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3 game-changing trends that defined the electricity industry's annual convention this week in Las Vegas

This week, the Opower team was excited to be on the ground in Las Vegas at the Edison Electric Institute's (EEI) Annual Convention — where the movers and shakers of the electric power sector showed up in force to discuss the hot issues, challenges, and opportunities facing their industry.

Speakers included Warren Buffett, former Secretary of Defense Robert Gates, and leading executives and analysts from across the utility world.

Throughout our conversations with industry leaders before and during the conference, three key trends emerged — long-term shifts that are shaping the future of electric companies and redefining what it means to be a utility customer in the 21st century.

 

TREND #1: Consumers are pursuing distributed generation

Across the world, solar capacity is expanding rapidly. It took almost four decades for the industry to install 50 GW of PV capacity, but in just the past two and a half years that capacity has doubled. Analysts estimate it will double again by 2015. At the same time, the price of solar is plummeting, having dropped 99% in the past 20 years.

As energy storage technology matures and regulators continue supporting these new market entrants, customers will have more options. It will become easier for consumers to decide whether to buy power (and from whom) or whether to generate it. Many opportunities emerge from a world in which customer choice is more common, and utilities have a variety of options. They can decide to fight solar and distributed generation, or to support it, or even to become a retailer of these new technologies. But no matter which path they choose, one thing is clear: accomplishing any of those goals will involve deep engagement with the customer. Customer relationships are not the silver bullet—there is no one answer—but when utilities can strengthen their position as a customer’s trusted energy advisor, they can become the interface through which customers explore distributed generation. By becoming a trusted energy advisor, utilities remain involved in the conversation, and remain positioned for success no matter which path they choose. It all depends on customer relationships.

 

TREND #2: Electric demand is flattening and energy prices are falling

Electricity demand growth is slowing. As the Energy Information Administration writes: “Although electricity demand fell in only three years between 1950 and 2007, it declined in four of the five years between 2008 and 2012.” The EIA attributes this drop in part to the economic downturn from late 2007 to 2009, as well as to the overall improvement in the efficiency of electricity-consuming technologies. Even as the U.S. economy recovers, the EIA projects electricity demand growth will slow.

What’s more, electricity prices are slowing at even faster rates, as compared to GDP. The EIA projects that prices will not return to 2007 levels until approximately 2030. Faced with slowing demand and low prices, utilities must find ways to reduce their own business costs and succeed. With forecasts calling for flat load growth — and several factors putting downward pressure on prices — many utilities are directing their attention to optimizing operational costs. Utility expenditures on transmission and distribution maintenance are expected to increase, even as load is expected to decrease. This investment is primarily associated with aging infrastructure and increased expectations of reliability. The good news is that there are other opportunities to lower costs, especially in customer-facing organizations and programs. In particular, utilities can benefit from transforming their customer care centers into an energy advisor model — resulting in lower costs through self service and higher customer satisfaction through better user experiences.

 

TREND #3: New regulations are hitting the generation stack

On June 2, the EPA announced the first-ever rule to limit emissions from the U.S. electricity sector, which currently accounts for over 30% of U.S. carbon emissions. The proposed rules requires utilities to cut carbon dioxide emissions from existing plants by 30% by 2030, against a 2005 baseline.  

These aggressive regulations provide each state a specific goal “tailored to its own circumstances, and states have the flexibility to reach their goal in whatever way works best for them.” Under the proposed rule, utilities can employ a variety of measures — including “outside the fenceline” approaches like renewable energy standards and demand side management — to meet the targets for carbon reduction. With the recent announcement of EPA’s carbon regulations, utilities must look beyond their existing generation stack to supply reliable energy services for their customers. These regulations will require utilities to work across both the supply side and the demand side to achieve stringent requirements. Fortunately, utilities have the opportunity to unlock a massive resource that has largely gone untapped: their customers. A recent study by the American Council for an Energy Efficient Economy found that it costs utilities just 2.8 cents on average to reduce electricity consumption by 1 kWh — which is two to three times less than it costs to generate the same amount of electricity at a power plant. Through implementing energy efficiency and demand response, utilities can tap their customers for scalable, cost-effective, and reliable capacity.

 

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