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Here at SGN, we recently suggested 4 ways to help SGN and 1 way to slap us upside the head. Reader Lindsay Audin took us up on the latter. He believes Jesse Berst was off base in his characterization of the relationship between building automation and utilities.
Given that Lindsay Audin is one of the country's leading energy experts, we wanted you to have the benefit of his opinion. Below we've summarized the two different viewpoints. In a nutshell, Lindsay has a precise handle on how many utilities think today. Jesse believes today's world is at risk of changing and wants utilities to consider a different and closer relationship with their customers.
What Jesse said
In early August 2011, Jesse explained why building automation is both a threat and an opportunity to utilities. Multinational, multi-billion corporations (Johnson Controls, Honeywell, Schneider, Siemens, Eaton, Rockwell, etc.) are attacking the building energy management market. They are offering to reduce energy bills by 10-30%. And to tie those same buildings back to demand response programs for additional revenue streams.
What Lindsay said
"Your concept regarding building automation vs. utility revenue" wrote Lindsay, "does not reflect a clear understanding of how major utilities secure their profit." His points:
Utility profits (as distinct from revenue) are not necessarily linked to the amount of power sold. Making power is less and less a source of utility profit. Delivering power is instead the main source of profit (in many parts of the U.S. at least). Reducing the kilowatt hours sold does not necessarily harm a utility's bottom line. In states where "revenue decoupling" is in force, it may even have a zero impact. Any loss of revenue from a reduction in sales volume may be made up by an automatic rate hike to make up the difference.
Since utility ratemaking starts with a utility's "revenue requirement" (which is irrespective of demand or consumption), base rates may rise even as consumption or demand drops to ensure that requirement is satisfied.
Utilities see demand response as a friend not an enemy. Peak demand costs are often the fastest rising cost component. Where demand management can have an impact, many utilities see it as way to avoid building expensive peaking units (or buying super expensive peaking power) rather than as an enemy taking dollars out of their pockets.
Non-utility generators are the ones most at risk for falling sales volume, and they also see DR as an ally. Non-utility generators now produce about as many megawatts as utility-owned generation. A drop in volume could indeed affect both revenue and profit... briefly. But non-utility generators make money in two ways. One is sales volume (actual sales of electricity). The other is capacity (promising to provide electricity if needed, whether or not it is actually used.)
If consumption drops significantly, but peak demand remains (or rises), they may lose volume sales while increasing capacity income. Where capacity pricing is rising, many retail power suppliers are buying demand response capacity through acquisition of DR firms. Thus they could pick up revenue from the very building management systems Jesse cited as a threat to revenue.
Click to page 2 for the wrap up>>
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