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Utilities See Two Paths to Profits on the ‘Smart Grid’

By Jennifer Weeks for the Daily Climate

Beyond installing advanced meters and sensors, utilities may use the smart grid's capabilities in very different ways. Energy consultant Peter Fox-Penner sees two contrasting business models for the utility of the future – one focused on selling power, the other on selling high-value "energy services."

In what he calls the 'smart integrator' model, utilities concentrate on operating the power grid and delivering electricity reliably to customers. Their profit incentive remains centered on delivering kilowatt-hours, as it is today.

"They set prices and give information to customers about their electricity consumption, but they let the private sector create incentives for saving energy," Fox-Penner said. "In that model it's not clear who leads customers to use energy more efficiently beyond what they decide to do individually, which is not usually close to what's fully possible."

Alternatively, power companies may evolve into what Fox-Penner calls 'energy services utilities' - working to deliver lowest-cost energy services like lighting, heat, and working appliances (or in energy guru Amory Lovins' famous phrase, "hot showers and cold beers"). "That's a radically different business model," he said. "The utility doesn't maximize your kilowatt-hours – it serves you more like a financial planner who consults with you, but isn't trying just to sell you investments."

The smart grid is a tool that utilities can use to help customers maximize energy services at the least possible cost. But to make that model work, utilities have to find ways to quantify delivered services, such as levels and quality of lighting, or climate control within a specified temperature range. Then regulators have to price those services and let utilities profit from doing the job efficiently.

"In the coming century the power industry we seek is not necessarily the largest, it is the one that can help its customers achieve the highest level of service possible consistent with social and environmental sustainability," Fox-Penner writes in his book, Smart Power.

"Its goal is not more, but more from less."

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