Imagine a fantasy world where solar roofs or panels efficiently and cheaply generate electricity to be stored for weeks in a customer’s diminutive and low-cost battery. Such a world would have little need for a centralized, fully integrated (generation, transmission, and distribution) electric utility, relying instead on self-sustaining battery-combined “distributed generation” systems.
This scenario could emerge as companies and governments continue to invest billions in battery technology and as several technologies converge to advance research and development efforts. In S&P Global Ratings’ view, this combined effect could pose an increasing risk to the U.S. regulated utility industry beginning in the next decade and beyond.
• In the not-so-distant future—but well beyond the next 10 years—technological advances will make batteries smaller, cheaper, and smarter.
• These advancements could pose a risk to the regulated utility industry if customers reduce, or even eliminate, their dependency on the centralized system for power.
• This risk could result in multiple-notch downgrades for some North American regulated utilities sometime beyond the next decade, if these utilities do not adapt to this technological breakthrough.
• In this future world, we expect that those fully integrated utilities in areas with above-average sun strength and above-average median household income would be most affected.
Change coming faster than you think
Technological advances have undone many established industries, often at a pace much faster than expected. Fewer than 10 years ago we all read the morning newspaper, listened to our favorite music on a CD, occasionally used a public pay phone, and rented our favorite movie on a VHS tape from a video store.
Technology has changed many industries, and often when change starts the pace of transformation only quickens. This only adds to the uncertainty and difficulties of trying to precisely predict when a technological breakthrough will transform an entire industry. Our long-term view incorporates our assumptions that a breakthrough in battery technology remains years away, possibly more than the next decade. Furthermore, even after a technological breakthrough, battery adoption may be somewhat slower compared to other technological breakthroughs.
This resistance reflects society’s dependence on quality and reliable electricity and our expectation that individuals–risk averse to power outages caused by technical failures–would be less likely to adopt early and completely. Also, it is possible that utilities may modify their business model, forestalling such competition. On these premises, we believe the risk to the utility industry is more than 10 years away
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