Will Clean Energy Really Cost Utilities $48 Billion?

clean-energy

Will Clean Energy Really Cost Utilities $48 Billion?

Allison Donnelly for Zondits, December 24, 2014

The energy world has been buzzing over the past week with the release of a new Accenture report that predicts significant effects on utility revenues due to distributed energy resources, like energy efficiency and solar energy. The Houston-based online news source Fuel Fix ran an article titled “Report: Energy efficiency could cost U.S. utilities $48 billion,” and PV Tech ran one called “Utility revenues to take US$130 billion hit from disruptive technologies within 10 years.”

While one of the scenarios Accenture modeled did lead to a $48 billion decrease in utility revenues due to decreased demand for electricity, the report’s executive summary actually says that scenario is unlikely. Meanwhile, the attention-grabbing headlines might have missed the more important takeaways.

Missing the Point

In the report, Accenture modeled three scenarios, which they named “status quo,” “demand disruption,” and “perfect storm.” The second category – which involves falling technology costs that make energy efficiency and distributed generation economic without subsidies, and a moderate penetration of those technologies – is deemed by the authors to be the most probable scenario. Under this scheme there is still an increase in electricity demand (about 200 terawatt hours from 2014 to 2025) but it is about half of the increase projected in the status quo, and so this scenario represents $18 billion in revenue losses annually over the status quo in current retail prices. However, because electricity use is still increasing, utility revenues will still be higher than they were in 2014 (notice that this is simply revenues from selling electricity – the summary does not include effects on utility costs).

The “perfect storm” scenario involves significant grid defection, demand reduction, and an increase in electricity costs to account for it. This is the scenario deemed to lead to $48 billion in revenue losses due to an overall decrease from 2014 electricity demand. The executive summary deems this scenario to “represent a less likely, worst-case outcome” due to “natural limitations on viability and cost constraints.”

Furthermore, Accenture states that these scenarios are not designed to be a scare tactic, but a compelling reason for utilities to revisit their models and be proactive about engaging with policymakers. A survey of 85 utility executives also completed for the report shows that a large majority of them are concerned about competition from new, “disruptive” technologies, and the report indicates that utilities should be involved in the business of determining a new distribution model before it is decided for them. The report also recommends investing in grid optimization (automation, sensing devices, and real-time analytics capabilities), which will improve management and reliability.

Good Tidings

While large numbers and dire statements may draw readership, the report actually may be a sign of good things for energy efficiency. Here are three reasons why:

  1. The report’s authors state that the idea of the utility death spiral, which is often used to state that distributed energy resources represent a severe risk to the current system, “is a myth.”
  2. The report’s most likely scenario estimates that distributed generation will not only be sustainable without subsidies within the next few years, but will also achieve enough market penetration to offset roughly half of the growth in electricity demand through 2025 – which corresponds to a decrease in carbon emissions of roughly 150 million tons, assuming half of the foregone demand is from baseload coal and half is from peaking natural gas. The US would have to reduce its gasoline consumption by 11% in order to cut emissions by that amount.
  3. One of the world’s largest consulting firms just told utilities that these “disruptive” technologies are here to stay, and the best way to deal with them is to start figuring out how to integrate them into the utility business model.

Those three takeaways may not make headlines, but they point towards a good future for distributed technologies.