Some utilities are beginning to accept that the future will bring big changes in the ways energy is produced and delivered, and that many communities will likely use local renewable energy sources and storage to serve their own needs.

But what if that shift comes more quickly than even these forward-thinking utilities expect, extending into big towns and the suburbs of major cities, resulting in a reduction in electricity prices for nearly all consumers?

That is the scenario being advanced by global consulting firm PwC, which says the sector is about to experience an unprecedented and rapid transition.

Electric utilities, the firm says, are about to face their “Kodak moment,” and the tipping point is likely to be the emergence of rooftop solar and its ability provide a cheap source of electricity, as well other “enabling” technologies such as storage and smart software.

According to Mark Coughlin, power utilities leader for PwC, this will fundamentally change the nature of the relationship between utility and the consumer. It will effectively shift the power from the utility to the customer, challenging the traditional utility's very survival.

“This traditional utility model where the company controls the electrons and the consumer has little choice is on its last legs. This model is struggling to meet customer needs,” Coughlin said. “Once a household or a business has a solar panel on the roof or some other power source, they are no longer a passive consumer.”

The solar-powered suburban home is now the new competitor to the traditional utility. In as soon as “the next five years, consumers will exert unprecedented control over energy supply, usage, service standards and costs,” Coughlin told the Energy Networks Association conference last week.

“Smart grids, smart meters and customer energy management gadgets are only the beginning of what is possible,” state the PwC analysts in a new report, Utility of the Future.

Coughlin says that these technologies -- and new financing structures -- will open the door to a flood of new entrants to the industry, including telecommunications firms, technology providers, financiers, and systems managers. Existing utilities will also likely rush to form new alliances and joint ventures.

In the domain of data, this will include the likes of Google and Apple. In finance, it will include huge investors such as Warren Buffett and Macquarie Group. But PwC says new market players will also come from local sources. “We expect to see small crowdfunded energy companies emerge...within the next three years,” the report predicts.

“Customer energy contracts will greatly favor the customer -- suppliers will have little choice in the matter!” the PwC report says, noting that changes to the way services are offered are likely to occur in the near term.

“This will mark a major, transformational shift for both the utility sector and customers"  -- and it will drive benefits to consumers. “In some cases, this will see customers paying more for certainty of supply. In other cases, we see the distinct possibility that costs will reduce for customers,” the report adds.

PwC says the large energy retail businesses will bear the brunt of this challenge. “The existing shape of the energy retail business will not survive in its current state, given the atrophy of retail growth in traditional markets,” the report contends.

PwC also predicts that the retail market will turn into a “channel fight” focused on costs and choice. The retail sector could be subsumed into other large-scale “retail engines” such as data providers and telecommunications firms, and other in-house service providers. And there is likely to be a big turf war with the network distributor companies over who owns those assets.

“The key will be who has ownership and operational control of distributed generation assets -- these will be the swing factor in [determining] who can provide the most innovative services for customers.”

Generators will struggle because of the combined impact of falling demand and the emergence of rival energy sources, such as rooftop solar. In Europe, nearly $500 billion has disappeared from the value of utility assets, primarily those of generators, as a result of the impact of new technologies.

PwC says generators are facing the same headwinds, as indicated by the lack of profits, the write-downs, the closures and the reassignments in the coal and gas industry in Australia and elsewhere. This makes it clear why industry incumbents are making an effort to shut down new market mechanisms.

“Contracting for long-term demand will become increasingly difficult as time passes, given that viable alternative sources of supply will almost certainly become available within ten years,” PwC writes.


Editor's note: This article is reposted from RenewEconomy. Author credit goes to Giles Parkinson.