(August 2011) Economic consultant Michael Rosenzweig challenges Constantine Gonatas’s proposal for ensuring FERC’s demand response rulemaking achieves its objectives. Also, Juliet Shavit...
Beyond-the-meter technologies challenge the utility monopoly.
area by offering their customers a way to lower the purchase cost by either financing or leasing PV installations. Financing and leasing options will drive PV market growth because installed cost is the biggest barrier, the relative lack of low-cost financing for PV installations is a factor that’s hurting the growth of new PV installation in the United States. Retailers also might use financing as a loss leader to gain access to long-term contracts for the supply of the electricity commodity in competitive markets.
This trend likely will be irreversible not only because of the economics presented in Figure 2 and Figure 3 , but also because of several policy initiatives currently being examined in Congress, which, if implemented, could accelerate PV adoption. One such policy example is the proposed 10 million solar rooftop program. Under this program, the federal government plans to allocate $250 million of funds in 2012 to states and an undisclosed amount thereafter through 2020 to carry out the program. With a 20-percent cost share, states would be able to use these funds to provide rebates for distributed generation PV projects. Additionally, the implementation of a national RPS, green energy bank and extension of cash grants could act as further catalysts for PV market growth. Of course, then mid-term election might shift political winds and some of the incentives might disappear, delaying but not preventing grid parity at the end of the day.
Further, PV technology is just one of many potentially game-changing smart technologies. In the future, power retailers will offer PV technology in tandem with other technologies across all states in an effort to develop and exploit different customer value propositions. For example, charging stations might be coupled with PV technology in home installations to create true zero-emissions cars. Power retailers are well positioned to tackle this market, bundle new technologies with the right financial incentives ( e.g., 30-percent investment tax credit) and get in front of customers, applying many of the same skills they currently have while also leveraging partnerships or, longer-term, acquisitions to expand their workforces and close some capability gaps.
The key change would be a change of focus, from focusing on selling the commodity to selling a broader array of services, and developing a solutions-based relationship. Utilities, especially in regulated monopolies, will have to play catch-up to acquire the skills and capabilities to interact with customers beyond business as usual, and to develop the ability to manage a large numbers of small projects.
Strategy for Regulated Utilities
The picture painted here isn’t good news for utilities. It’s almost inevitable that power consumption levels will plateau and even start declining over the short term. Losses in load will affect utilities in three different ways. First, will be the continuation of depressed power prices as load is shed. Second, is the acceleration of rate cases. As volume decreases, the implied return on equity is reduced, forcing utilities to go to the public utility commissions more constantly for rate relief and tariff increases. The increase in tariffs will put these technologies even further in-the-money