By Marco C. Janssen, UTInnovation, the Netherlands
The utility industry is about to see probably the most fundamental change in its history as soon as the price of domestic solar PV and battery storage reaches parity with the cost of electric energy for a large number of domestic customers.
What this means is that customers will be further incentivized to install solar PV on their homes and as a result, the amount of kWh sold for a utility will decrease although demand is growing.
The impact of renewables, electric vehicles and storage on the electric power industry will soon change in its history, and it is time for a broad discussion on the business models of the future for the power system industry.
When this happens, it will shake the economic fundaments on which the power systems have been built as the utility will no longer be able to rely on the kWh sold to cover the costs for running the power system.
What this means is that utilities will have to start looking at different ways to generate income from the service they provide. Utilities will basically have to re-invent themselves the same way the telecommunication providers had to do when the mobile telephone started conquering the market.
A combination of wired and non-wired services, using new market models in combination with digital technologies is likely to totally disrupt the power sector.
As utilities will redefine their business models a major responsibility will be put on the regulators as they will have to come up with economic models that will allow and support the creation of new revenue streams for utilities while maintaining a highly reliable and cost-effective service for the customers.
If this is not managed properly we will most likely witness supply and stability issues as utilities will struggle to make ends-meet and will have to resort to extreme cost cutting and deferral of investments.
I therefore think it is in the interest of the entire society for politicians and regulators to develop long term strategies that support the reinvention of the power industry as electric power nowadays is as important, if not more important than water and food.
By allowing utilities to step outside of their traditional business model based on the sales of kWh a new market can be created in which a utility can provide a suite of services tailored to the need of the end customer by not only offering a stable and reliable power supply, but energy back up services, solar PV and storage solutions, electric vehicle charging infrastructures installation and operation, and highly differentiated tariffs based on the specific customer profile.
Recent studies (The count down clock, EY 2019) indicate that parity between solar PV and battery storage with the traditional electricity supply may occur as soon as 2021 in some parts of the world. When this happens, we can expect an acceleration of the development of new and even more cost-effective solutions as this will create new incentives for customers and technology supply companies to focus on renewables and storage.
This will then of course further accelerate the disruption the utilities are facing already.
I think it is therefore time for a broad discussion on the business models of the future for the power system industry.
Marco C. Janssen is the CEO of UTInnovation LLC and the former Director of the Smart Grid PMO at the Dubai Electricity and Water Authority. He received his BSc degree in Electrical Engineering from the Polytechnic in Arnhem, Netherlands and has worked for over 27 years in the field of Smart Grid, Protection, Control, Monitoring, Advanced Metering Infrastructures, Distribution and Substation Automation. He was a member of IEC TC57 WG 10, 17, 18, 19, the IEEE PES PSRC and CIGRE B5 and D2 WGs. He was the convenor of D2.35 and editor of the Quality Assurance Program for the Testing Subcommittee of the UCA International Users Group. He holds one patent, has authored more than 58 papers, is co-author of four Cigre Technical Brochures and two books on Smart Grids and Electrical Power Substations Engineering and is the author of the “I Think” column in the PAC World magazine.