The gas and electric utility industry, historically known as staid and reliable, is being pushed into the Digital Age by regulations, technology, and even its customers.
A survey published on Tuesday done by researcher Platts and consulting company Capgemini paints a picture of utility industry executives struggling with uncertainty and risk.
Utilities expect to deal with environmental protection laws, but the nature of any new rules is still unclear. Also there are several smart-grid technologies which can improve energy efficiency and boost renewable energy, but the industry tends to be reluctant to change, said Andy Roehr, the vice president of smart-energy services at Capgemini's North America utilities practice.
"There's not a lot of incentive to go out on the leading edge and there's a hell of a lot of risk if you fail," Roehr said. "There's no first mover advantage in a monopoly...Most utilities will be fast followers and watch the early guys."
Regulation and environment were the top two concerns for the 106 utility executives surveyed. No energy and climate bill has been passed, but national mandates for efficiency or renewable energy and limits on carbon dioxide emissions are being discussed, which would directly affect power generation facilities. Eighty percent of respondents said they are dissatisfied with the Obama administration's energy policy after one year.
Beyond environmental laws, though, there's a movement away from traditional regulations, where utilities receive a return on investments from new power plant construction. Instead, some states have created financial incentives around efficiency, which can eliminate the need to build more power plants. A utility could, for example, install software-based demand-response system to ratchet down energy use during peak times.
Investments in efficiency, such as demand response, can have a quicker return on investment compared to building new power generation capacity or even installing smart meters, Roehr said. In general, regulations don't take into account the "social good" of investing in efficiency, he said.
"If you want a sea change in how utilities operate, you're going to have to have a sea change in how they are regulated, incented, and compensated," he said.
Rates will go up
The annual survey found that technology was the third highest priority for utility executives, marking the first time that it made the list of top five concerns in the past four years.
In addition to using more solar and wind, utilities are also investing in smart meters and investigating technology, such as flywheel storage or capturing and storing carbon dioxide emissions from coal plants underground. Many utilities are exploring technology to diversify their energy source, said Roehr.
Meanwhile, there's a cadre of consumers which is nudging utilities to differentiate their service. For example, some consumers are willing to purchase solar or wind power.
There's a concern that environmental regulations and rising energy prices will drive up the cost of electricity in the future. But Roehr said that electricity prices will go up regardless, simply because growing demand for electricity is wearing out grid equipment faster than in previous years. "When we built out the highway system in the 1950s, it was built in advance of demand," he said. "With the grid, we have consumed all the capacity. Sometimes we're running at 125 percent of capacity."
A push to modernize systems to keep up with rising demand is one of the reasons that utilities are looking at the latest generation of energy technologies.
"Tesla and Edison could come and run a utility today. It hasn't changed," said Roehr. "We really have 50- to 70-year old equipment and now (utilities) have to climb a learning curve fast."