There are many parallels between Web1 and the utility-based energy sector. Both Web1 and today’s electrical utilities provided functional, stable and reliable services to society. In this blog, we will explore the similarities between Web1 and the increasing challenges associated with a “Web1” energy solution.
Physical Design Of The Utility Energy Grid
The utility energy model (Web1) was designed and built over the last century (and in some cases, active infrastructure is over 100 years old!), and for climate conditions of the past, not the climate of the future. Combining the aging infrastructure with changing weather conditions, the centralized grid is becoming a safety risk and suffering increasing reliability issues. Some examples:
- Power plants struggling to operate in warmer conditions
- Drought impacting the entire energy supply chain
- Costs and risks associated with utility energy grid maintenance were highlighted by PG&E Chapter 11 bankruptcy after fires caused by its powerlines burned hundreds of thousands of acres in Northern California and led to more than 100 deaths and grid-related outages for many
This is resulting in a grid that is more expensive to maintain, and in turn more expensive for the consumers, less safe and less reliable.
Further, utility energy models were designed for base load fossil generated power and are not well designed for intermittent renewable energy technologies, bi-directional energy flows (to and from the consumer) or for ever-growing loads (as will be seen with the electrification of everything – including our transport sector.
Utility Energy Model In Commercial Structures / Business Models
Commercially, in a traditional regulated utility business model, consumers are passive customers who purchase electricity from their local monopoly utility provider at a regulated price. The utilities generate or purchase electricity at wholesale prices, add on their costs of running the business including a return for shareholders, then sell it to consumers at a higher price. The difference between the two prices is called the “rate base”. The way that regulated utilities recover costs and earn profits can be seen as an obstacle to them providing the best service possible to their customers.
This is because the business model rewards utilities for making capital investments, but not for contracted services that may actually serve customers better. It has become an increasing concern as utilities discover that contracted services for solutions such as distributed energy resources (DER) may provide more reliable and affordable customer services but do not fit their model. A few examples:
“Big power companies operate as monopolies with captive customers in much of the south-east US. They are supposed to be closely regulated, but their profits and unchecked political spending makes them some of the most powerful entities in a state.”
Attempts to change Net Metering rules in CA – As proposed, it would slash the payments made by utility companies to rooftop solar owners for exporting their excess PV production back to the grid. EQ Analysts said the proposal would lead to a 57-71% overall reduction in solar savings across the state.
Final Thoughts On The Utility Energy Grid (Web1)
The centralized nature of our grid served a purpose and served it very well. But as with the web, based on user needs, changing conditions and advances in technology, the Web adapted to a Web2 era. The centralized grid and the utility sector is ripe for change and must adapt to meet the needs of businesses and society of today and the future.
So what’s next? Follow us here and keep an eye out for the next blog for a deeper dive into the Web2 energy system.
VECKTA is leading the way by supporting businesses globally to simplify and accelerate the energy transition (and into a Web3 world!). Why not join us on this journey to take control of your energy, and make the switch to a cleaner, more sustainable, and profitable energy future?