New Business and Regulatory Models for Utilities of the Future

The electricity sector could soon be in turmoil as technological advances, mainly in distributed energy resources (DER), threaten to disrupt the market, both upstream and downstream, and possibly even make the current role of utilities obsolete. Up to now, no single universal regulatory or business model solution has emerged to accommodate and support these changes. What is currently available are diverse, local specific proposals.

New technologies may result in two consequences that business and regulatory models cannot ignore. Firstly, local considerations would become increasingly important at the expense of national policies. Secondly, calls would increase for further unbundling of activities, products and services, which include reliability (MW), energy (MWh), system savings (NWh) and environmental benefits (CO2 emission reductions).

Distributed technologies have shown that it is no longer possible to lump costs and cross-subsidise activities. Thus, successful future utility business models will be those that are able to create new products, establish more efficient pricing mechanisms and monetise services, that customers could no longer receive free-of-charge.

Regulation will need to adapt to the technological innovations. In the past, with fewer players in the sector, governments were in greater “control” and could enforce regulations more effectively. The challenge now for policymakers is to come up with frameworks that allow an increasing number of agents to interact and produce socially optimal outcomes. There is, however, a danger that regulation could promote one particular innovation to the detriment of future technologies. Another risk is that a technological solution may end up leaving vulnerable people without a safety net.

Longer term developments could include peer to-peer transactions, effectively transforming households into energy companies.

The King Abdullah Petroleum Studies and Research Center (KAPSARC) hosted a workshop to discuss:

• How technological innovations in the electric power sector can reshape the business and regulatory framework
• Future roles for utilities in a power sector with high DER penetration and how to adapt regulatory frameworks in this new environment
• Options for the creation of products, services and markets within the electric power sector

Click here to read more about the findings.

By : King Abdullah Petroleum Studies and Research Center (KAPSARC)