U.S. Electric Utilities are Dead: Long Live the Utilities!

The debate about the future of the U.S. electric utility industry is heating up. How will utilities handle the growing demands on the existing electrical grid from advances in technology? To what extent will utility companies be able to fend off competition from micro grids and local generation, including such things as rooftop solar installations? How soon will it be before we see retail behemoths like Wal-Mart go from exiting the grid at their warehouse facilities, to actually selling Wal-Mart generated electricity to their customers (want to refuel your electric vehicle at a lower cost than at home? Just top off at the local Wal-Mart recharging station, where power is delivered from Wal-Mart’s roof to your car’s battery in minutes, not hours, at a savings of 10-15-30% lower than the cost of electricity from your home outlet).

Some contend that renewable energy is too expensive and too unreliable; that local generation will never be able to provide the level of service required to meet the demands of industry, much less large-scale residential use; and that a system of centralized generation from fossil or nuclear fuel sources and high voltage transmission will always be required to meet base load electricity demand.

How the electric utility industry will look in the future is still anyone’s guess. But the writing is on the wall that this stodgy industry is about to undergo a sea-change. Not that the industry itself will go away. Our economies and our lifestyles are too dependent on affordable, reliable electricity. The question is: will the current list of major electricity suppliers (companies like Duke, Southern California Edison, NationalGrid and Xcel, just to name a few) still be household names 5, 10 or 15 years from now?

Not if they don’t lead the way to a new business model. Why? For at least two reasons. First, because customers will always demand more choice and more control, not less, regarding commodities and services they feel they have a “right” to use (ask the average person and he or she is likely to tell you – tongue in cheek here – that reliable, affordable electricity is number nine in the Bill of Rights). Second, it is not a question of “whether” the technology barriers that presently keep renewable resources from further penetrating the grid will be resolved, but rather “when” those barriers will be overcome. Given the billions being invested by public and private sector entities into research and development for battery storage, micro-reactors and other technologies, I suspect that these barriers will be overcome sooner rather than later.

The electric utility industry – and the grid – will live on. So who will be provide our electricity in the future? I suspect it will be those entities that know how to adapt to and meet consumers’ expectations. Present-day utility giants who don’t break with the past and embrace a new business model – one that fosters innovation and the integration of new technologies as well as a new regulatory environment – will become case studies in failed leadership for future generations of business school students.

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