Apple’s Foray into Renewables Should Worry Utilities

Last week, Apple quietly filed some documents with the Federal Energy Regulatory Commission (FERC), requesting the agency accept terms such as its “market-based rate tariff” and “grant for certain blanket authorizations.” Meanwhile, blogs covering Apple were buzzing with the news that one of the the world’s most valuable companies registered a new subsidiary, Apple Energy LLC, in a Delaware court. This new business unit will be operated from the company’s headquarters in Silicon Valley.

So to cut to the chase and translate all the legalese, the Cupertino-based electronics and entertainment company is now officially entering the energy market. And utilities should be worried as Apple’s entry into the renewables buying-and-selling markets could become a huge threat to their business.

Complaints about the way utilities operate are not just about their reliance on fossil fuels, whether they run on coal or cleaner-burning natural gas. Yes, many clean-power advocates will say the U.S. has abundant sources of solar, wind and even biomass to wean the country away from conventional fuels — and they make the case that renewables could hedge the country against volatile energy prices and, of course, the risks of climate change.

But then there are the arguments that we rely on a 19th-century grid for 21st-century needs, and this highly centralized grid exposes us to risks from blackouts to even terrorism.

Of course, utilities defend the system as it is, and in their defense, these companies make massive investments and enter into energy contracts years in advance. As Quartz analyst Tim Fernholz and others have explained, the rapid proliferation of renewable power projects such as commercial and solar installations threaten to disrupt the utility industry as it exists and operates today.

Meanwhile, companies that have largely invested in renewables, from Walmart to Kohl’s to Mars Inc., generally can only sell any unneeded power to the local utility — and even that process is often complicated. After all, according to federal law, only utilities can sell energy at a retail rate to customers. As of now, residents and business can only sell the excess electricity they generate to energy companies and utilities at wholesale prices.

But Apple, which says renewables generated 93 percent of its power last year, now has a subsidiary that can operate as an independent power company. As is the case with many companies with huge investments in solar or wind power, that excess electricity produced during the day (or night) offers sizable revenue potentials. Not all states or municipalities, however, have favorable regulations in place that allow such firms to maximize this economic potential. And as companies seek new opportunities to generate revenue, ensure their long-term energy security, and assuage their stakeholders in proving that they are responsible and sustainable businesses, more of them will certainly follow Apple’s lead.

Meanwhile, plenty of businesses will also seek more affordable, secure and reliable sources of power — but they just do not have the cash and scale of Apple, the rooftop space of Walmart or the highly centralized operations of MGM Resorts International. They may not have any energy expertise, period.

But despite what analysts keep telling us about the energy markets, the only thing we can really predict about this sector is that it has a history of unpredictability. And in any event, despite low and stagnant fossil fuel prices, renewables keep getting cheaper and more scalable. For a procurement manager or executive at any sized company, the possibility of Apple and its ilk entering the energy business offers opportunities to save his or her company money — and look really good to the boss. The result is a market that will eventually nudge regulators to chip away at the wall protecting utilities from more players within their industry.

For Apple, a booming clean-energy market also helps strengthen its business portfolio. The company has a long history of coming out with new devices just its products appear to have plateaued. But as an Accenture study issued earlier this year suggests, customers may have hit their fill of gadgets for a while, which is why some tech companies, and certain gadgets, are struggling. Apple is already following the trend of other tech giants such as IBM and HP, as it seeks to complement products like the iPhone and iPad with services such as subscriptions. Considering its home base, California, is already leading the U.S. renewables boom, the company is in a prime location to start wheeling and dealing.

Apple may not market an “iElectrons” or “iPower” anytime soon, but this company is clearly wielding a hot iron ready to brand and sear the nation’s stubborn utility companies. And these recent moves will likely keep their executives awake at night for many years to come.

Image credit: Mark Mathosian/Flickr