Opportunities From Decentralization

Decentralization of power generation has introduced an element of competition to the domestic electric power market.  As states have enacted legislation to require monopolistic electric utilities to allow consumers to select the electric generation company of their choice, the competition has lowered consumer prices.  For example, prior to deregulation, Pennsylvania consumers paid roughly 15% more than the national average per kilowatt hour.  Post-deregulation, these same consumers now pay on par with the national average (1).  In fact, in my personal experience, I have been able to lock into a supply contract at the rate of $0.055/kWh, which is nearly 24% less than if I purchased my supply through my utility ($0.072/kWh).

As deregulation takes hold across the nation, we are also entering an era where traditional coal-fired power plants are being decommissioned in favor of natural gas turbines.  While still a fossil fuel, natural gas can be combusted with fewer carbon emissions than that of coal, and with EPA anti-pollution regulations, this significantly narrows the BTU price gap between coal and natural gas.  As natural gas gains market share at the expense of coal, there are also significant opportunities for renewable energy projects to begin and seek market share.  With a market determined price, these renewable projects could easily become profitable as global electricity demand increases.

Anywhere there is a change taking place, there is a business opportunity.  In the case of electric market deregulation, I believe these opportunities extend beyond that of simply becoming an electric supplier.  There are several energy cooperatives taking hold in my area, the majority of which are partnered with a renewable energy supplier.  With several large wind projects located in the nearby Laurel Highlands, I think a consulting service could be established whose goal is to partner large neighborhood developments and/or retail developments with the local renewable energy suppliers.  This would give existing and new renewable energy projects a guaranteed base demand for their electricity, allowing them to bypass the spot market for a long term contracted price with the end user.  Supplemental load would be provided by other traditional supply from the utility.

1. http://paindependent.com/2011/08/energy-deregulation-benefiting-consumers/

3 thoughts on “Opportunities From Decentralization

  1. You are absolutely right about the impact that natural gas has had on the energy markets in recent years. Unfortunately, though, this proliferation of cheap natural gas is making it even more difficult for renewable energy sources to be competitive in the open market. Energy prices have not increased as had been predicted 7 or 8 years ago, and renewable energy companies that based their forecasts on those predictions are struggling to overcome the price gap. A consultancy is a great business plan for someone in our program that has gained a broad perspective on energy policy and markets.

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  2. Hi Christopher,
    I thought your post well thought out, detailed, and interesting. But why if there is an opportunity for consulting can’t you or (I), make the step up to the producer of said power or be at the least more directly involved? I imagine the profit gets bigger the closer you get to the source, right?

    • I think you’re right in an ideal sense, but I believe it’s really a matter of experience and economies of scale. I can consult you as to how to drill a gas well and manage your mineral assets, but I don’t know jack about generating reliable electricity! Let those with the knowhow do what they do best.

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