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As Distributed Generation Accelerates, Utilities and Governments Move to Adapt

Sept. 5, 2014
“Utilities that pro-actively engage with their customers to accommodate DG – and even participate in the market themselves – limit their risk and stand to benefit the most.” Dexter Gauntlett, Navigant Research

The growth of distributed power generation systems is frequently characterized as a force capable of throwing the entire legacy electric power industry into a “death spiral.” It’s hyperbole, of course, but maybe it’s useful hyperbole. The prospect of grid defection has prompted some utilities to make some radical moves to adapt, and some of the governments that set their rules are instituting policies to facilitate the shift. The potential impact on the electrical industry, in terms of both product sales and the shift of power between utilities and their customers, promises to be substantial.

Indeed, a market sector forecast to grow by about 90% over the next nine years is worth keeping an eye on. According to Navigant Research, Chicago, annual installed capacity in the global distributed generation market is expected to grow from 87.3 GW in 2014 to 165.5 GW in 2023. In their study, Navigant researchers included solar photovoltaics, small wind turbines, stationary fuel cells, natural gas generator sets and diesel gensets, all in sizes scaled for residential and commercial applications. Navigant forecast that distributed generation technologies will grow to more than $182 billion worldwide by 2023, up from an estimated $97 billion today.

There’s no sign yet that any of the incumbent power companies in North America are in their death throes as a result of customers defecting from the grid in favor their own on-site power. Some voices, such as the Rocky Mountain Institute, which published an influential report on the timing of solar plus battery storage systems reaching economic parity with grid power, say it’s just a matter of time.

Navigant said in its report, “One of the most important issues for the energy industry is striking a balance between DG growth and fairly compensating utilities for the ability to effectively use the existing electrical grid as a backup service for onsite power at higher concentrations in the future,” says Dexter Gauntlett, senior research analyst with Navigant Research.  “Utilities that pro-actively engage with their customers to accommodate DG – and even participate in the market themselves – limit their risk and stand to benefit the most.”

The group sees most of the current hot spots for viewing the potential disruption of utility business models from distributed generation (DG) emerging outside the United States. “To date, DG has been more disruptive in Western Europe than in any other region. Utilities are losing hundreds of billions of dollars in market capitalization as DG reaches higher levels of penetration in leading countries such as Germany, the United Kingdom, and Italy. The prospect of similar losses by utilities in the United States is prompting a battle among utilities, the DG industry, and regulators seeking to strike a balance that allows for DG growth while allowing utilities to benefit,” Navigant said in its summary of the report.

Keep an eye on NRG

In the United States, independent power producer NRG Energy, Princeton, N.J., is getting substantial buzz for its moves to embrace the future shape of the power market. The company is pursuing a quest laid out in 2009 to become the leading provider of green power. This week, NRG announced a partnership with Green Mountain Power (GMP) to essentially remake the Vermont grid using microgrids, distributed energy and products that help consumers manage energy usage.

GMP, Vermont’s largest electric utility, will offer products and services developed by NRG to customers in Rutland first, then will roll the program out statewide. The program includes a huge mix of technologies from rooftop solar to electric vehicle charging infrastructure to home energy management systems and community solar, and even the Beacon 10 Sterling engine-based power-in-a-box system NRG developed with inventor Dean Kamen. The companies intend to replace a “creaky old grid infrastructure from the 20th century” with a “21st century energy eco-system,” according to  David Crane, president and CEO of NRG.

This is just the latest big move NRG has made. Last month it bought Goal Zero, a maker of home-scale solar power and battery-pack products. Earlier this year its eVgo electric vehicle charging network signed a deal to provide EV fast-charging equipment in California in a partnership with BMW; it bought a 4MW solar farm in the Virgin Islands; and its Ivanpah solar thermal generating plant in California recently was named Plant of the Year for 2014 by Power magazine.

Keep another eye on Austin

On the government side, many will be watching the results of a new policy in Austin, Texas, that makes solar power the default source for power. Already on the leading edge of grid development with one of the first citywide smart-grid demonstration programs, Austin will be the test case for even more aggressive clean power goals.  The Austin city council last week voted in favor of a resolution that would increase the city's rooftop and utility-scale solar targets by 800MW over the coming years.

It creates a plan that supports distributed and renewable energy, including a utility-scale solar target of 600MW by 2017, a rooftop solar target of 200MW by 2020 and a mandatory strategy to procure 200 megawatts of fast-response storage, among other incentives.

“The 2014 Task Force found that solar energy represents a cost-competitive means of securing clean peak power hedging against the volatility of fuel-dependent thermal resources, and recommended that solar energy generation should be the new default generation resource through 2024.”