Energy Efficiency Undercuts Utility Business Models
Energy efficiency is already disrupting utility business models in the United States, with 40 years of electricity end use data pointing to a 25-year drop in consumption.
“While warmer summers require utilities to maintain generation capacity, warmer winters and energy efficiency starkly reduce demand the rest of the year, cutting into utility companies’ cash flow and bottom line,” write Shakeb Afsah and Kendyl Salcito of the CO2 Scorecard Group and Nicola Limodio of the London School of Economics. “This may be good news for consumers who watch their electricity bills drop, but it’s a real problem for power companies.”
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The gap between overall and seasonal demand requires utilities to maintain capacity for peak periods, but undercuts their cash flow and bottom line, Tom Schueneman writes on The Energy Collective. If that trend continues, utilities “will be forced to increase the price of electricity to cover costs,” the report authors note.
“But increased price will only strengthen the incentives for more electricity conservation and boost the demand for rooftop solar with net metering. We see this action-and-reaction as a disruptive force that could trigger radical reform of the power sector’s obsolete business model.”