It's Time for Disruptors to Break Into the Retail Energy Market
If the big boys won't play, it's time for someone else to step up to the plate.
I'm not thinking about baseball. In fact, 2020 almost killed my interest in professional sports due to it turning from a game to a political movement. No thanks. And it seems that I am not the only one as ratings continue to tank. Before I get completely off track about baseball and other mayhem caused by people who make too much money for controlling a rather exclusive business... Wait a minute, that's exactly where I was going with this from the start.
For more than a century, the utilities who controlled the power grid, generated the electricity, and served the customers however they damned well pleased enjoyed a monopoly market with token regulatory control. They basically had a license to print money, and consumers could like it or lump it.
Guess what? The game is changing. Consumers are starting to say, "Lump it!" And many of those consumers (i.e., big businesses) have the clout to take their game elsewhere and find a new lineup of players.
The question now is: who will take to the field to serve these consumers hungry for affordable, abundant, reliable, and clean energy?
In a series of six blog posts, I'll propose a solution for disruptors to finally break through in the energy industry and give customers their desired clean energy.
Why the Big Boys Struggle with the New Game
Building out a power grid across a country, especially one as expansive and sprawling as the United States, presented a challenge that could be met mostly by big businesses — with the help of the government.
In urban areas, where customers were plentiful and distances were less, utilities could build the grid and recoup their cost from customers. For their investment, they were granted monopoly status to serve all the customers on their grid, with the government maintaining regulatory control to ensure they provided adequate service and didn't get too out of line with rates.
In rural expanses, the government had to step in with the Rural Electrification Act. It provided the funding and set up electrical co-ops to serve those costly customers.
These systems created two situations that set up a roadblock to serving 21st-century customers:
Monopoly status prevented companies from developing a customer-focused culture. Large utilities need to overcome the attitude that says, "We provide the electricity through the method that works best for us. And you pay." Still today, you will hear people in the industry talk about their customers as "ratepayers." In an age when technology has given consumers control over their buying habits, that attitude no longer works.
The system was designed to push centralized power out to the grid and to consumers ("the nodes"). The system had no mechanism to accept power back when consumers decided to generate their own power. The system also had no way to distinguish the source of power, whether it came from a coal plant, a natural gas plant, or a nuclear reactor. In other words, the grid was never designed to be decentralized pushing power from you to me and me to you.
Consumers are demanding green energy, and — even when the utilities did enter the renewable energy market — they had no capacity to direct their green energy to the consumers demanding it. Facebook's Bobby Hollis, Director of Global Energy, Environment and Site Selection, made this point abundantly clear: "One of our biggest challenges has been the nature of the energy sector in general. Electric utilities' traditional business model hasn't typically allowed customers to pick where their energy comes from."
Will the heavy hitters be able to adapt adequately to avoid going down swinging? Let's just say I have my doubts.
Is the Game Really Ready to Change?
The road to a cleaner energy future already is littered with failures backed by billions of dollars from Silicon Valley and investors across the globe. Many of these disruptive startups seemed to have the goods to challenge the old guard. But they stumbled along the way as existing technologies got cheaper, production costs kept piling up, and delays extended the timeline beyond where investors expected to see a return on their money.
In the meantime, consumer demands have changed, multiplying opportunities for clean energy providers. I'm not talking here about the lovely residential consumer who wants to put solar panels on their roof or a small wind turbine in their back yard.
We're talking giant energy consumers like Facebook, Google, and Microsoft — the kinds of consumers who can bend utility companies to their will by their sheer size, need, and deep pocketbooks.
It's not just a few big players, either. RE100 has piled up 221 corporations who have set specific goals for when they will achieve 100 percent use of renewable energies. They've committed to reporting their progress and holding each other accountable for achieving their goals. In 2017, RE100 companies consumed an estimated 189 terawatt-hours of electricity, according to BloombergNEF, which forecasts that those companies alone will require an extra 190 TWh of clean energy to meet their goals in 2030.
Some 789 companies are committed to reducing their carbon emissions footprint through the Science-Based Targets initiative, up from 515 a year ago.
Most of these companies are working through Power Purchase Agreements (PPA) with existing energy providers. But they continue to struggle for clean energy sources that can meet their demand 24/7.
For example, Google outlines its commitment to renewable energy in its sustainability blog and whitepaper: The Internet is 24/7 — carbon-free energy should be, too. Even a data center in Iowa, built to access energy from massive wind farms erected specifically for Google, cannot get away from some carbon-based energy usage. The wind doesn't blow constantly, even in Iowa.
The wind farms do generate about 20 percent more energy annually than Google requires for the data center, but not on a 24/7 basis. Storing that excess energy is not a cost-effective alternative at this point. Google's solution for the time being it to buy all the wind energy and pump it back into the grid to more than cover its use of carbon-based energy, but it admits this isn't the perfect solution. Google still aims for a carbon-free future.
Microsoft recently paid heavy exit fees (approximately $23.6 million) to get out of a PPA with Puget Sound Energy because PSE could not procure the necessary renewable energies demanded by Microsoft.
These actions and more are paving the way for what I believe to be the future of the renewable energy industry — Local Energy Markets, or what I'm calling Retail 2.0.
How Can Local Energy Markets Succeed?
Local energy markets can succeed where the big boys have not by hyper-focusing on meeting consumer needs with the proper solutions available in their specific environments.
It's already happening in many ways:
- Across the United States, more than 200 cities and counties, 11 states, Puerto Rico, and the District of Columbia have a 100 percent clean or renewable energy commitment or achievement — yes, 100 percent, according to UCLA Luskin Center for Innovation. This means 1 in 3 Americans already live in a city or state that has committed to, or achieved, 100 percent clean electricity.
- 250 U.S. mayors have committed to procure 100 percent renewable energy for their cities by 2035, in accordance with the U.N. Climate Change initiative.
- More than 100 cities globally now get at least 70 percent of their electricity from renewable sources such as hydro, geothermal, solar, and wind, the Carbon Disclosure Project reports.
As heavyweight consumers like Microsoft, Facebook, and Google have discovered, meeting these demands by relying on existing utilities is not going to happen.
Those utilities must struggle against not only their outdated culture but also how to bring to bear the new technologies across an antiquated metering system. It's the only way to truly give customers the green energy they demand.
New players, with an agile mindset and a hyper-focus on localized solutions, must poise themselves to latch onto this demand and meet the customer-centric needs. These players certainly will face their own set of challenges to meet customer expectations, drive their product into market, and satisfy investors' demands for return.
The opportunity has never been greater and never been more crucial to push for disruptive change in the energy sector. It won't be easy. It won't be fast. But it will be possible. And it will be necessary.
Over this series of six blog posts, I will go into much more detail about how I believe a Retail 2.0 experience in the energy sector can drive local energy markets into the forefront of meeting consumer demands for affordable, reliable, abundant, and clean energy.
I'm striving for some deep thinking here, not only from me but from you, as well. I'm looking to push the envelope, to inspire you to think more expansively, to gather some collective intelligence that can lead us to a new energy future, and to start a conversation.
In the next post, I'm going to analyze the different business models that have driven utility companies through the past century, where those models have worked, and where they have failed. Understanding our history will free us to push into a new future.