The defining model governing our electricity distribution in the developed world was set in place during the earlier years of the 20th century. You have an enormous company providing electricity (often a company owned by the government) and you have the citizens as customers.
This made a lot of sense in a world where the primary way of generating electricity was through coal, oil, gas and nuclear. After all - how are you going to build a $9 billion nuclear power plant without a huge company to fund it and the government to assist them? (For reference - coal plants cost around $2 billion a pop - so this problem is in no way a critique of nuclear energy)
Fast forward some fifty years and you've got millions of people turning away from utilities to self-production of electric energy. Most of those self-producers are using solar energy to power their homes. A rise in renewable energy production is always a welcome sight - unless you're one of those old-school utility companies we've mentioned at the beginning.
If you're managing one of those, reading about democratisation of energy production might just keep you up at night.
Utility death spirals
The reason? Utility Death Spiral.
Beyond being a really metal name for something which is basically a financial puzzle - what is a utility death spiral?
In essence it's a very simple concept.
"When a utility looses customer revenue from self-generation of electricity from solar or wind or some other technology, it stimulates the utility to raise rates for other customers so as to preserve its revenue base. Higher rates stimulate more customers to self-generate creating an endless "death spiral""
Basically - the more people self-produce electricity, the more the utility has to raise prices - stimulating even more people to self-produce electricity and forcing the utility to raise the prices further. This creates a feedback loop which ends with a bankrupt utility.
All of this isn't unproven fear mongering. It's already happened and it's continuing to happen.
In 2013. in Germany - the poster-child of renewable energy transition - their largest utility (RWE) filed first financial losses since 1949. - to the tune of $3b+. Despite the huge economic growth in the last 10 years, their stock has fallen from ~€100 in 2007. to around €25 today.
Their CEO called it:
RWE is in no way alone in this. The same happened to Vattenfall - another large German utility which saw $2.3b in losses that same year.
"Over the last five years, the top twenty utilities in Europe have lost half their value"
This was in 2014. - things have not improved significantly since then.
So how do we solve this? Large utilities were never built for the system we have today and citizen generation cannot function without someone to trade and sell electricity. It's completely unreasonable to expect a fully decentralised system while it's becoming increasingly clear that a centralised system is cracking at the seams.
Allow me to introduce you to the growing world of energy communities.
An energy community (often called citizen energy community or renewable energy community) is a group of people investing into renewable energy and buying and selling electricity amongst themselves and in the broader electricity market.
They are one of the driving forces behind the EU's plan to transition away from fossil energy to clean, renewable energy. According to Decarb Europe:
"Energy communities – where citizens own and participate in renewable energy or energy efficiency projects – are a significant element in Europe’s low carbon energy transition. By 2050, almost half of all European households could be involved in producing renewable energy, about 37% of which could come through ‘collective’ participation in an energy community."
Energy communities often register themselves as electric utilities and sell electricity to all clients - including those who aren't self-producing. Energy communities are usually non-profit or not-for-profit organisations and as such don't suffer from the utility death spiral issues. Their goal is to simplify investing into renewable energy and to facilitate operations of buying and selling electricity (both retail and wholesale).
One of the most popular legal forms for energy communities is a cooperative. When we see the definition of a cooperative from the International Cooperative Alliance - we can see why this is the case:
"Cooperatives are people-centred enterprises owned, controlled and run by and for their members to realise their common economic, social, and cultural needs and aspirations.
Cooperatives bring people together in a democratic and equal way. Whether the members are the customers, employees, users or residents, cooperatives are democratically managed by the 'one member, one vote' rule. Members share equal voting rights regardless of the amount of capital they put into the enterprise."
When the purpose of an organisation is not the extraction of profit for shareholders, but the facilitation of cooperation between mostly independent people - self-production becomes empowering, rather than destructive - to the organisation.
Energy communities, whether in the form of a cooperative or some other legal form exist all over the world. In the EU, they cooperate under the umbrella of REScoop.eu - a pan-european organisation pushing for proliferation of the energy cooperative model. In the united states, the main actor is Americas Electric Cooperatives - a $45b+/year association of cooperatives.
Beyond being resilient to the death spiral - energy communities keep all of the profits from the generation and sales of electricity in the local community. In the case of standard electric utilities - most of those profits would go into the hands of large investors.
By being locally-owned - energy communities are much less likely to act in a manner that would be destructive to the local ecosystem. They hire local people and act in an ethical manner towards the local economy.
With large utilities in a downward spiral - energy communities give hope for a better, more democratic approach to the most valuable resource of the 21st century - electricity.
If you're interested in starting your own cooperative or beginning the investing into renewable energy sources - ping us at [email protected] - we might be able to help you out!