Micro-power presents slow-burn threat to utilities

Thu May 26, 2011 11:33am EDT

Related Topics

* Utilities now dominate European power supply

* Renewable power growing, more open to specialists

By Martin Roberts and Gerard Wynn

MADRID/LONDON, May 26 (Reuters) - A wide rollout of small-scale renewable energy poses a long-term challenge to utilities as households switch to home generation and the supply market opens, executives at green specialists and independents say.

Small-scale renewable energy is more accessible to new entrants compared with the forward purchase of huge amounts of baseload generation from burning fossil fuels, which is the routine business of big utilities.

Change so far is happening slowly and from a tiny base but the cost of small-scale renewable technologies is falling.

In Britain, the big six utilities supply more than 99.5 percent of all electricity, according to the watchdog Ofgem, but a growing supply of wind power and new support for solar is driving a slow shift to specialists.

Some market regulators are moving to try to increase competitiveness. In March, Britain's Ofgem proposed measures to increase pressure on the big six utilities, such as making it easier for smaller companies to buy energy in wholesale markets.

"We think we've come in at a time when momentum is on our side," said Nigel Mason, business development manager at Co-operative Energy, which entered the UK power supply market two weeks ago offering what it described as a simple, transparent charging system.

In the medium-term he said the company was targeting a 1 percent market share, or about 260,000 households.

CREDIT

The need for a credit rating is an important hurdle to smaller independents, blocking them from purchasing large amounts of power on wholesale power markets.

But that may change in a low-carbon world as government incentives guarantee a price for low-carbon power regardless of supplier, for small-scale projects below the radar of utilities, and as home generation drives the business model towards home management away from simply power supply.

Britain introduced a price premium or feed-in tariff for small-scale, low-carbon power last year.

"Because the government is underwriting the feed-in tariff, potentially it's a bankable deal that the banks will then agree to and the developers and investors have the freedom to sell that power to whoever they want," said Juliet Davenport, chief executive of Good Energy.

Good Energy has just 27,000 customers, compared with 26 million UK households, but that included about 5 percent of all households earning feed-in tariffs, estimated Davenport.

She saw a shift to a service-oriented business model helping customers balance their own power generation and needs.

New wireless smart meters supplying live information about power demand including individual appliances could help that shift to a service-oriented model.

As consumers switch to renewable specialists or their own roof-tops, that may force utilities to raise prices to service fixed costs with a smaller revenue base, said Jigar Shah, former founder of U.S. retail solar power supplier SunEdison and now head of the low-carbon pressure group the Carbon War Room.

Spain gets just 2 percent of its electricity from solar power, but barely any of that is produced by utilities.

"It is no longer a curiosity for the utilities and is now a rival for some of them," said Antonio Luque, founder of Madrid Polytechnic's Solar Energy Institute and of Spanish solar energy firm Isofoton.

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