Thursday, March 13, 2014

LET'S TALK ABOUT THE "UTILITY DEATH SPIRAL" - MYTH OR REALITY? - SOON OR NEVER?

Let's talk about the issues that underly the increasing prominence of the "utility death spiral" concept. Of course, in times of economic and technological revolution, it's only the incumbent providers who focus on the possibility of a death spiral while consumers, innovators and entrepreneurs focus on the exponential growth in opportunities.

US energy sales have fallen to 2001 levels and are expected to continue to decline until 2025 or after. So far, the decline has been primarily the result of: 

(1) Continuing migration of domestic commercial and industrial business (2/3 of US energy sales) to offshore locations where labor / energy are cheaper and regulations are less confining, 

(2) Prolonged economic slowdown in the US that is exacerbated by the above,

(3) Explosive growth of developing economies which provide even more incentive for emigration of C&I activities and their energy consumption from the US, and 

(3) Growing customer deployment of conservation and energy efficiency measures which will continue, even accelerate in the short term as incumbent monopoly utilities raise rates to offset the fact that their embedded costs are not reduced as much as their revenues decline.

We already see the growing public resistance to carbon and nuclear fuels that make it more difficult or even impossible for incumbent monopoly utilities to build and operate conventional, central-station generation. This will only increase.

We haven't even started to see the full effects of: 

(1) Increased deployment of distributed generation, both conventional and renewables (primarily PV in the near future) which has the same net effect on incumbent monopoly utilities as conservation and energy efficiency (i.e., reduced sales, revenues, margins, market control, physical system control),

(i) increased deployment of energy storage (electrical, thermal, mechanical, chemical) that will further increase the amount of energy that can be obtained from distributed generation instead of using the legacy monopoly franchise grid for backup and supplemental power.

(ii) accelerating decline in cost and increase in performance of wind, PV, fuel cell, energy storage technologies that, as has already occurred with wind, make conventional coal and nuclear generation economically non-viable.

(iii) deteriorating reliability, security, resilience of the legacy centralized monopoly grid that will strongly favor decentralized energy production, storage, management, even at the extreme minigrids / microgrids / nanogrids operating partially or wholly "off the grid."

(iv) continuing exponential improvement in electronics, telecommunications, information technologies (i.e., The Internet of Things) that will make it possible to economically, reliably and securely operate an increasingly complex energy network made up of tens of billions of independent endpoints compared to today's electric grid with <<500 million centrally monitored and controlled generating plants, substations, transmission lines and electric meters.

(2) Entry into the market of a growing number of "non-utility" sellers of power and energy that will further reduce the sales of incumbent monopoly franchise utilities.

(3) Expansion of transactive energy markets in which incumbent monopoly utilities + non-utility sellers + retail customers must buy and sell capacity and energy (and coordination services) between and amongst themselves at market-based (not cost-plus!) prices in real-time and futures markets that further reduce the margins of the incumbent monopoly utilities.

Finally, there is a wild card that almost always favors new market entrants over incumbents . . . a la Kurzweil's and Wright's Laws, technology continues to exponentially improve in performance and decline in cost with occasional quantum leaps (e.g., hydrogen fuel cells, cold fusion, peer-to-peer energy distribution, wireless energy transmission, quantum energy production / transfer / storage).

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