Markets And Commercialization Scenarios For Emerging Fuel Cells In Evolving Electricity Markets

Daniel M. Rastler Electric Power Research Institute 3412 Hill view Avenue Palo Alto, CA

Abstract

Electricity markets in the United States are undergoing unprecedented structural changes as a result of the confluence of regulatory, competitive, and technological forces. This paper introduces these structural changes and forces and discuss the implications, markets and commercialization scenarios for emerging fuel cells in evolving US electricity markets-

Evolving Electricity Structure and Markets

Electric industry restructuring is radically evolving to a new paradigm where customers will be able to purchase electricity as a commodity. New energy service providers will also emerge to "package" and offer a wide variety of energy service products to customers. Customers will have a landmark opportunity to choose their own energy providers. Structural changes, deregulation and the resulting competitive environment will significantly impact commercialization strategies and markets for fuel cell technology. The implications suggest there will be significant challenges and barriers to commercialization of fuel cells but there will also be new opportunities for the introduction of new products and services utilizing new technologies. The electric utility industry has been in a steady transition during the past 40 years (Table 1). The evolving transition can be generally described as movement from: "investments in infrastructure" to investments in customer services; regulatory guaranteed rates of return to performance based returns; a system focus perspective to a regional franchise, national and global competitive focus. Customers want more choices, lower electric bills and new and better services. Regulatory changes have opened up competition for wholesale power; competition at the retail level is expected by 2000-2002.. Market demands are driving utilities to develop strategic business responses.

Utility Response

Utilities are repositioning both their core and non-core businesses in response to market changes. The changing focus is from a vertically integrated managed utility to separate lines of business which include: production, transmission, and retail/energy services. In the core business, this involves becoming more cost competitive; creating a "customer service" environment; adding or dropping lines of business; adding or dropping assets; and changing the scale and scope of business. This could involve mergers, getting out of the new generation business, and creating both a national and global market reach. At least nine utility mergers have already occurred during the past two years enhancing the market reach and economy of scale of generation, transmission and distribution assets of the participants. International acquisitions in South America, England and Australia have also occurred providing new growth opportunities. Utility positioning outside of the core businesses includes growing revenues in energy related and non-energy related businesses. This includes establishing non-regulated energy service companies and taking equity investments in emerging technologies which enhance the core business. Table 2 illustrates the diversity of new business entities in the evolving electric utility structure.

Table 1: Electric Utility Industry in Transition
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