Plan B for Utilities
In my earlier blog Coming Full Circle, I talked about how the traditional electric utility model of centralized generation, transmission, distribution is under threat due to self-generation and various other factors. I presented a scenario where utilities are not able to align with these new trends and get stuck in a downward spiral. What is the Plan B for utilities in this case.
First of all, there is a need to recognize that a Plan B is needed. There are regulatory provisions (decoupling etc) to avoid rate base impact due to decrease in energy consumption because of DSM measures. However, no such provisions will be built if the utility electricity sales drop due to other better options available to customers, like distributed generation. No argument can be built to capitalize the cost due to this drop. Utilities are truly on their own here and mostly on unchartered territory of uncertain revenue.
Opportunity or threat? I think both. Smart utilities are already recognizing this threat and using it as an opportunity to bring changes in a business model that has served well for over 100 years but needs adjustments now. Successful utilities of the future might be the ones that move fast to identify opportunities beyond electricity sales and leverage their core capability to build new services and products across electricity value chain.
While there are big opportunities that need some serious investment and course correction, it is possible to find low-hanging fruits. At the end of the day, nobody knows how to run electricity operations better than a utility and there are utilities that do certain things better than others. Why not a utility-to-utility market? A utility that is just starting its AMI program, might want to have domain consultants from another utility that has successfully done it rather than spending millions on 3rd party consultants at many times the cost. Further, utilities are rich with intellectual properties built over a century of generating and supplying electricity. This is the time to evaluate all those data models, use cases, processes, procedures and work with an alliance network to explore other operating revenue opportunities. These can be leveraged to build joint go-to-market solutions in partnership with product vendors or system integrators.
There are bigger opportunities in emerging market segments like energy management and microgrids. Going beyond the power value chain, assets like towers, power lines, transportation fleets, communication network etc present immense commercial potential.
One may say that the utilities are in the business of selling electricity, not products or consulting services. But then, isn't it precisely the change that is needed as long as it does not alter the core mission of supplying safe and reliable power? Easier said than done. We are talking about some serious capability and direction re-alignment for utilities as well as their ability to garner support from regulators for these changes. It will be interesting to watch.