Until now, third parties have usually stepped in to alleviate the expense and maintenance issues by leasing the equipment to the owner or even renting the space for their own equipment and repaying through rent or providing some discounted electricity. The companies sell the rest of the electricity back to the grid.
Third parties are also dominant in the supply of demand response, or electricity provided to the grid by contracted parties using less of it at certain times, usually peak periods. The supply source has great potential. A study released this summer by federal energy regulators shows demand response could free up and "provide" 188 gigawatts -- 20 percent -- of the nation's power supply at peak times. And the supply source has made remarkable progress in markets on the East Coast, including ISO New England and PJM Interconnection.
A third party provides the necessary energy management system and a payment to the volunteers -- usually large buildings or commercial users -- for lowering their demand, while it aggregates the energy savings and sells that "supply" on the market against traditional supply from traditional coal, gas and other generation.
In the past, utilities have outsourced demand-response programs to third-party companies like EnerNOC Inc. and Comverge Inc., but recently, utilities have been bringing those services back in-house.
"Utilities ultimately should be able to play in these end-use added-value functions," Graves said. "I do think they have better economic opportunities than other parties. If third parties are asked to do it, my impression is that they turn back to the utilities and say, 'We need to know a bunch of stuff in order to get it done,'" he said.
Ultimately, third parties also cannot provide the reliability of utilities, said Gabriel of RW Beck. Unlike many consumer choice products -- cell phones or cars, for example -- whose loss can be merely annoying, the loss of electricity can be devastating.
"We want to be off the grid, unhook from the grid, but what if there is an emergency?" Gabriel said.
KEMA's Grant said utilities should be compensated for the high level of reliability they supply. "Technology developments will put in a certain level of self sufficiency, but there is going to be a capacity charge convenience just in case that mechanical device fails," Grant said.
"At the end of the day, I can go back to the grid if I need power. For that privilege, we should pay a charge."
Recession buys time
The recession has provided utilities with an opportunity to consider their next moves as capacity margins have eased and construction costs have gone down.
But, Graves cautioned, "That bigger problem hasn't gone away. It just has been pushed out a couple of years."
The financial squeeze and rapid technology changes are also pushing utilities to partner with other companies, EEI's Owens said.
Companies that lack renewable energy expertise are looking to work with those that have it. Utilities are working with other utilities, third parties or financial industry partners to pay for new power plants or other infrastructure. And utilities are also turning to long-term contracts with independent renewable energy companies rather than owning and financing the new power sources themselves.
Said Owens, "You are not going to have the traditional, vanilla utility."
Reprinted from Greenwire with permission from Environment & Energy Publishing, LLC. www.eenews.net, 202-628-6500