Clean Energy Presents “Perfect Storm” for Utilities

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new report from UBS finds that renewable energy and energy storage are together presenting a "perfect storm" for big utilities. The declining cost of solar, energy efficiency, and electric vehicle technologies threaten to upend centralized electricity generation, putting the utility business model in jeopardy. Grid parity has already been achieved in certain parts of the world where conventional electricity rates are high and renewable resources are plentiful.

Renewable energy is beginning to cut into the bottom line for U.S. utilities. The average price for solar PV modules declined by 80% between 2008 and 2012. Net metering policies and innovative financing schemes like SolarCity  (NASDAQ: SCTY  ) 's leasing model are making distributed generation – where consumers generate power on-site – much more financially viable. This leads to a utility "death spiral," in which utilities begin to lose customers, forcing them to jack up rates to cover lost revenue, which in turn pushes more people away. As of 2011, about three-quarters of U.S. utilities had a BBB credit rating or worse, indicating a striking lack of confidence in their financial future. In 2000, less than 40% of utilities earned such an abysmal grade.

This concept is not new, but UBS' report suggests the trend is picking up steam, particularly in developed markets with flat electricity demand including parts of the United States, Europe, and Australia. Data from the Energy Information Administration (EIA) shows that electricity sales have declined in four of the last five years in the U.S. While some of the drop off is attributable to the financial crisis and subsequent recession, energy efficiency and distributed generation are playing a key role. According to the EIA, "[g]rowing installed capacity of behind-the-meter sources of generation (largely from rooftop solar) is displacing some electricity sales that would otherwise occur."

The latest UBS report finds that not only is solar PV eating into the utilities' customer base, but it is also shaving off peak demand. Solar generates the most output during mid-afternoons, when demand is at its highest. With variable costs for renewables essentially nil, they beat out more expensive fossil fuel units. The result is leading to curtailed generation from big power plants along with lower peak electricity prices – a nightmare for utilities.

The unfolding transition to cleaner energy will force utilities to respond in a few ways. Some are fighting incentives that promote clean energy, as seen in the brutal fight in Arizona over its net metering policy. Another approach is for utilities to get into the clean energy game, which many have been doing for some time. The latest example came on December 16 when Warren Buffet's MidAmerican Energy placed a $1 billion order for wind turbines in Iowa, as "a hedge for our customers going forward in an era of reduced coal generation," according to MidAmerican's CEO Bill Fehrman.

Yet another approach is to scale back generation and embrace the bold new world of distributed generation. In Germany, several utilities have announced power plant closures and are considering transitioning into a model where they offer energy "services," such as trading and advice to customers, according to The Economist. Germany may be a harbinger of the future – in June 2013 prices actually went negative because of so much green power on the grid at one time. Germany's two biggest utilities, E.On and RWE, have both seen their net income drop by one-third since 2010.

Earlier this year NRG CEO David Crane warned about the looming decline of the Big Utility, arguing that distributed generation poses a "mortal threat to the existing utility system." More telling was a January 2013 report from the Edison Electric Institute, a trade group for utilities, which concluded that distributed generation presents a "game changer" – strong words from an organization with an interest in preserving the confidence of investors. Add to the pile the latest UBS report, which concludes that utilities will not be able to survive in their current form.

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  • Report this Comment On December 25, 2013, at 12:52 PM, vet212 wrote:

    Just a little clarity here so called "clean energy" isn't nor is it yet economically useful nor will or can it ever be without huge breakthroughs in efficiency of power production and storage what is needed is the realization that in order to be have a sound and flexible economy we must be Industrialized there can be no post industrial economy and industry requires far more power than current "green" energy sources can provide the answer is nukes more nuclear power and a stop to the idiotic fear that the greenies and radical left instill in the population.-

  • Report this Comment On December 25, 2013, at 1:25 PM, db916 wrote:

    Lol u sure cleared things up bud. I made an account to to comment on your idiotic comment. I'm a conservative but that doesn't mean I don't look for alternatives. U can't always live in the past the costs are coming way down..material and installation costs and since I'm an expert in the field having beenin PV since 2004. I can assure you it is the future. And the new storage ability using battery back up is also on the way and will save even more money. O and Merry Christmas ! Solar is growing and is here to stay get used to it.

  • Report this Comment On December 25, 2013, at 3:18 PM, wt9684 wrote:

    Utility shareholders should hold accountable management who chose not to embrace and get a piece of the renewable market instead of clinging to an outdated business model.There is no excuse for them not to have been doing what Solar City and others are doing and becoming part of the energy solution rather than trying to hold it at bay and try to milk every nickel from customers and complain rather than innovating. Dinosaurs all of them, hopefully an intelligent grid will rise from their ashes.

  • Report this Comment On December 25, 2013, at 4:33 PM, toomuchgas wrote:

    I pay about $50 a month for electricity. Why would I want to go through the hassle of drilling holes in my roof which could lead to leaks or pay when the solar panel breaks or breaks down and pay for the cost of financing it.

  • Report this Comment On December 25, 2013, at 4:49 PM, luckyagain wrote:

    "Clean Energy Presents “Perfect Storm” for Utilities"

    While it is true that PV and wind turbines are getting better and cheaper, any transition will takes years if not decades to happen.

    "The declining cost of solar, energy efficiency, and electric vehicle technologies threaten to upend centralized electricity generation"

    Electric Vehicles will give electric utilities a whole new market and should stabilize demand especially overnight. PV produces almost all of the electricity during peak demand when utilities usually have to buy on the spot market. Avoiding the spot market will lower their costs.

  • Report this Comment On December 25, 2013, at 6:13 PM, agsb2 wrote:

    I remember what my prof said, "Everything that produces energy-POLLUTES", so even wind and solar power pollutes-think about it.

  • Report this Comment On December 25, 2013, at 7:51 PM, stanhope59 wrote:


  • Report this Comment On December 25, 2013, at 8:03 PM, savage393 wrote:

    Colonialtom1: We already have those. they are called hydro-electric dams. You should come out west and see. We have hundreds of them. They have actually been there for 50 years of more. Your new technology is almost as old as electricity is.

  • Report this Comment On December 25, 2013, at 8:25 PM, 8James38 wrote:

    coloneltom (with his wonderful water wheels) says "The answer is not nukes, with all its poisonous waste that we cant get rid of...." He thus points out a major area of ignorance about nuclear power. The LFTR (Liquid Fluoride Thorium Reactor) is a totally safe reactor that cannot explode or disperse radioactive material in any way. It can be designed to consume present stockpiles of "nuclear waste" as fuel.

    Many have heard the term Generation 4 reactors, but there is a lot of confusion about what that means.

    Gen 4 is a term that includes the LFTR, the IFR (Integral Fast Reactor - a sodium cooled solid fuel uranium cycle breeder reactor - which is a complicated dinosaur), and several other advanced design standard (solid fuel variant) reactors.

    None of the solid fuel reactors solve the waste problem. The IFR (Integral fast reactor) claims to do so, but it actually only constantly recycles its own "waste" in a very expensive and complicated process. It does nothing for the existing stockpiles of Nuclear Waste.

    (By the way, do you know the percent of the original energy content that still remains in so-called "spent fuel rods"? Surprise! That "spent" fuel contains 95% or more of the original energy. Solid fuel reactors convert only 2% to 5% of the available energy to usable power.

    The names "spent fuel" and "nuclear waste" are oxymorons.)

    The LFTR actually uses the present stockpiles of "waste" as fuel, converting radionuclides to energy and harmless elements with about 90% efficiency, eliminating the storage problem and providing power for 200 years in the process. The only remaining waste is 1/100th the volume of the original material, and is low level radioactive material that becomes harmless in about 200 years instead of 20,000. This solves the storage problem completely by converting most of the "waste" into usable energy,.

    No matter how efficient or widespread solar and wind may get, the LFTR is a major part of the future of energy production, providing stable power 24/7.

    Read "Super Fuel - Thorium, the Green Energy Source for the Future" by Richard Martin

    "Thorium - Energy Cheaper Than Coal" by Robert Hargraves

    And See:

    timothymaloney dot net/thorium-energy pdf

    for an excellent introduction to Thorium and its power potential.

    Also see this presentation by Kirk Sorenson of Flibe Energy: A fascinating lecture that is both enjoyable and clear:

    Thorium: An energy solution - THORIUM REMIX 2011 - YouTube

  • Report this Comment On December 26, 2013, at 9:17 AM, al1956 wrote:

    Perhaps instead of fighting the changes in how we get / store electric energy they should embrace it and be leaders in the technologies that will keep them in the forefront. By taking the negative stance to destroy any "new" products and only focusing on the "tried and true" products they are killing themselves off. I hope and pray they wake up before its too late.

    While I am not a proponent of the current nuclear products there is a new system on the horizon that will replace this one. If the energy giants want to continue they should start researching and backing this technology to be ready for it's debut. This new technology uses a different type of fuel that can render the old "hot rods" into even more electricity safely and cleanly.

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