Utility business model is dying fast, claims European consultant

Quick take: I don't envy utility CEOs, who've seen more change in the last five years than in the 50 previous. But just in case they don't have enough to worry about, here is a noted European consultant who warns that the traditional regulated business model is failing... and is doing so faster than anyone realizes. ? He thinks we should look to the telecommunications industry for lessons, since they seem to have solved some of the

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problems that still face us. If we did that, he says, utilities could start giving away gear as part of a long-term energy contract (the way phone companies give away free cell phones).

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I have often wondered why we don't look to telecommunications for possible solutions. Sure, I understand that the two sectors have big differences. Even so, we have similarities too. Can't we learn from their mistakes and lessons? Use the Talk Back form to comment and the Quick Poll to vote. ? Jesse Berst

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Trust in energy utilities across Europe has reached an all-time low, according to Jonathan Lane, GlobalData?s Head of Consulting for Power and Utilities. ?He cites the current debate in the UK surrounding its proposed new Energy Bill and related discussions across the continent where he says utilities are charging customers progressively more and often delivering less as intermittent renewables undermine grid stability.

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He asks if it isn't time for utilities to switch to a telco-style business model, before it's too late.

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?The traditional utility business model is dying and the end may come more quickly than we think,? says Lane. Acknowledging that there are some fixed costs in the traditional model, he argues that the industry's focus on largely variable pricing is in contrast to other sectors such as telecommunications, pay-TV, Internet and water, where both the input costs and consumer prices are largely fixed.

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Lane points to development of the mobile telecommunications sector as an example.

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?The scale and low cost of mobile handset and smart phone production means that Mobile Network Operators (MNOs) are able to provide devices for free as part of service contracts. This is now happening in energy as solar PV prices collapse as the technology scales.?

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The Solar Energy Industries Association reports that PV module prices fell to $4/W in H1 2012 from $8/W in 2009. If electricity prices continue to rise at 10% a year, Lane thinks it will be no time at all before energy utilities are able to offer service contracts with free hardware, in a model already deployed in the telecommunications sector.

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?All of these changes are accelerating more quickly than one could have imagined only a year ago and energy utilities need to catch up quick or see their business models collapse around their ears," he says. "Indeed, for many consumers energy utilities would not be the provider of choice for a telco-style service contract with free hardware.?

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You might also be interested in?

Electronomics: Why utilities must invent their own future

Why utility CEOs are asking the wrong question (and what they should ask instead)

The coming renaissance in electric power retailing (and what it means for the smart grid)

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Jesse Berst is the founder and chief analyst of Smart Grid News.com, the industry's oldest and largest smart grid site. A frequent keynoter at industry events in the U.S. and abroad, he also serves on advisory committees for Pacific Northwest National Laboratory and the Institute for Electric Efficiency. He often provides strategic consulting to large corporations and venture-backed startups. He is a member of the advisory boards of GridGlo and Calico Energy Services.

Source: http://www.smartgridnews.com/artman/publish/News_Commentary/Utility-business-model-is-dying-fast-claims-European-consultant-5330.html

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