Will Renewables Revolutionize The Utility Industry?


Michael Lynch, Contributor

March 1, 2016

As part of the ongoing struggle between conventional utilities and providers of renewable energy, advocates of Cleantech (notably solar and wind) are arguing that the utility industry is undergoing the kind of disruptive change that other industries have experienced, such as the way cellular phone technology turned the telephone monopoly into a vibrant, competitive industry. Efforts by existing utilities to restrict renewable power, primarily from rooftop solar, have been met with scorn, and numerous predictions claim that “Solar panels could destroy U.S. utilities.” A vision of a nation of consumers producing their own power and utilities withering away is common.

Should we be skeptical of such claims? After all, there have been numerous technological and regulatory changes that were predicted to revolutionize the industry, and it has evolved but remains intact. The biggest change was the deregulation of the sector, and particularly of generation, which led to a variety of both spin-offs and mergers, making power generation more competitive and efficient. Indeed, the shift from coal to gas in recent years partly reflects the increased emphasis on market competition for power sales between producers.

The Internet is the best example of a revolutionary, disruptive technology in recent decades, and it has dramatically changed the retail industry. On the other hand, the predicted impact on transportation has not been seen. True, there are many (like your humble narrator) who work from home, relying heavily on the internet, but the airline industry has not been transformed. The figure below, showing internet users and airlines’ passenger revenue miles in the U.S. suggests that recessions have much more impact on air travel than the growth of the internet. Travel seems to be growing more slowly, especially since the 2008 recession, but fuel prices and low-cost carriers are a bigger threat to the airlines than the substitution of web meetings for face-to-face encounters (at least so far).

Airline passenger revenue miles, right hand scale and Internet users, left hand scale.  (U.S., millions)

Sources:  U.S. Department of Transportation and Internetlivestats.

For the power sector, there have been a number of changes that were argued to be revolutionary, including distributed generation, ‘negawatts,’ energy service companies, independent power producers, gas turbines, and, going back decades, nuclear power. Many of these have progressed and made important contributions, but the utility industry still consists of monopoly distribution of electric power. Self-generation by large users has reduced utility sales, but without doing irreversible damage to the industry. (DOE data suggests that 96% of power was generated by the electric power sector, and 4% mostly by the industrial sector. Renewable power is also equal to 4% of the total, much of it by the power sector itself.)

The reality is that nearly all wind power comes from either utilities themselves or independent power producers, and as such are no more “disruptive” to the utility sector than natural gas turbines. Only if small customers were generating their own power on a large scale would there be a serious change to the industry. In terms of wind, this doesn’t appear imminent to say the least; rooftop and backyard turbines remain a minor source of electricity and seem unlikely to contribute much for years to come. Large solar plants are roughly the same to the industry as gas turbines, that is, power producers, often owned by the utilities themselves.

The proposed revolution will occur only if residential consumers can generate their own power and drop off the grid, and solar installations are growing thanks to generous subsidies and renewable fuel mandates. However, as the regulatory struggle over net metering in Nevada shows, household/rooftop solar is a technology whose time has not yet come, and cannot survive on its own. The cost imposed by the intermittency are so high few consumers will leave the grid and, if they have to pay a significant price for ‘backup’ power from the local utility, their installations become unattractive.

The threat that subsidies will be reduced, as in some other countries, has been at least postponed by Congress’ 5-year extension of the producer tax credit will help keep it alive, but if solar panel owners are forced to bear the whole cost of their systems, especially the need for backup capacity from utilities, solar panel sales will drop sharply, as they have in countries like Spain which reversed its policy of subsidies.

There will no doubt be outraged protests at this argument, as so many renewable advocates will protest that the revolutionary transformation is widely predicted. That may be so, but allow me to offer a cautionary tale. In 2000, there were similar expectations of a disruption, although to the transportation sector, as a new invention “would revolutionize personal transportation, urban design and our daily lives.”  The visionary Steve Jobs said the new invention could be more important than the PC, and numerous pundits speculated that the still-secret product might be cold fusion or a flying car, or possibly just a lot of hot air. What was the great advance, code-named Ginger? The Segway.

Residential solar power is growing, but faces numerous challenges including its high cost and unreliability. Most who think it will be revolutionary are simply boosters, without considering the hard numbers behind the technology and its role in the nation’s power supply. The success or failure of past revolutions should not make us automatically skeptical or naïve, but rather questioning of the hard facts. In that respect, the utility sector is threatened not by the competitiveness of solar, but rather by the high cost it imposes on customers, shareholders, and taxpayers.

This article was written by Michael Lynch from Forbes and was legally licensed through the NewsCred publisher network.

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