Report: Energy efficiency could cost U.S. utilities $48 billion

HOUSTON — Two trends in the power sector — the expansion of distributed generation and advances in energy efficiency — could cost U.S. utilities up to $48 billion annually by 2025, according to a new report.

The study by the consulting firm Accenture was based on models that examined improvements in solar panels, electricity storage and other trends that will impact the bottom lines of U.S. utility companies.

Distributed generation refers to power generators – much smaller than typical power plants – installed at or near the sites they serve. They often use renewable resources like solar or wind power and are posing a conundrum for traditional utilities because they allow customers to handle large portions of their power consumption internally.

An Accenture survey found that 61 percent of utility executives expect significant or moderate revenue reductions due to distributed generation technology — up from 43 percent a year ago.

Still, Accenture downplayed the threat of the so-called utility “death spiral,” which refers to the idea that distributed generation could cause the end of traditional utilities.

Under the death spiral theory, falling costs of renewable technology will prompt customers to go off the grid; the resulting decline in customer base will mean utilities will have to charge higher rates for existing customers — thus giving them more incentive to go off the grid as well.

Accenture’s research said the death spiral scenario, however, is unlikely because there are constraints that would prevent mass migration off the grid. Seventy-nine percent of utility executives believe it won’t be cost effective for customers exit the grid without subsidies until at least 2030.

That mirrors the conclusions of a recent Moody’s Investment Service report, which said in November that distributed generation poses a long-term threat to utilities, but talk of a death spiral is “premature.”

“While the ‘death spiral,’ as commonly defined, is a myth, the demand disruption caused by the growing adoption of energy demand-disrupting technologies is a very real threat to utilities’ business models,” said Valentin de Miguel, global managing director of Accenture Smart Grid Services, in a statement. “And in addition to the financial pressure, this will cause significant operational challenges for utilities, increase technical stress on the grid and open the market to new competition for energy products and services.”