Power Companies and their “Legacy Grid” Becoming Obsolete

The world is changing very fast for traditional centralized electric companies.  And, no matter how hard FERC tries, that world is NOT changing toward more centralization.

Take a look at this excellent story by Mahesh Bhave at Renewable Energy World.  Here’s how Mr. Bhave starts his article:

I doubt that electricity is fundamentally a wide-area networking service. At first glance, this statement appears absurd. Like telephony or the Internet, electricity enters our homes through outside wires. Is it not therefore a networking service?

The spread of distributed generation, however, calls into question the nature of the electricity business. Rooftop solar panels, with accelerating price drops, no-payment installation options for households, and guaranteed prices lower on average than those of the incumbent utilities by solar companies, brings increasing “grid independence.”

The emergence of micro-grids and community grids also indicate a movement away from centralized, remote generation. California shows how this movement might spread throughout the U.S.; the Public Utilities Commission’s Net Energy Metering ruling on May 24 effectively doubles rooftop solar generation in the state’s utilities system.

More generally, over 1.5 billion people in India, the African continent and elsewhere are literally grid “independent;” they never had grid electricity. Today, they are getting solar-based electric lighting from standalone systems for the first time. The quaint story of a Florida community resisting grid electricity in favor of a certain lifestyle (New York Times, May 27, 2012) may be a harbinger of things to come.

The overall trend is that more and more households are choosing energy self-sufficiency.

And

In the next fifteen years, the importance of the current grid — smartened or not — will wane and a parallel “new intelligent network” may supplant it. This new intelligent network will manage thousands of distributed generation and consumption points, including rooftop solar installations and networked electric appliances. The network management would resemble that of today’s IT networks and would be easy to set up. We would simply treat solar panels, inverters, and appliances as analogous to computers and other electronic devices on the Ethernet.

While the current smart grid projects primarily address the operational concerns of electric utilities, tomorrow’s smarter grid will serve the end customers, and may not even be managed by electric utilities.  Of course, wherever the current grid is in place, which is most of the world, we should make it better and implement the smart grid solutions. But we should realize that parallel intelligent networks would likely be born.

The smart grid discussion is naturally about technology, but it ought to also be about business issues — how firms can adapt to non-traditional competition, industry structure changes, and disruptive innovation. With growing solar rooftop deployments, the traditional electric utilities face threats to their growth, though not to their immediate survival.

As I noted two weeks ago, the Germans are moving ahead rapidly on the new decentralized generation technologies.  As Mr. Bahave points out:

If electricity is not a [centralized] wide-area network service, then the recent push for a smart grid, focused on improving the legacy infrastructure, is misdirected. The greater opportunity — the smarter grid — may be an entirely different network.

The US is now stuck in the past.  US power companies have huge capital investments, that rate payers are paying for, which have limited future value.  Should we really be considering making more of those bad investments at this point?

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