To succeed, companies will need to recognize the balance between disrupting the industry and minimizing disruption imposed on customers, communities and the climate.
By Ryan Gerlach, Stakeholder Engagement Analyst, Future 500
Today’s business climate lauds “disruptive technology.” However, it is wise to keep in mind who and what we’re disrupting.
A case in point is the energy and utility sector. If you follow developments in renewable energy, you’re likely well aware that technological advancements, coupled with innovative financing and dramatic reductions in costs, are changing the future of power generation. This is making a distributed and renewable-heavy grid a technical and economic plausibility if not yet a full-blown reality.
The market would seem to agree; in 2013, solar was second only to natural gas in new electricity generation capacity.
Putting Our Shift Toward Clean Energy in Perspective
From a macro perspective, the trend towards more clean energy is inarguably a net positive. It helps address some very real concerns regarding climate change, air and water quality, energy costs, as well as the security and stability of the grid.
Above all, this era of innovative energy technology is opening up a new world of consumer choices. Between growing numbers of states with deregulated energy markets, to the increasingly favorable economics of installing distributed power generation, many ratepayers have the opportunity to manage their energy procurement in a way that would have been completely foreign a generation ago. After having operated under monopoly structures for decades, this represents a major transformation, the significance of which cannot be overstated.
These shifts rightfully have utility companies concerned.
In a worst-case scenario for utilities, a critical mass of customers would switch to generating their own power, shifting the costs of maintaining the grid and other infrastructure – costs that are typically socialized across the customer base – to the remaining ratepayers. The subsequent increase in prices would incentivize more and more customers to go “off-grid,” creating a self-perpetuating cycle many are calling a utility “death spiral.”
Utilities Push Back
Not surprisingly, investor owned utilities are pushing back, in many cases trying to impose monthly fees on rooftop solar or eliminate net metering programs - wherein the utility purchases excess power from rooftop solar owners - to make up for this dip in revenue.
However well founded “death spiral” fears may be (many believe they are overblown), penalizing and obstructing rooftop solar is the wrong approach.
For one thing, multiple studies have found the benefits of distributed solar generation outweigh the costs to the grid. Meanwhile, Minnesota’s PUC found the “Value of Solar” – the utility’s avoided costs for fuel, increased generation capacity, and transmission, as well as the averted environmental impacts from fossil fuel combustion – to be higher than the retail rates currently awarded in the state’s net metering program.
More significantly, opposing clean, distributed power is the wrong approach because it alienates customers and strips them of choice.
Consumer Choice: The Genie is Out
Few things seem to inflame passions more than ridding someone’s ability to hold agency over their decisions. Northern California-based utility PG&E learned this lesson when they tried to institute an obligatory program installing smart meters on residents’ homes. Or take Georgia, where the normally disparate Sierra Club and Tea Party found overlap in their affinities for clean energy and personal autonomy to form the Green Tea Coalition and successfully opposed Georgia Power’s proposed solar tariff. Moreover, in 2013, every state-level initiative that attempted to dismantle net metering programs failed when put to a vote.
All of this is to say, people want options and agency over their decisions. As it relates to distributed generation (DG), the genie is out of the bottle.
With that said, it is equally important to remember that utilities, in their current role, play a vital social function. Energy occupies a relatively unique position, serving as something of a hybrid public and private good. When Franklin D. Roosevelt pushed to electrify the entire country, it was done with the realization that we, as a society, would be stronger and more prosperous as an electrified nation.
Distributed Power: Compromises Ahead
Consequently, utilities were granted regional monopolies and guaranteed rates of return because they are required to provide energy to every household and business in their territory. At present, solar companies are under no such obligation. Those who rent, have questionable credit, or simply live in the shade, do not share the same options yet remain subject to DG’s effects on the market. As distributed power grows in prevalence, compromises and accommodations will need to be made to guard their interests as well.
While major industry disruptions may well be years down the line, momentum is on the side of renewable energy, distributed generation, and consumer choice. Utility business models will need to change and do so in a way that does not enrage and alienate their customers, which many realize and indeed are working to do. Monolithic obstruction of these trends is, simply, a losing proposition. Yet, the onus will be on insurgent technologies to deploy in a way that does not disenfranchise those for whom DG is not an option, lest they become targeted Goliaths themselves.
Disruption and change are not without consequences.
Accordingly, the actors in this space, be they utilities, commercial-scale energy firms, or rooftop solar companies, are obligated to take a big picture perspective; their businesses’ stakeholders include groups that may not be among their clients and investors. The companies that survive and succeed long term will be those that recognize this important balance between disrupting the industry and minimizing the disruption imposed on customers, communities, and the climate.
About the Author:
Ryan Gerlach is a Stakeholder Engagement Analyst at Future 500, a global nonprofit specializing in stakeholder engagement and building bridges between parties at odds to advance systemic solutions to urgent sustainability challenges.