Utility death spiral

Drawing by Matt Davidson.  (Source)

What's most terrifying the electricity industry isn't the threat of price control or a clean energy target or even being forced to keep open power stations that have long since ceased to work properly. 

It's not even the government's inability to come up with a clear set of rules.
It's a fear more primal – the same one gripping the national broadband network, public schools, and private health funds.  Analysts at AGL Energy call it "the death spiral". 

US economist Craig Severance coined the term six years ago. 

"In this nightmare, a utility commits to build a very expensive new power plant," he wrote. "However, when electric rates are raised to pay for the new plant, the rate shock moves customers to cut their use. The utility then has no way to pay for the new power plant unless it raises rates even higher – causing a further spiral as customers cut their use even more or walk away. 

"In the final stages of that death spiral, the utility's more affluent customers have drastically cut purchases by implementing efficiency and on-site (solar) power, but the poorest customers have been unable to finance such measures. The utility is then left attempting to collect higher and higher rates from poorer and poorer customers."

[read more here]

Tony Seba talks about "god parity" where rooftop solar plus storage is cheaper than the cost of distribution of electricity.  In other words, where all generating technologies, even they cost zero, will still be more expensive than rooftop solar plus storage.  And the risk then is that consumers disconnect from the grid, or drastically minimise consumption, in just the sequence described above.  The inexorable decline in the costs of solar and the costs of storage bring god parity--and the consequent utility death spiral--closer every year.   If you thought governments and regulators don't know what to do now, just wait till the death spiral gathers momentum.

Because wind turbines are far more efficient the larger they are (the output is equal to the square of the radius and the cube of the wind speed), it doesn't make sense for small electricity consumers to have their own wind turbines unless they are already off grid, so a utility death spiral is unlikely in high latitudes.  But it is a real possibility for places between 35 or 40 degrees north and south of the equator.  A recent survey shows that Australians view solar with storage as a key way to cut electricity bills.  As we use less electricity, because prices keep on rising and the costs of solar and storage keep on falling, a utility death spiral in Australia seems more and more likely. 

We are no longer helpless in the face of utility greed and incompetence.  And that totally changes the relationship.  I suspect most utilities have yet to understand that.  But they had better get up to speed quickly, or it may be too late.