A Tale Of Two Business Models: Could European Utilities Offer Path Forward For U.S. Counterparts?

By Frank Andorka, Senior Correspondent

Two separate pieces today by Bloomberg New Energy Finance illustrate the ever-increasing gap between how utilities in Europe and the United States view distributed generation.

In Europe, research suggests that utilities have come to the realization that distributed generation like solar and wind are becoming what electricity consumers want and, if they expect to thrive into the future, are what utilities will have to provide.

In the United States, on the other hand, utilities continue to invest in centralized distribution and can’t figure out why those investments aren’t allowing them to make the money they have in the past.

Go figure.

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Albert Cheung, head of analysis for Bloomberg NEF, tackles the European side of the issue, saying utilities in those countries are looking at distributed generation as a boon, not a competitor. After all, utilities have the built-in customer bases and expertise to continue offering electricity to their customers even if it’s in a distributed form. Their trusted brand name, after all, carries a lot of weight with consumers. After writing that utilities in Europe appear to be banking on this model, he writes:

If … the value lies in having both scale and a local presence, with a dash of technical and market complexity thrown in, then it may be that our hypotheses prove valid, and that utilities will lead the way into a brave new future of decentralized energy.

Can the same be said in the United States? In fact, at the moment, I can think of at least three situations (without breaking a sweat) where utilities are actively fighting distributed generation because they view it as competition rather than an opportunity. Most utilities in the United States are more interested in investing in technology they know rather than what technology the future will support. And the rub is this: Their customers aren’t buying it any longer.

From BNEF:

Regulated power companies make money by earning a return on capital investments. The business model is simple: the more they spend, the more they earn, all else equal. But investments and profits are ultimately paid for by customers, and sales have not kept pace. Is the utility business model broken?

The simple answer to that final question is yes, and it doesn’t take looking in Europe to find that answer. Even in this country, those utilities that have embraced distributed renewable resources like solar and wind are thriving; those fighting a rear-guard action for nuclear and fossil fuels are not.

It’s time for the utility model in the United States to change and change significantly – and perhaps European utilitiescompanies that have already embraced distributed generation could show the way forward.

More:

Cheung: Decentralized Energy and Flexibility: Reasons to Believe

U.S. Utility Investment is Booming, but Sales Are Not Keeping Up