The utility industry is under attack. Right now it's just minnows nibbling at the feet of giants, but the giants have taken notice and, believe it or not, they're scared. At least that's David Crane's opinion. He's the CEO of NRG Energy (NYSE:NRG), a key player in the merchant power market, so it's worth listening to his argument.
Unprotecting the protected
Regulated utilities benefit from regional monopolies. That's why they are regulated -- so they don't just keep jacking up their rates. However, this model also protects them from competition. It would be virtually impossible to build out redundant power systems.
But what if all you did was supply power to just one customer in a cost effective way? That's exactly what SolarCity (NASDAQ:SCTY) and SunPower (NASDAQ:SPWR) are doing today. This duo installs solar panels on homeowners' and businesses' rooftops. That may not allow customers to cut the cord, but it certainly cuts down on the amount of energy they buy from their local utilities.
Better yet, regulations are forcing utilities to buy any excess power from their customers' rooftops at premium prices. Those customers basically just became competitors. No wonder NRG Energy's Crane told The Atlantic late last year that "[the] distributed future will be utterly destructive of the utility model that we now have."
A bright future
It's also no surprise that SolarCity highlights that such solar installations had more than tripled in the United States from their 2010 levels by the end of 2013. SolarCity's growth over that span has been even more impressive; In 2010 it had just 31 megawatts of power installed; by 2013 that had reached around 600 megawatts. By the end of this year, it hopes to have over a gigawatt of solar installed. And the more solar panels SolarCity installs, the cheaper it gets to put up and maintain all those megawatts.
SunPower, which installs solar panels just like SolarCity, is also a top solar panel manufacturer. In other words, it does solar from soup to nuts. That said, it's relatively tiny on the residential solar side, where it ended 2013 with just under 150 megawatts of installed capacity.
That said, unlike SolarCity, SunPower has a notable global footprint on the rooftop and utility-scale solar sides of the business. That gives it plenty of room to grow. And, also unlike SolarCity, SunPower turned a profit last year. With the rooftop solar industry still in its infancy, there's plenty of room for both players to keep expanding.
What if you got off the grid entirely?
But NRG Energy isn't sitting back and watching. It's getting ready for a huge industry shift with its own disruptive technology. The big problem with solar is that it only works when the sun shines. While batteries can store some of that energy for nighttime consumption, most consumers still use more power than they generate. NRG is working with Dean Kamen, the creator of the Segway, on a natural gas electric generator that would allow consumers to completely sever ties with their electric utility.
When the sun wasn't shining, the natural gas generator would kick in. NRG's hope is to lease these devices. That would allow it to both benefit from the shift that CEO Crane sees on the horizon and protect it from falling demand for its power with a replacement, annuity-like revenue stream.
If that sounds fanciful, consider what happened to the telephone industry when new technologies came into play, like cell phones. Now, many customers don't even have a "land line." In fact, the industry's old guard, while still important, have been steadily growing their cell phone businesses while their land line operations contract. Although this transition took decades, that doesn't change the outcome.
While such a massive industry shift may or may not take place in the electricity market, NRG clearly doesn't want to be left behind as companies like SolarCity and SunPower lead the way to a new future in the power market.
Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends SolarCity. The Motley Fool owns shares of SolarCity. 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.