Is the writing already on the wall for shareholders in established electricity supply companies such as AGL Energy Ltd (ASX: AGL), AusNet Services (ASX: AST) and Spark Infrastructure Group (ASX: SKI)?
If Australia goes the same way that the USA is headed then structural decline could well be the case!
According to a recent article on business news site CNBC, within 25 years it will be significantly easier to take a house (or a building or a suburb) 'off-grid', thereby allowing consumers to cut their ties with utility companies. Referencing a report by Morningstar, the article suggested off-grid generation capabilities could mean "the end of utilities as we know them today."
This scenario, which should make shareholders consider the potential for disruptive changes in what has previously been considered a defensive industry, is largely premised on improvements expected to occur in renewable energy technology.
Solar, Wind, Geothermal
With improvements expected to occur in all three renewable sources, the key factor becomes their availability close to the source of consumption. For this to occur efficiently, battery quality needs to rise.
While 'old world' electricity utility companies could find themselves structurally defunct, if they see the writing on the wall and move quickly it's possible they could reinvent themselves as market leaders in the 'off-grid' space. There are some signs that AGL is alert to this and moving in the right direction.
Given their significant sunk costs in generation and transmission assets however, the more likely path is that most established providers will defend their turf till the end.
For investors looking to position their portfolios for this structural change, there are a handful of companies with exciting technologies and skills.
Geodynamics Limited (ASX: GDY) is a leader in geothermal exploration and development. Redflow Limited (ASX: RFX) is developing state-of-the-art batteries capable of delivering significant wattage of continuous power. Ceramic Fuel Cells Limited (ASX: CFU) is attempting to commercialise technology which allows a home or business to generate electricity and heat on site from natural gas and renewable fuels, while Energy Developments Limited (ASX: ENE) has experience in building off-grid remote power supplies as well as experience in producing renewable energy from landfill gas.
