The headline of this article comes from NRG Energy chief executive David Crane, quoted in the Washington Post story, "Grid parity: Why electric utilities should struggle to sleep at night."
There's been a lot written on this subject recently, and for good reason. With the rapid price declines in renewable energy, plus the volatility of fossil-generated power, grid parity - "when an alternative energy source generates electricity at a cost matching the price of power from the electric grid" - is already here in several states, and coming soon to many more. The question is, what happens to the standard utility business model in a world where it's economical for more and more homeowners and businesses to install solar panels on their roof (as well as to store the power using increasingly affordable batteries), and to rely less and less on the utility's centrally-produced power? According to David Crane, it's not a question of whether or not the grid gets disrupted -- "The only question is do you want to be the disruptor or do you want to get disrupted.”
What should utilities do in order to adapt to this rapidly changing business environment? There are a number of potential options, but one thing's for sure: utilities can't just stick their heads in the sand and hope these trends will stop or reverse. They won't. Which is why forward-thinking power executives, like David Crane, are thinking outside the box.
NRG already owns large solar farms that sell energy to utilities, and commercial sites that generate power for businesses. It also delivers electricity to about 3 million customers through its retail businesses. Moving into the residential solar market offers the chance to boost sales to consumers.
“The most valuable customers for us are the home energy customers,” where margins are higher, Crane said.
Crane detailed his vision of the evolving energy industry in an annual letter to shareholders yesterday. A national network of transmission lines that connects large solar projects and wind farms in remote sites would be “an expensive and pointless white elephant,” he said.
NRG foresees “a prolonged period through which the traditional centralized grid-based power system co-exists with the fast-emerging high-growth distributed generation sector,” Crane wrote. “We are doing everything in our power to head in that direction.”
Also thinking about the future for utilities is former Energy Secretary Steven Chu, who recently discussed how they might avoid a "death spiral."
In Chu’s business model, utilities will borrow money—because “utility companies get to borrow money as inexpensively as just about anyone in the United States”—to buy rooftop solar modules and batteries. Then they’ll partner with private rooftop-solar installation firms—”because I don’t expect a utility company to figure out how to do that”—to install rooftop panels and batteries at customer homes.
The utility will own the panels and batteries and sell electricity to the customers at a much lower rate.
Customers would not only get lower rates, they would get solar power without having to pay for installation, Chu said, and they would get a battery backup that can keep the lights on and the refrigerator running for up to a week in a power outage.
Utility companies, meanwhile, would benefit from a distributed network of panels and batteries “where they need it the most, at the end of the distribution system, for grid stability.”
Chu’s idea allows utility companies to expand without installing new transmission lines, completing environmental impact reports, “and all of that stuff,” he said.
Sounds like a plan, as the saying goes. Of course, the key is getting buy-in from utilities and implementing the transition effectively. Easier said than done, perhaps, but what are the alternatives? That is, other than utilities keeping their heads planted firmly in the sand, getting disrupted, and entering a highly unpleasant - not to mention unprofitable - "death spiral?"