Posted: R.F. Hemphill
So, Mr. or MS. CEO, your business is being threatened by a new technology, and competitors who can make your product more cheaply than you can are arising to steal your market. To make matters worse they’re not in China; the competitors are in the form of your formerly docile domestic customers, for goodness sake! So what do you do?
Part one of this discussion addressed 6 Facts About the Impending Renewable Energy Revolution. Part two focused on 5 Reasons Utility Companies Hate Renewables. As a former senior policy official at the Department of Energy and Deputy Manager of Power at the Tennessee Valley Authority and also someone who spent the better part of three decades developing a startup global electric power and distribution company into a company with $18 billion a year in annual revenue and power plants now in 21 countries, I have a very unique perspective on this topic. So now I want to share 4 ways utilities can join the renewable revolution instead of being left behind.
1. Fight fire with fire. There is no reason that you cannot go into the solar or wind business yourself as a utility, and some have started doing this. Duke Energy, for example, is working on developing renewable and efficient power to help customers manage their energy costs. You need the cooperation of your regulator to let you put this new set of capital investments into your business and charge your customers for it, but you have built in advantages over some poor HVAC installer trying to switch from putting air conditioners on pads to panels on roofs. But this initiative will only work well if you need more generation, and since US Kwh consumption is growing very slowly — only 0.9 percent last year — the regulator may well disapprove this plan. And this despite the fact that your customers will continue to merrily festoon their rooftops with solar panels.
2. Grow the market for your product — There is a wonderful opportunity coming down the road, so to speak — electric cars. Yes, current oil prices are at a six year low, but almost no one believes this will last, and batteries, as mentioned earlier, are getting better and cheaper. This plus climate change concerns inevitably lead to more and more plug in hybrids and full battery powered electric vehicles. You will benefit from this, even if you do nothing, as all those cars will need daily charging. Anything you can do to move this along, like investing in a network of convenient charging stations in your service territory, will put you ahead of the game and preserve your business. And this investment will please your regulator, and is one that very few other businesses have the money or talent to undertake.
3. Expand your business horizons. Water is the next coming crisis. Unfortunately water has been “the next coming crisis” for thirty years or so, but now maybe it really is. California and many western states are in the worst shape, water wise, they have been for years, and there is little reason to think this will change soon. The best solution, after conservation, is desalination systems. And both of the principle technologies — low pressure flash desal and reverse osmosis (“RO”) desal, use lots of electricity. The first kind is usually tied to the waste heat of a power plant and so has limited flexibility, but RO systems can function anywhere that there’s salty water. It is perhaps useful to point out that fracking uses a large amount of saline water that when spent currently is reinjected into deep brineous aquifers, at much expense. It is not difficult to imagine setting up RO systems to solve both the potable water availability problems of the western US, and a portion of the environmental problems associated with fracking. The RO systems are big and complicated and capital intensive, and thus a natural for a utility, who can now make both the power and the water that a developed country needs.
4. Cannibalize your neighbors. If you’re stuck in a state with a backward regulatory system, and you can’t build solar or wind and put it in your own rates, then go next door and start stealing the customers of the next utility over. You will need to do this in a non-regulated part of your business, but most utilities have long since established such structures, so this is not a problem. You could even consider buying one of the competing solar rooftop companies to do this, like one of Solar City’s smaller competitors, Vivint Solar or SunRun for example. Your business next door will grow as it diminishes in your home state, and maybe at some point your regulator will come to his senses.
No business likes to fail, and no business likes to change, especially ones that have had the luxury of a monopoly franchise for a product which is critical to modern society. Today’s utility doesn’t have to fail, and can even lower the long run costs to its customers. But if the leadership doesn’t move quickly and aggressively to meet the challenges of the Renewable Revolution, the next CEO will, and he or she will be there soon.
RF Hemphill is a former CEO of a multi-billion dollar global electric power and distribution company and is the author of Dust Tea, Dingoes & Dragons: Adventures in Culture, Cuisine & Commerce from a Globe-Trekking Executive.
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