Five years ago, the Edison Electric Institute (an association representing all U.S. investor-owned utilities) published Disruptive Challenges: Financial Implications and Strategic Responses to a Changing Retail Electric Business. Among the main drivers cited were the increased penetration of distributed energy resources (DERs), and the development and creation of incentives for DER and other demand-side technologies. The report stated that these “disruptive challenges” all create adverse impacts on revenues and investor returns, and recommended “proactive assessment and planning”.
Four months later, the Electricity Innovation Lab at the Rocky Mountain Institute published New Business Models for the Distribution Edge. Its Executive Summary stated that “the growing role of distributed resources in the electricity system is leading to a shift in the fundamental business model paradigm of the industry”. The report concluded by proffering an “emerging ‘solution set’ of new business models”.
A year later, the Hawai‘i Public Utilities Commission published the Commission’s Inclinations on the Future of Hawai‘i’s Electric Utilities. This “Inclinations” report offered vision, business strategies, and regulatory policy changes required to align the business model of the Hawaiian Electric Companies (the state’s largest utility) “with customers’ interests and the state’s public policy goals”.
And one more. In 2016, the Massachusetts Institute of Technology (MIT) Energy Initiative published Utility of the Future. The report recognized that emerging distributed technologies are driving a framework designed to enable an efficient transformation in the utility business model.
It’s no secret: DERs and related technologies are undermining the traditional utility business model. Since its inception in 1983, net energy metering has consistently proven to be the most effective method of spurring the proliferation of DERs. Our latest blog post, Net Energy Metering Launched the Distributed Energy (R)Evolution (and companion position paper), describes an example of how a NEM law directly affected the number of rooftop solar installations, and discusses a few related “disruptive challenges”.
NEM laws have recently been softening. Changes in the method of distributed generation compensation has achieved a more middle ground in some states (Hawai‘i, New York, Utah, and others). Nonetheless, while customer-centric NEM laws are slowly dwindling, the DER revolution, and its profound ramifications, is here to stay.