Consolidation and Divestment Key Strategies for Utilities

Written By: Jen Neville
January 11, 2019

grid modernization

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utilityThe 22nd Annual Transmission Summit East will provide the clearest window into the policy, regulatory and changing operational realities facing the industry, and dive into the business strategies that leading executives will pursue to seize development opportunities and ensure reliability.

The Transmission Summit East will focus on “Meeting Transmission Needs in a New Energy Paradigm.” Leading policymakers, utility and independent transmission executives will gather to discuss how policy and regulatory developments will affect transmission development, and review the newest business strategies designed to grow system flexibility to and meet the needs of an increasingly complex demand-side. This is your best opportunity to network with the thought leaders driving the development of new transmission business models and a more flexible grid. View the agenda here.

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NextEra Energy completed its $5.75 billion acquisition of Gulf Power. NextEra paid USD 4.35 billion in cash and assumed USD 1.4 billion in debt to acquire Gulf Power, according to a filing with the U.S. Securities and Exchange Commission. NextEra already owns Florida Power & Light, the state's largest utility with nearly 5 million customers. As per company officials, with an eye on the future, the deal is likely to pave the way for extending to Gulf Power's customers NextEra's best-in-class value legacy of low bills, clean energy, and high reliability.

Consolidation and divestment key strategies for Utilities:

The commencement of digital technologies and the requirement of utilities to leverage more from their existing assets is driving the need for collaborations and partnerships in the industry. The energy retail sector has been very volatile and conditions aren't easy, as utilities continue to struggle with tough market conditions. Revenues from traditional areas such as power generation and distribution have reduced substantially for most utilities. As services have accounted for a higher share of revenues, the demand for electricity in the economy has flattened. In few areas, demand is even declining, as it is being offset by energy efficiency and conservation efforts. The need to reduce operational costs in the time of declining profits is favoring bigger utilities and has led to many smaller developers being bought out. With not many organic growth strategies available, larger utilities have no choice but to try acquiring smaller companies. Many utilities are shifting their focus towards natural gas distribution to diversify their revenue sources. Some utilities are looking to diversify regulatory risk by having operations in multiple states, while, others have sought complementary assets, such as gas pipelines, or expanded into new service functions, such as gas distribution or electric generation.

Impact of changing energy dynamics on Utility Businesses:

The growth of distributed wind and solar generation means there are lesser energy consumers and more energy producers. The utilities are experiencing changes from centralized to distributed energy generation models; the commercial viability of renewables coupled with the emergence of advanced energy storage, the large-scale electrification of public transport are major factors driving the change in the industry. The recent growth of distributed generation, greater regulatory risk, and the growth of renewable-energy sources, which have zero marginal cost mean that future prices are uncertain. Long-term fixed prices, either via power purchase agreements or capacity mechanisms, are the most likely new revenue models for utilities. According to a recent report the market size of the Distributed Generation market is expected to reach USD 103.4 billion by 2022 from an estimated USD 60 billion in 2017, growing at a CAGR of 11.48% during the forecast period.


New energy developments are introducing new changes: from one-way to bidirectional energy flows, from centralized to decentralized production, and from a centralized to a localized approach to circuits. This requires the adoption of newer updated software and hardware and grid-modernization capabilities. Increasing distributed generation and renewable deployment depends on supportive regulation, such as incentives, tax rebates, and favorable rate structures with regard to grid access and energy compensation. Utilities are facing strong competition from players with diverse backgrounds such as equipment manufacturers, digital companies, and start-ups. Accordingly, utilities considering investments in distributed generation need to accept that this is a long-term proposition and need to analyze where they have a competitive advantage and how to extend their value proposition along the retail chain.

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