In the wake of the energy revolution that unfolds quietly (see our post on solar power), power utilities face tough decisions. Their model is generally an industrial-age model where efficiency is gain by ever bigger power stations that benefit from scale effects to produce cheap power.
The drawback is of course, the size of these stations and the related need for a very extensive distribution network, and also that to be profitable, investments need to be used for a large number of decades. Nuclear Power Plants for example, are now typically designed to last 60 years or more to amortize the investment cost.
Today, those utilities face a double threat:
- the development of competitive distributed generation, which diminishes consumption from centralized stations and creates distribution network instability,
- the increasing cost and lack of proper control on large power stations investments, for a variety of factors.
Centralized production capability will remain needed for a long time, in particular due to large industrial consumers and the need to have the capability to support power networks in case of extreme conditions. Yet it is will become increasingly difficult to justify the huge investments with the uncertainties of the market over the next decades. A major factor will be to be much more reliable in predicting the actual cost and schedule of construction projects. Some effort is needed in that respect in the power industry.
Utilities will soon face significant challenges to their traditional business model and they’d better take the issue upfront than become defensive. A major shift will happen, and as in all good things, a balanced approach that can be adaptable is always better than to bet too much on a single way of producing power. With some effort, thanks to our connectivity and processing capability, we will be able to manage the associated complexity of multiple sources of energy.
