Increased electrical efficiency may be disrupting utilities’ current business models
Many electrical utility companies have for years encouraged their users to utilize energy-efficient products. Some even offer rebates or incentives for customers who choose to do an upgrade or retrofit.
However, if you think about it, that means that electrical utilities have been working towards their own demise all along. They are encouraging their own customers to use less of their product. This seems a bit backwards by any marketing standard. You could even go so far as to say that the energy-efficiency industry is a competitor for utilities whose share prices and dividends depend on selling more kilowatt-hours every year.
In other words, utilities rely on selling power AND at the same time they’re encouraging us to not use power. Hmmm….
The demand for electricity has previously been considered a factor in economic growth. The current economic recovery is finally making itself known in a variety of ways – increased consumer confidence and spending, increased gross domestic product, increased construction starts, and more. However, we’re now seeing that even with these other factors climbing, sales of KWh are steadily decreasing. Perhaps all that work in encouraging the use of energy-efficient products is finally paying off.
Most electrical utilities are guaranteed a rate of return, based on a valuation of their capital investments in their necessary equipment – meters, substations, pylons, power lines, etc. Utility customers pay that rate of return through the kilowatt-hour charges that appear on their monthly bill. Currently, that return is spread across thousands of customers within each market. So what happens when that guaranteed return is spread over a decreasing amount of kilowatt-hours sold? I anticipate several possibilities:
- They will have to forfeit their profits (not likely)
- They will be forced to reduce expansion and upgrades
- They will raise electricity rates
- They will have to re-examine their business model
I encourage you to check out David Roberts’ series Utilities for Dummies at grist.org. He does a great job of reviewing the current electrical utility business model and addressing the problems that they will run into down the road towards efficiency.