Dear Utilities, Adapt Or Die

A new world is coming into focus, as the connected home arises from the ashes of utilities who once just had to keep the lights on.

Millennials and minorities, soon to become the American majority, want to lead zero-net lives in solar homes – and they want utilities to work it all out before they move in. And if the utilities don’t get on board, then consumers will find someone who will. Because it is inevitable: someone else will.

That about sums up the well-connected Shelton Group’s annual Energy Pulse study, its 10th. By the time its 20th comes in, consumers will likely have all of the aforementioned amenities – and utilities will have learned to live and perhaps even capitalize upon it.

I spoke with the Shelton Group’s vice-president of research Lee Ann Head about how both producers and consumers of this solarized, internetworked future can work together to make it happen even faster, as uncertain elections and regulated emissions draw near.

It’s all good news – unless you’re a utility circling the wagons.

What do you think is the greatest takeaway from this year’s Energy Pulse study?

The greatest takeaway is that consumers in the U.S. are not satisfied with their electrical utilities. The energy industry is in a state of flux. There are pretty dramatic changes coming down the pike in, at minimum, the next five to 10 years. Alternative energy and the connected home are going to change things quite rapidly. So utilities really need to be focusing on adopting new technology, improving customer engagement, communication channels and interaction options – or they could lose customers.

How has the solar industry changed the utilities in the last few years, and how do you see that evolving in the years to come?

Well, consumers love renewable energy. We ask the question every year in our Energy Pulse study: If you were President of the United States, and you could provide financial support for the exploration and development of one form of energy, which would you choose? And 40 percent chose solar, out of all of the varieties of energy generation, so Americans love the concept. Solar significantly beat coal and natural gas even when we asked people to name a form of energy they favored off the top of their heads: 54 percent of Americans, unaided, think of solar when they think of energy generation. But the reality is, as a percentage of their overall portfolio, most American utilities aren’t producing solar energy, even though it is Americans’ preferred form of generation. So if their utilities aren’t providing it, and new methods of solar ownership or leasing become available to bring its price point down, consumers are going to find someone else who can provide it for them.

Do you see utilities moving quickly enough into the solar space to address this disconnect, or remaining intransigent until they can’t any more?

I think there is intransigence on the part of utilities. But from a regulatory policy standpoint, there is also discomfort with the idea of electrical utilities installing solar panels on roofs and then owning, leasing, managing or renting them. There is interesting pushback from a lot of states, which hasn’t been doing anyone any good. Obviously, there are a lot of utilities out there that have investment in coal-power generation and nuclear power plants, and are reluctant to shift them.

But I think some are definitely interested in adding solar to the mix, because they are seeing a huge consumer demand for it. As solar costs come down for consumers, they come down for the utilities as well. It has become a more cost-effective alternative, especially over the last few years. And who knows what is going to happen now with a Republican Congress, but the Environmental Protection Agency’s new carbon dioxide emissions regulations are definitely changing things. As utilities begin to comply with the EPA’s new rules, solar and other renewable energy generation will begin to look even more cost-effective.

It seems pretty clear from your study that consumers want change. Did you get a sense that their pressure is working?

Consumer pressure is certainly influencing the speed at which utilities adopt renewable energy. Sixty percent of consumers feel it is important for their utilities pursue renewables. Yet when we ask if their utilities are doing this, only 30 percent say it is happening. On a related note, less than half of U.S. residents feel their utilities are environmentally responsible. I think those two things together are driving actions on the part of utilities. Certainly, there is growing demand for change on the part of consumers.

Let’s fast forward to 2016. Do you see this growing demand for solar and renewable energy playing a part in the presidential election?

Well, we don’t know if the Investment Tax Credit will be renewed, which would certainly help the solar industry. But with the Republican Congress, we don’t know if that will happen. If it doesn’t, I’ve read pundits on both sides of the issue wonder if renewable energy will be able to maintain its growth without incentives. That’s definitely an electoral unknown. From a regulatory perspective, what happens with carbon dioxide emissions and the utilities is also an unknown, and could swing momentum either way. And I also think there are environmental issues in play.

Is there a sense that the American majority has turned the corner on solar? That even if Congress kills off popular tax credits, private players will step up?

Maybe, and while I don’t have the answer to that, a lot of people are wondering about it. I think a case can be made that growth in the solar industry will happen even if the tax incentives aren’t in place. I will say this: I think utilities are beginning to see the business case for getting more directly involved with distributed generation. We’ve done recent work for a couple utilities and what we’ve seen is that consumers have given them permission to play in that space. I think there is a lot of money being left on the table. In the end, what I think a lot of state public utility commissions need to understand is that renewable energy is what consumers want. There is a protectionist mentality among the utilities that is holding back a lot of market activity in the industry.

This was your 10th Energy Pulse study, so let’s timewarp to your 20th. What does 2025 look like?

I think what is happening in the connected home is a game-changer. Technology-assisted energy efficiency and consumption reduction, distributed generation and battery storage: It’s going to be a whole new game, in a decade. I think an awful lot of the effort that the energy industry has traditionally put toward consumption reduction – trying to get consumers to adopt conservation behaviors and invest in energy-efficient home improvements – is going to be unnecessary, as new high-performance, zero-energy homes are built and become a much larger percentage of the housing stock. What we’re hearing now over and over from Americans is that they already want energy-efficient homes powered by renewable energy – but they don’t want to work hard for it and spend a ton out of pocket. They really have a strong do-it-for-me attitude – and in 10 more years, much of it is going to be done for them.

As your study said, millennials and others becoming the majority expect innovation and efficiency as a first principle.

That’s right. If the utility industry does not offer the technologically advanced renewable energy products and services these consumers are looking for, then they will find competition from other players in the market who will give it to them. Comcast already has a pilot program selling energy to consumers as a third-party retailer, in markets where that is allowed, and also provides demand response services in partnership with a utility in Texas. They’re getting into this pocket right now because they’ve got the platform. If they can lock consumers into connected home and energy management services, it creates more stickiness for them. Adding a Nest thermostat to their package means they’re able to sign contracts with customers who are less likely to switch to, say, Netflix. The business proposition for them is to get a bigger piece of the whole pie.

This article appeared at Solar Energy

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