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Wednesday, February 18, 2015

The Slow Decline of Electric Utilities

Some investors like to buy electric utility stocks for their dividend yield, thinking that their government-mandated monopoly position makes the capital investment “safe.” Nothing could be further from the truth and such investors may finally be realizing they are investing in something like the Titanic as it heads for the iceberg.

Tony Seba in Clean Disruption of Energy and Transportation: How Silicon Valley Will Make Oil, Nuclear, Natural Gas, Coal, Electric Utilities and Conventional Cars Obsolete by 2030 makes an important point:

The conventional landline telephone companies did not die. When the world adopted mobile phones in the early 1990s, most people kept their landlines as a backup. But as the quality of cell phones improved and users got comfortable with them, they unplugged their landline phones. Users who grew up with cell phones never made the acquaintance of the landline. Developing countries that had no landline infrastructure to speak of just leapfrogged to a mobile communications infrastructure.

During the current distributed solar disruption wave, homes and businesses will use the utilities as a battery backup—an expensive but necessary backup. Power utilities have existed for a century without having to compete for customers. This state of monopoly bliss is nearly over. Now the utility has to share the customer (or “rate payer”) with two technology-based, exponentially improving companies: the PV provider and the energy-management provider.

The power utilities will soon be experiencing a vicious cycle of lower demand and rising costs while the market provides lower costs and a higher quality of service.

The next wave of disruption will occur when electricity storage is cheap enough for users to store some of their daily production or usage. A convergence of technologies is lowering the cost of solar power and increasing the quality exponentially:

  • The cost of batteries is dropping and the quality of batteries is improving.
  • Intelligent energy management devices are making energy usage more efficient. These devices are enabled by rising quality and lower costs in machine learning software, sensors, and communications (think NEST).
  • Solar PV costs are dropping.
  • Utility costs are rising.

Most think that grid defection by the vast majority of electric users simply won't happen. But, then, what did they say about landline phone service when cell phones first appeared?