I recently attended a gathering of utility and regulatory
leaders in Chicago to discuss the future of the electric utility
landscape in North America. The traditional electric utility
business model is being challenged by new, entrepreneurial and
unregulated businesses. These new market players are emerging at
the confluence of technology innovation and consumer empowerment
and their capacity to compete is accelerating every day.
Across North America, declining costs and improved performance of
distributed generation (DG) and grid management technologies are
expanding the range of electricity supply options available to
customers. With greater choice comes greater empowerment and the
marketplace is demanding a continuum of possible service solutions.
This continuum includes the following, as well as a number of
options that fall in between:
Traditional Utilities: Various similar models
where monopoly providers of electricity service prudently invest in
capital assets on the customers' behalf and secure energy from
large centralized power plants. Delivery occurs in a defined
service territory through bundled products that are regulated to
recover system costs and provide a reasonable rate of return.
Combined Grid and Distributed Services: An
emerging model offering grid-connected DG as well as grid
reliability and ancillary services. The customer is both a producer
and a consumer ("Prosumer").
Enhanced Off-grid: An off-grid model in which
electricity and reliability services leverage DG and
micro-distributed generation. Improving storage solutions will
Across the continent, accelerated deployment of distributed and
smart technologies presents a number of benefits that are well-documented. Growth in the distributed
energy economy also presents a myriad of challenges, particularly
on the utility side of the meter. First, technical management of
emerging DG, such as solar photovoltaic and wind, is a challenge
due to the variable nature of the supply. Second, grid management
is more complex. Systems mostly designed for one-way flow and
communication must now accommodate two-way flows.
As utilities wrangle with these issues, other business-oriented
challenges that are departures from the norm will begin to emerge
as well. Principally, market trends suggest that as innovation
drives ever-growing DG deployments, alternative and unregulated
players are likely to usurp and offer more of a utility's
services. As customers choose these services and migrate toward the
off-grid arrangement on the continuum, utilities and regulators
begin facing an intricate web of practicable issues. Advances in
DG, communication/controls technology, electric vehicles and
storage applications are opening new opportunities for investment
and value generation. However, they also change the operational and
financial realities for distribution grid operators. Departure from
the existing business model represents a changing utility position
in the marketplace, where utility services become competitively
procured products and management of system resources becomes more
strongly predicated on operational, temporal and geographic
What's disconcerting for utility companies and regulators is
that, as customers are lost, the utility must spread fixed costs
across a dwindling market, thereby increasing costs per customer.
Inevitably, this declining customer base causes the alternative
services to become more and more competitive as time passes.
Historically, utilities have had significant control over their
market. They will have less and less control as the new electricity
ecosystem evolves. These trends have been called the "utility
death spiral" —ominous indeed. But instead, I propose
that a "vortex of opportunity" exists for the adaptable
utility company. Change is inevitable, though it will not be
Empowered customers prefer a well-developed set of choices, and
contrary to some beliefs, actually thrive in complexity. Therefore,
there will be a growing need for stronger and more elegant
coordination. Utilities are well-positioned to offer this
coordination and better manage the investment in the deployment and
functioning of the future distribution system.
Utilities have a place to compete in the DG resource marketplace
and smart-grid ecosystem. To play a key role in this evolution,
utilities must focus on strategic efforts over the next decade to
promote regulatory structures, cost allocation methodologies for
grid services and appropriate pricing signals in the market.
My next blog will explore more specific examples of how DG
technologies are disruptive and how fixed cost allocations might be
adapted to better align growth in DG with market realities in the
short- to medium-term.
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guide to the subject matter. Specialist advice should be sought
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Canada is a constitutional monarchy, a parliamentary democracy and a federation comprised of ten provinces and three territories. Canada's judiciary is independent of the legislative and executive branches of Government.
The Government of Alberta recently announced a number of policy changes that will impact the Alberta Electricity Market, composed of its generators, transmitters, distributors, retailers, electricity consumers and wholesale electricity market.
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