Investing Daily Article of the Week
by Ari Charney, Investing Daily
The century-old business model for power utilities is facing its biggest threat in more than a decade. Sweeping technological changes coupled with a strong regulatory push toward lower emissions is forcing utilities to contemplate whether the grid will eventually be relegated to a backup role.
Despite such existential considerations, utilities still boast the considerable power of incumbency. While some utilities are making only token efforts to adapt to the evolving operating environment, others, such as NextEra Energy Inc. (NYSE: NEE), are making great strides toward increasing the role of renewable energy in their generation portfolios.
At the same time, we’re less than two years away from a new presidential administration that may not be as favorably disposed to expansive environmental regulations, such as President Obama’s proposed Clean Power Plan. But regardless of what happens at the polls, federal power rarely gets rolled back and, therefore, increasing regulatory oversight seems almost inexorable.
Indeed, even a quick glance at the magazine published by the Edison Electric Institute, the association of investor-owned power utilities, shows an industry that has shifted from grudging acceptance of renewables to actively pursuing new technologies to stave off challenges from new market entrants.
In navigating this changing landscape, one of our main tasks as investors is to separate hype from reality. After all, great change can also be accompanied by great chicanery. And even promising technologies backed by good-faith efforts can still end up failing.
That means knowing when to discount the almost messianic zeal of green-energy boosters, whose latest technologies are part of an increasingly crowded market that still depends in large part upon significant government intrusion in the form of both regulations and subsidies.
Based on what we know at the moment, the biggest challenge to utilities’ regulated monopolies will come from consumers themselves in the form of distributed generation.
