Info

Building Era 1950-EarIy 70's

Transition Era Late 70's-Early 90's

Services Era Post 90's

Generation

Build Power Plants

Buy Power

Restructure

Transmission

Interconnect Power Plants

Build Power Grid

Improve/ Optimize

Distribution

Install Wires

Manage Wires defer capital

Optimize

Energy Services

Not Utility Business

Not Utility Business

New Business Opportunities

Given the uncertainty of increased competition, electric utilities face a number fundamental issues:

• How to secure premier positions within the new industry?

• How does a company distinguish itself from the competition?

• What are the short-term and long-term growth strategies?

• What customer value-added products and services should be packaged with electricity?

Implications to Fuel Cells

In view of the structural changes outlined above, industry leaders are prioritizing their efforts on: restructuring and «engineering the organization; cost reduction; work force reduction; and increasing focus on marketing strategies and market analysis. These efforts coupled with a surplus of electrical capacity translates into a difficult business environment for the introduction of new emerging fuel cell technologies. While electric and gas utilities have historically pioneered the introduction of new technology, the associated risks were moderated by monopoly, status and allowance for rate-based costs to be passed on to customers. New regulatory changes favor enhanced competition, lowest-cost providers, and differentiated services that deliver value to customers beyond traditional kilowatts. Utilities will not be able to provide the "market pull" support in the way previously envisioned for commercialization of fuel cells.

Competing technologies continue to place pressure on the performance and cost requirements for fuel cell products. Advancements in combustion turbines and combined cycles during the past decade have eroded the historic economy-of-scale advantage of long-payback large central station power plants. Compact aeroderivative turbines arid proven heavy-frame (industrial) gas turbines are commercially available in 1 to 100 MW sizes, can be deployed on a one-year schedule and have lower operating costs than even a gas-fired boiler central station plant. Advanced designs available before the decade is out will have simple cycle thermal efficiencies of 45% and projected installed capital costs below $500/kW. In that regard, fuel cells are not expected to be competitive with bulk power generation resources for quite some time, if ever. That is, it will be very difficult for fuel cells to compete in a deregulated bulk power commodity market. Fuel cells, therefore, will most likely find applications in a variety of distributed generation/energy services applications. Competition is expected to increase market efficiency, decrease costs and decrease average retail rates for both commercial and industrial customers. Lower rates could present a significant barrier to the use of on-site distributed fuel cells as discussed below.

Table 2: Stakeholders in Evolving Electric Industry

Stakeholder

Function

Integrated Utility

Provides all electric supply functions

Transmission & Distribution Utility

Provides all electric supply functions except generation

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