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Source: ZE

In January this year, U.S. utilities trade group Edison Electric Institute (EEI) published a report on the precarious state of the U.S. electric power industry that subsequently launched a spate of doomsday articles such as “Electricity Utilities Must Evolve or Die: Are They Up to the Task?” and “Why the U.S. Power Grid’s Days are Numbered.

Pushing Utilities to Obsolescence?

EEI’s report, “Disruptive Challenges: Financial Implications and Strategic Responses to a Changing Retail Electric Business,” is a 26-page elaboration of how the growth of distributed energy resources (DER)—for instance, solar photovoltaics (PV) and cogeneration plants — in the United States is soon going to push traditional electric utilities into obsolescence.  With more and more people being able to generate more of their own electricity, who will need these old centralized power utilities?

As illustrated in the graph below, U.S. utility revenues have been gradually decreasing since 2010 across the residential, commercial, and industrial sectors, even as the number of distributed energy resources has quickly been climbing.

Figure 1. Passing phase or permanent degression: Downward trend of year-over-year change in electric utility revenue (Graph created by ZE using data from EIA). Note that the large drop in 2009 was mainly from the economic recession, though.

Figure 1. Passing phase or permanent degression: Downward trend of year-over-year change in electric utility revenue (Graph created by ZE using data from EIA). Note that the large drop in 2009 was mainly from the economic recession, though.

 

Figure 2. Unhappy coincidence? Drop in utility sales in contrast to the growth of renewables, which includes a majority of DER systems (Graph created by ZE using data from EIA). Again, note that the large drop in 2009 was mainly from the economic recession.

Figure 2. Unhappy coincidence? Drop in utility sales in contrast to the growth of renewables, which includes a majority of DER systems (Graph created by ZE using data from EIA). Again, note that the large drop in 2009 was mainly from the economic recession.

While there is more than one contributing factor to these diminishing revenues, DER is highlighted as a particular threat in EEI’s report, for the simple reason that the growth of DER is projected to accelerate (Source: EEI). CEO of NRG Energy, David Crane, has been especially vocal about the fate of U.S. utilities, saying “utilities will continue to serve the elderly or the less fortunate, but the rest of the population moves on” (Bloomberg Businessweek).

Europe as a Case Study

Europe, where the electricity market is decentralizing even faster than the U.S., is a good indicator of where the U.S. is headed.

According to Eurelectric, Europe’s electricity industry association, “small generation units with capacities of below 10 MW grew significantly in prominence, from around 10 GW in the year 2000 to more than 70 GW currently installed.” Like the U.S., solar PV is leading the transition to distributed energy in Europe, with 59 GW installed in 2012 and over three million households producing their own electricity from solar,  with small wind turbines, cogeneration units, biogas-powered generators, and micro turbines projected to catch up gradually (The Energy Collective).

The Future of DER

So how is this growth in DER expected to impact utilities? And how should utilities respond to survive? For an in-depth analysis on the future of U.S. electric utilities, check out our August 2013 DataWatch article, “Will the Rise of Distributed Energy Spell the End for Traditional Utilities?