Municipal or Local Utilities: A Strategic Puzzle

Municipal or Local Utilities: A Strategic Puzzle

Eric Morel 11/01/2019 4

The unbundling of “utilities” activities often goes hand in hand with the opening up of markets. Any collusion between the network management activity and the energy sales activity is therefore prohibited which prohibits different investment choices from the DSO to give more value to a particular offer, service for example. Perhaps the proximity of the two activities will allow a better understanding of the issues and will push the DSO to develop a “richer” infrastructure … for the benefit of consumers and all suppliers.

In such a case, however, it is conceivable that local suppliers will be quicker to respond and develop an offer that takes advantage of these opportunities. National suppliers will invest less easily in specific and local offers as they will not be able to replicate them on their full field of operation.

Local distribution companies may therefore be interested in developing an infrastructure with unique characteristics, for example providing more frequent, more detailed data: they may indirectly give an advantage to “their” supply activity and … to their customers.

This advantage remains however very theoretical: it supposes on behalf of the DSO a significant investment capacity. But these energy companies are small, have limited revenues, have to deal with regulatory, energy and technological major changes. It is not certain that they have the necessary funds and skills. I fear that they will have to regroup very quickly to benefit from a first volume effect to optimize their purchases and their R & D expenses.

First option: they group together to try to maintain their independence and continue to develop a local differentiation. Second option: they join the bosom of a larger energy company, lose some of their independence and become a local “representative” of this leader.

The first solution is likely to be preferred when the local image of the energy company is strong. It is true that its DSO activity can enable it to maintain or even develop this image even if the supply activity is clearly separated, because the inhabitants will not perceive these subtleties and will continue to look at and consider all the activities of the energy company as a whole.

It could also be chosen by municipal shareholders wishing to develop a proactive multi-energy approach in a segmented national environment, unfavorable to such developments. One could observe this entrepreneurial and risky choice even in cities smaller than 50000 inhabitants. In case of failure, the energy company can be taken over by a major player, but this choice may allow a faster migration to more efficient multi-fluid systems and a more effective rise in competence for the local authority for more fruitful future interactions with the utility.

The second solution may well be preferred by local shareholders with financial stress who cannot bear the risk of a failed transition.

Staying integrated will not always be an advantage for local energy providers, but may in some cases add additional obstacles to their journey.

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  • Danny Johnson

    Establishing minimum energy efficiency specifications through codes and standards requires builders to make energy efficient investments at the time of construction or product purchasing.

  • Jacob McCarty

    Local governments can work to improve compliance and enforcement, or to establish specifications that go beyond the code or standard.

  • Mark T Hazel

    Rebates and other financial incentives can encourage residents and business owners to make an investment in energy efficiency

  • Josh Fillmore

    Good article

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Eric Morel

Energy Expert

Eric Morel is a worldwide recognised expert of energy transition and digitalisation. In the past, he has served as VP Corporate Business Strategy and VP Global Smart Grids and Energy Efficiency at Schneider Electric as well as CEO of Ilevo, a telecommunication start-up. He is a founding member and a former Board member of the Gridwise Alliance, the main professional private/public association dedicated to Smart Energy.

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