Efficiency gains, if not properly managed, can quietly take away most of the present market for electricity. But they also offer alert utilities an unprecedented opportunity to control risk,...
Saving Gigabucks with Negawatts (1985)
In an age of costly electricity and cheap efficiency, smart utilities will sell less electricity and more efficiency.
- electricity, not for spending money;
- adaptive (to take immediate account of new technologies and methods); and
- consistent (since nobody will believe a utility which says to save electricity this year, use more next year, and save the year after that).
Utility programs — and corresponding regulation — to encourage efficiency should not get stuck on a small number of programs, but try dozens at once in parallel: eliciting and rewarding innovation, taking risks, celebrating failures, and letting a thousand technological and institutional flowers bloom.
We live in age of costly electricity and cheap efficiency. Utilities which learn how to sell more efficiency and less electricity will prosper. Utilities which try to keep selling more electricity and less efficiency will disappear. The efficiency revolution can be a threat to utilities — quietly destroying their sales and pricing them ever further out of the market — or it can be an unprecedented opportunity for them to reduce risks, improve cash flow and coverage, multiply earnings by several-fold, secure a long-term market share, and enhance their popularity.
Given the increasing availability of cheap ways to save electricity, dramatic efficiency improvements will happen with or without the utilities’ blessing and comprehension. Their choice is between participation and obsolescence . Utilities which anticipate, and whole-heartedly participate in, the efficiency revolution will not only enjoy better foresight in and control of electrical markets; they will also become able to lower their prices and enjoy handsome returns, making money by slashing their operating costs and perhaps also as bankers marketing a financial product which earns them a spread.
Accordingly, to help ratepayers get reliable service at least cost while utilities make more money at less risk, the regulators’ challenge is to help remove utilities’ barriers to market exit from what is no longer a commercially viable enterprise — generating and selling electricity from large thermal power stations — and help instead to speed their entry as effective, efficient competitors in the emerging energy service marketplace.