Leveling the power sector playing field: when new entrants can compete

by Tanya Bodell, Energyzt

It usually is difficult to change the rules in the middle of the game. The team with the most to lose protests; while those with the most to gain may not be positioned to pressure the advantage. The same holds true in business. A combination of technological advantage, value proposition, and well-backed challengers is required for new entrants to be able to compete against incumbents.

The power sector experienced these conditions in the 1990s when more efficient natural gas turbine generator technology, high regulated rates for power despite low natural gas prices, and established independent power producers motivated wholesale electricity market restructuring. Pressures from the combination of information age technology, tariff changes that can unlock values and investment by established players are promising to overhaul electricity markets once again.

A Competitive Advantage

New technology can provide less seasoned players with an advantage similar to standing champions. Note the introduction of Callaway’s ERC II (a continuance of its Big Bertha drivers) to the golfing world in the late 1990s which, with its much larger sweet spot, allowed amateur golfers to hit the ball as far as professionals. In the energy industry, technology we take for granted in our personal lives is preparing to transform nearly every aspect of the electricity supply chain.

Venture capital, having established billions of dollars in green-tech funds to invest in renewable generation technologies, is shifting away from these capital-intensive investments into clean-tech consumer-focused startups that use cloud, mobile and social media. Wireless systems, the ability to store and process big data, as well as automation of physical processes, improve traditional power sector functions and can unlock value through new applications. Although initial impacts might seem incremental, the net effect over the long run can be disruptive to the old way of doing business.

Ability to Score

Legacy rate structures that preclude energy providers and customers from realizing new technologies’ value are being challenged. Standard rate structures developed for kilowatt-hour meters are converting into time-of-use pricing, a necessary step to realize the value of smart meters that measure, communicate and store usage data on an hourly or sub-hourly basis. Usage and pricing on smaller time increments incentivizes end-users to participate in capacity markets and provide real-time demand response. Wireless signals and automated switches facilitate the process.

Rate structures also have changed for frequency and regulation control, rewarding flywheel and battery technologies that can provide a quicker response to signals communicated using 21st century technology. Streetlight tariffs that traditionally levied municipalities a charge for energy according to a set lighting schedule and estimated energy usage per hour also are being modified to reflect new technology. A small subset of utilities now offer alternative tariffs to reflect the lower usage of LED lights, so that a municipal investment in the higher up-front costs of LED technology can be recovered through lower energy costs. Regulators seem keen to revisit traditional tariff structures when the value proposition offered by new technology can be defined and realized.

Stronger Competition

Technological advantage and the ability to obtain a return on their investment have enticed new players to enter the market. These players often have the financial wherewithal to challenge the traditional regime and advance research and development, creating positive feedback loops that level the playing field.

The strongest set of new entrants often consists of established players from other industries. For example, cable and telephone companies are offering software applications for home computers, smartphones and hand-held devices to monitor and control lighting and thermostats within the home as part of a home security offering. With established wireless service providers entering into the home management business, wired home security companies and electric utilities that traditionally serviced these end-users face formidable opponents.

The Final Score

Incumbents relying on their home team advantage, ignore the competitive threat of new challengers at their peril. They can fight to maintain status quo, yield on less important matters to protect the core business of the company, capitalize on new market opportunities or do all three. The decision could be the difference between victory and defeat.


Tanya Bodell is the executive director of Energyzt, a global collaboration of energy experts who create value for investors in energy through actionable insights. Visit www.energyzt.com. She can be reached at: tanya.bodell@energyzt.com or 617-416-0651.

“Whosoever desires constant success must change his conduct with the times”  – Niccolo Machiavelli

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