As the economics of distributed energy,storageand demand-side management continue to improve, the warnings about coming radical changes to traditional electric utility business models grow louder.
One of the most recent ominous signs of change came not from the power sector, but from the telecom industry.
AT&T recently said it wants to abandon all of its copper phone lines by 2020. Verizon is close behind.
Of course, phone companies are much further along the trajectory of disruption than utilities. With mobile phones and internet-based phone services making copper landlines obsolete for most Americans (only one quarter of citizens will have a copper line by the end of this year), service companies are faced with difficult choices about how to maintain their infrastructure.
Most experts predict that solar, storage and other distributed energy technologies will soon force utilities to make the same tough decisions -- even potentially destroying the companies that don't embrace change. Although there is disagreement on the speed of the transition and how equipped utilities are to handle it, most agree it's a matter of when major disruption will happen, not if it will happen.
The decision by phone companies to abandon copper lines may seem like an easy one, particularly for people who have access to broadband internet services or who own a smart phone.
But it's a painful transition for people who live in rural areas where copper lines are the only way to get phone or internet service. And because fewer people are using these lines, existing customers are left shouldering the cost burden for maintaining the remaining wires, thus driving up the cost of service. Ironically, it's disproportionately the elderly and poor who bear those additional costs.
This is the core problem of the "digital divide." And a new report from the Center for American Progress (CAP) suggests that it's one that electric utilities must consider before it's too late.
"This digital divide offers a learning opportunity for utilities and policymakers as they look to the future of electricity," write analysts Richard Caperton and Mari Hernandez. "If everyone has the same ability to embrace new technologies and leave the grid, then there likely would not be any reason for concern. But, as the experience in telecom shows, not everyone will have the same access to high-quality alternatives such as rooftop solar power and energy storage systems, either because of a lack of service available or a cost issue."
Utilities are already experiencing the first symptoms of a "death spiral" driven by distributed energy technologies. As ever-cheaper solar allows customers to use fewer grid services, utilities argue that customers who can't afford the technology will bear the costs of maintaining transmission and distribution infrastructure. That is driving clashes between utilities and the solar industry around net metering policies and other incentives.
As Caperton and Hernandez point out, the looming utility death spiral looks a lot like the digital divide. And if the problem is not addressed today, a small group of Americans may eventually be forced to pay disproportionately high costs to maintain an aging and outdated centralized electric grid.
"For renters, making expensive investments in solar panels, energy efficiency, and batteries simply would not be an option, and the property owner would be unlikely to make the investments if they are not paying the electricity bills. Some people may live in a house that is geographically ill suited for renewable energy -- if the roof is always covered by shade and nearby buildings block the wind that could turn a microturbine, for example. People with low credit scores may not be able to get financing to install new technologies and may not have the cash on hand to make the upfront investments," write the authors.
Even worse, utilities may have to make tough decisions about dismantling infrastructure like phone companies are today, potentially causing further disruption to people's lives.
So what can be done about it? There are a few existing programs that could help, write Caperton and Hernandez.
The federal Low Income Home Energy Assistance Program, which offers assistance for energy bills, could include funding for renewable energy systems. The Rural Utilities Service, another federal program that helps finance electricity access projects in rural areas, could also be adapted to include funding for distributed energy. On the state level, public benefits charges could be directed to help finance distributed renewables for low-income households.
On the regulatory side, the authors suggest that companies deploying distributed energy systems be required by law to provide solutions to every person in a geographic area -- much like utilities were required to do when building out the grid. In exchange, regulators would give these service providers preferential treatment and be given a guaranteed rate of return for their investments. Although this is the model that originally guaranteed universal electricity access in America, it would be much more difficult to implement in today's environment.
"The new energy companies will own their power-generation assets, but 19 states have declared that utilities are not allowed to own generation facilities as a result of electric-industry restructuring in the 1990s. [...] With today’s utilities, that offered enticement was the ability to operate as a monopoly with a guaranteed rate of return. It is hard to imagine policymakers offering that same deal to new energy companies today," writes Caperton.
Rather than attempt to recreate the utility business model of the past, the government could simply reward companies with tax credits for deploying systems to disadvantaged customers.
There are numerous options already on the table, and likely many more that have not been proposed. In order to facilitate more viable ideas, Caperton and Hernandez suggest setting up a task force at the National Academy of Sciences to come up with recommendations on how to address the problem.
The divide between advantaged and disadvantaged customers is one of the many problems that electric utilities will soon need to deal with as the grid evolves. But it's still unclear whether utilities will manage these changes effectively, or get sucked into a death spiral.
Indeed, as one telecom expert pointed out recently, this is what telephone companies are now grappling with: “The real question is not [whether] we are going to keep copper forever. The real question is how we are going to handle this transition.”