Does Disruptive Competition Mean a Death Spiral for Electric Utilities

Abstract

Synopsis: A surge in rooftop solar installations leads a wave of innovation in energy markets that manifests as disruptive competition for electric utilities. These innovations are emerging not only in technology but in public policy, social preferences, and business practices as well. Risks to the stability of current arrangements in the power sector are real, but regulatory protections cannot entirely insulate utilities from all such challenges. Legal protections should not be interpreted as an absolute right to reclaim value lost to competition. Electricity is central to social, economic, security, and environmental necessities. The institutional forms through which power is provided and utilized reflects historical factors and policy goals that can change over time. Leaders in the emerging environment will succeed by focusing on strategies that create new value for customers and that demonstrate nimble responsiveness to the broader contextual demands on energy systems, perhaps particularly during a time of rapid change.I. INTRODUCTIONA surge in rooftop solar systems in the United States is driving heated debate about the future shape of the electric power sector, especially the status of electric utilities. Are legacy utilities, which have served public interests for more than a century, becoming obsolete? If so, with what implications for the industry and for society? If not, what role will they have in the emerging sector? With market and regulatory conventions in substantial flux, the fundamental question is whether changes underway will lead to a more resilient, sustainable energy system or simply destabilize the present one.The characterization of renewable energy innovations, such as rooftop solar, as a mortal threat1 or radical threat2 to utilities and utilities themselves as in a death spiral3 reflects an awareness that unconventional risks have emerged. However, most analyses fail to explain how this has occurred, what it signifies more broadly, and what-if anything-utilities might do to thrive in the new environment. This potentially increases risks both to utilities themselves and to society, which depends upon the availability of safe, secure, accessible, and abundant energy. The question is not simply whether the current business model of utilities will survive but, if not, what might take its place.4Threats to the status quo are not predictive of certain collapse as much as indicative of serious risks to utilities and to society. We seek to place an understanding of these risks into a historical and analytical framework that highlights the critical role of strategic decision-making under rapidly emerging conditions of disruptive competition in the historically protected utility sector. Others commonly equate disruptive challenges with the impacts of new technology,5 but that severely mischaracterizes the problem facing electric utilities and underestimates its impact. Even a notion like big bang disruption,6 which combines technological and business innovation, is incomplete. We propose that disruptive competition signifies a synergistic wave of innovations occurring in several sectors at once-technology research and development, policy development, social and cultural preferences, scientific investigation, and business. Disruptive competition facing electric utilities involves the entry of new ideas and actors in all of these sectors, calling into question basic assumptions in ways that can fundamentally transform market structure.This synergistic wave, not technology alone, is what utilities experience as a threat and risk to their established business model. The surge in distributed solar PV installations is best understood as the leading edge of this wave, which should be expected to bring more new ideas, actors, and technological breakthroughs. Utilities are not, by definition, unable to ride that wave, but doing so requires some dramatic strategic shifts to which they are not accustomed. …

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 56 citations exist upstream.