Distributed energy resources are expanding across roofs. Citizens are turning to solar arrays and related systems for their long term benefits, some seek to merely reduce costs while others seek to further environmental goals. The addition of a myriad of small energy producers to the wider distribution network is, however, causing some strife for network operators and confusion among regulators, as the systems needed to integrate their citizens' contributions as well as adoption growth require further development and implementation. The technology is currently being treated by many operators as a threat rather than an opportunity.
In a new report from West Monroe Partners, titled ‘Keeping the Lights On’, the consultancy explores the relationship between the expanding trend of distributed energy resource providers, utilities executives and regulators. The survey for the report involves 2,000 customers, 109 utility executives and managers in major markets across the country, and interviews with dozens of regulatory commission chairpersons, commissioners and senior staff.
There are various kinds of distributed energy resources (DER), and their impact on utility operations and revenue streams differ considerably according to type. According to the executives, the biggest impact of DERs on their operation are from rooftop solar, at 85% of respondents, with 56% of regulators also ranking this first. This is followed by community solar – 62% of utilities executives are expecting impact, and 39% of regulators. Battery storage comes in at number three, with 52% of executives saying it will impact their businesses and 33% of regulators expecting it to impact utilities. Micro-grids and fuel cells are of least concern to both groups.
Driving DER growth
The biggest impactor of DER, solar, has been rising for more than a decade. As the goal of reducing carbon reliance becomes more concrete, a range of investments have being made into improving the yield of sustainable energy production methods. The result has been that the cost of solar energy installations has decreased more than 73% in a decade. The federal and state government’s focus on increasing uptake has sponsored financial incentives for purchases and leasing of rooftop solar PV systems, and has facilitated accelerated adoption of DERs by residential, commercial, and institutional customers.
In terms of what is driving citizens to adopt solar, the different groups surveyed have differing opinions. According to executives, customer activity is the main driver for DER adoption at 72%, followed by the availability of low cost technology at 48%. Regulatory mandates come in at number three with 46%, followed by political pressure at 44%. According to regulators 67% rate customer activities, regulatory mandates, third-party developers/owners, and environmental compliance as critical, followed by political pressure.
The research highlights, however, that a number of barriers exist which affect the smooth adoption of the technology. The utilities executives perceive capital/financial constraints as the largest issue at 61%, followed by regulatory barriers at 46%. A mismatch between corporate strategy is the third largest issue at 40%, followed by a lack of executive support or internal buy-in at 31.5, while a lack of utility business model to support DER adoption was cited by 30%.
Regulators felt that they themselves were the biggest barrier to further adoption of DER, in part because they felt their own hands were tied – hinting that intervention (and support) may be needed at a higher level in order for commissions to authorise utility funding for research and pilot projects and provide the commissions the mandate to plan for the future of DERs and accommodate both utility and customer demands.
As it stands, 80% of utilities, reportedly, have DERs on their systems, but only 37% have services, systems or technologies in place to support them. 49% of utility leaders feel DERs will reach a significant tipping point impacting operations when they account for 11% to 25% percent of their system generation. Yet 59% of utility executives say their organisations plan to make no or minimal investments to support DERs on their systems, unless mandated to do so.
While the utilities respondents will likely require legal or other incentives to transform their operations to meet climate goals as well as customer expectations, not all operators are taking a “wait and see” approach. Some have started to transform aspects of their internal planning processes to compensate for the operational impact of DERs. 65% have some form of distributed system planning as more and more DERs come online, while 60% are engaging in load forecasting and financial analysis with DERs in mind. The areas seeing the least consideration in relation to the addition of DERs are transmission system planning at 28% and workforce planning at 23%.
According to the consultancy, the addition of DERs may create significant opportunities for utilities – rather than signifying a major threat. The report concludes that: “From the utility provider perspective, it is not enough to have DERs on the grid. Given intensifying concerns about grid reliability, utilities can pursue new revenue streams by integrating DERs more closely into their systems and honing their distribution services. Utilities have a chance to expand their business model and strengthen customer relationships by delivering continuous DER support, and simplifying the DER application, integration, and support process.”