Utilities Should Fear Consumers "Cutting the Cord"

Cable companies aren't alone; cord cutting will be a legitimate threat to utilities.

May 14, 2014 at 1:57PM

Much has been made of the threat cable companies face from consumers cutting the cord -- that is, the cable cord in your living room. But what consumers aren't cutting is the Internet access cord that affords them streaming content. That means cable companies aren't completely losing the customer.

Look out 10 years, though, and a total loss of the consumer is exactly the threat utilities may face. For the past century, electricity and its long path from cradle to grave, didn't receive much thought. Flip the switch, the light comes on, pay the bill.

But as our energy usage habits have increased dramatically (think of all the devices we have today) and electricity rates have increased at a long-term rate well above broader inflation, where our electricity comes from and how we're using it have become focal points for home and business owners.

Over just the past half-decade, solar panels have proliferated, with nearly 200,000 homes and businesses installing solar in the past two years alone. As costs continue to fall, the rate of installations will pick up, which means, odd as it sounds, eroding market share for utilities.   

Solar and energy storage today
But for all of those installations, only a tiny fraction have installed any sort of accompanying energy storage devices. That's because battery backup systems have traditionally approached the cost of an entire solar installation, which hampers overall economics -- economics that may already mean a multi-year payback.

So, those homes and businesses lacking any storage capability must still buy power from the utility company during periods when solar panel production is either insufficient or nonexistent. 

That could change, though, if advances in energy storage continue. Partnerships like those between SolarCity (NASDAQ:SCTY) and Tesla Motors (NASDAQ:TSLA) offer promise -- not only in technological advancement, but in their proven marketing machines that can rapidly increase visibility, adoption, and by extension consumer influence over power markets. Today, the two companies' existing partnership enables SolarCity customers in certain markets to opt for a battery system that amounts to little more than a backup for emergency situations. But with the advances Tesla has driven in lithium-ion battery technology, it's no great leap to imagine a future where solar systems complemented with battery systems become a no-brainer.  

Solar, coupled with economical energy storage, will empower consumers to tell their friendly neighborhood utility company "thanks, but no thanks."

How utilities stand to lose
Broadly speaking, utilities generate revenue from one or some combination of three sources: generation, transmission, and distribution. Large utilities such as Duke Energy and Exelon play in all three spaces, while smaller municipal and rural co-op utilities tend to play in one or two. 

Irrespective of their size, however, utilities large and small, in one space or three, would feel the squeeze. Less end user demand means less power generated, which means less electricity is transmitted long distances over high-voltage lines, which means less electricity is ultimately distributed to the end user. 

Disruption of this multi-billion dollar nature takes time, but we may well be nearing a tipping point. 

However, all is not lost for utilities. They have amassed large sums of money and their lobby is proven and powerful. Standing idly by as solar and perhaps other technologies threaten them is not viable. Their actions over the next decade, in policy, in countermeasures, and in investments made, will impact their long-term future. 

Your cable company is scared, but you can get rich
You know cable's going away. But do you know how to profit? There's $2.2 trillion out there to be had. Currently, cable grabs a big piece of it. That won't last. And when cable falters, three companies are poised to benefit. Click here for their names. Hint: They're not Netflix, Google, and Apple. 



Brandon Workman has a long position in SolarCity. The Motley Fool recommends Exelon, SolarCity, and Tesla Motors. The Motley Fool owns shares of SolarCity and Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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