Writing on the Roof: Competition for Electric Utilities

By Mahesh Bhave, Indian Institute of Management
August 17, 2012 

 

Suddenly, electricity appears too important to be managed by traditional electric utilities alone. The barriers to entry have fallen; a large number of new and old companies have entered the power generation business. How should the existing utilities respond? I believe they should enter the distributed solar-based generation business and offer new grid-integrated services.

Numerous and diverse competitors – non-utilities – have already entered the electricity business. Real estate companies and builders are offering rooftop solar, particularly on new homes. Schools, government buildings, and businesses are deploying their own solar panels.Chevron Energy Services, a division of the oil and gas giant, has begun installing solar panels in parking lots of California schools. Early adopter households are becoming their own micro-utilities and are moving toward energy self-sufficiency.

I have argued in earlier REW articles that IT and telecom companies have assets that position them as future energy companies. NRG Energy, with a solar division in California, is developing electric charging stations for automobiles – a new kind of “gas” station. A Deloittepaper has rightly observed that every company either is, or soon will be, an energy company.

Pressures: Technological Advance, Regulatory, and Climate Change

Significantly higher costs held back widespread deployment of distributed generation until now. Regulations set the benchmark for “grid parity” costs.  Solar companies, on average, have now breached those costs, thanks to global scale manufacturing of solar panels. This has opened the gates of competition. The well-recognized triggers of industrial mutation – technological advance, clustering of innovations, entrepreneurship, new opportunities, and the resulting creative destruction, now drive the competitive activity.