prepare for and develop plans to address disruptive threats, including plans to replace their own technology with more innovative, more valuable customer services offered at competitive prices.