It wasnt long ago that utilities could count on raising revenues pretty regularly. Their customer bases were locked in to the grid and life was pretty good; lots of companies ballooned by expanding at predictable rates each year. Today, given the increasing choices that consumers have when it comes to energy and, in many cases, the increased cost of oil and a host of business-related reasons, many companies are reporting lossesâ€”even significant losses. Moreover, many energy industry experts regard this as the beginning of a new trend.
Japanese Electricity Suppliers Report Losses
In a country like Japan so recently bombarded with colossal natural disasters, it might not be surprising that eight of its ten electricity suppliers reported losses. According to The Japan News, â€œTotal losses for the eight companies reached about 1.6 trillion yenâ€ (the-japan-news.com/news/article/0000183703). Thats $14.6 billion. The reason for these 2012 losses that have just been reported in spring of 2013 is â€œdue to an increase in fuel costs for thermal power generation as most of the country’s nuclear power plants have been suspended.â€ Two of the nations providers actually reported profits, but they had been among the loss reporters in 2011.
Additionally, predicting how 2013 will be is proving difficult as the utilities dont know when or if more reactors will be allowed to return online and there is more expense to come. As the article went on to state, â€œhere are growing concerns that costs for safety measures will increase, as the Nuclear Regulation Authority is set to implement new regulations on nuclear power plants in July. The power industry is scheduled to spend over 1 trillion yen on safety measures.â€ Of course, Japan cant point to the disaster at the Fukushima Plant in 2011 and the devastation resulting from the Tohoku Earthquake and Tsunami that preceded the nuclear disaster for its energy woes. Yet for other nations around the globe, the reasons for net losses are attributed to other factors.
Saudi Net Losses
Earlier this year The National reported that the â€œSaudi Electricity Company reported a sharply wider fourth-quarter net lossâ€ (thenational.ae/business/energy/saudi-electricity-net-loss-widens-on-costs). Saudi Electricity reported that â€œit had a net loss of 1.09 billion Saudi riyals in the three months to December 30, compared with a loss of 514 million riyals in the same quarter in 2011.â€ The company asserted they attribute the losses to expenses they owed employees that have since been released from their positions. Reuters reported that higher energy costs were also part of problem (reuters.com/article/2012/01/18/sec-earnings-idUSL6E8CI07P20120118).
Losses in Tennessee
Memphis Business Journal reported that Tennessee Valley Authority that the utilities company endured a â€œnet loss of $191 million for first six months of 2013â€ (bizjournals.com/memphis/news/2013/05/03/tva-reports-net-loss-of-191-million.html). Fuel expenses seem to be at the root of the companys problems. As the report asserted, â€œFuel expenses were $302 million higher in the first six months of 2013, primarily due to nuclear outages. That forced the TVA to use higher-cost sources like natural gas and coal-fired power.â€
Are New Energies Already Threatening Traditional Utilities?
According to GreenTech, â€œThe utility industry is being disrupted on every side, prompting worries about its stability.â€ While net losses like the ones listed above arent saying at the moment that losses are attributable to new energies (and lost customers), experts suggest that the time is coming. The recently published report by the Edison Electric Institute asserts that â€œRecent technological and economic changes are expected to challenge and transform the electric utility industryâ€ (eei.org/ourissues/finance/Documents/disruptivechallenges.pdf).
The report goes on to name these changes:
â€œfalling costs of distributed generation and other distributed energy resources (DER); an enhanced focus on development of new DER technologies; increasing customer, regulatory, and political interest in demandside management technologies (DSM); government programs to incentivize selected technologies; the declining price of natural gas; slowing economic growth trends; and rising electricity prices in certain areas of the country.â€
Collectively, these disruptive changes are predicted to not only affect companies and employees, but also investors and customers. In short, new technologies certainly threaten traditional utilities; utilities are likely going to face revenue decreases, stunted profitability margins, and, inevitably, increasing costs.
Escalating Fuel Costs / Declining Cost of Solar Panels
The Edison Report acknowledged that the declining costs of many new technologies are going to affect utilities and likely be a factor of those â€œnet losses.â€ The report states that â€œthe decline in the price of PV panels from $3.80/watt in 2008 to $0.86/watt in mid-2012.â€ Simply put, solar has become well in reach for many consumers around the globe. Moreover, â€œif the cost curve of PV continues to bend and electricity rates continue to increase, it will open up the opportunity for PV to viably expand.â€
What Can the Utilities Do to Survive and Exceed in the Long Term
Many industry experts point to the telecommunications industry as parallel to what is coming for the traditional energy providers. Yet that industry was able to successfully transition from fixed phone lines to mobile. Todays energy suppliers will necessarily have to embrace tomorrows technologies or they face considerable risk. Moreover, new business models may need to be incorporated as well in order to integrate new technologies and new platforms. As many industry experts have asserted, there is a role for the traditional utilities if they are willing to play it. Someone is going to have to manage the intersection of these technologies and energies and the utilities seem like the obvious choice.
And Japan? Saudi Arabia? the U.S.?
Each of these places faces specific obstacles right now. If they are not directly threatened by new technologies just now, the prospect is inevitable. While the companies mentioned and others like them must work through their current challenges, they must each make their own strategic long-term plans to deal with the renewable revolutionâ€”which is coming. In fact, many in the energy industry would say it has arrived. Anyone interested in the issue will want to continue to monitor these headlines that report net losses; it wont be long before disruptive technologies (i.e. solar, wind, tidal, etcâ€¦) are listed as their cause.
Sam Jones the author is often asked how to find the cheapest electricity supply. He recommends uSwitch.com price comparison website where all of the energy suppliers can be compared with a user-friendly price comparison facility
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