Lately I’ve been talking to a lot of folks in the electric utility industry about emerging drivers that could really change the landscape—cheap natural gas (and plenty of it), dropping prices on renewables like photovoltaics (PV), and proven distributed generation technologies such as combined heat and power (CHP). The monopoly position of utilities is looking more at risk than ever before.
Think about it: Why shouldn’t large end users be locking in a supply of natural gas, installing PV on their roof, and using CHP to get themselves off the grid? We have some very high prices for electricity in different regions of the country, such as California and New England. For an increasingly growing number of end users, the economics of self-generation are going to be extremely attractive. And policymakers in some areas are pushing for a lot more DG. California Governor Jerry Brown has challenged the market players in his state to bring 12,000 megawatts (MW) of distributed generation online as part of the 20,000 MW of renewables the state’s utilities are required to deploy by 2020.
What does this mean for a traditional electric utility?
First of all, do they engage in this emerging market? It’s the age-old challenge of established incumbents being reluctant to cannibalize their own products and services. If utilities don’t find a way to profitably facilitate the adoption of DG, they may be stuck on the sidelines watching their load go to other project developers. The question is, what business and regulatory models can best align the interests of utilities, customers, other service providers, and the environment? As my colleague Michael Shepard notes in his recent blog post, different utility programs are emerging and utility financing models are being proposed or tested that may help utilities and CHP prosper together. Essentially, DG technologies are coming, and each utility needs to determine what the right model is for it to successfully work with this industry. And that means working with their regulators and boards to proactively develop those models.
One topic I hear early and often from the utility managers I speak with is concern about system operations and reliability as more DG gets put on a distribution system. After all, the number one priority for electric utilities is reliability. But I think we need to break down the technologies a bit more.
I have yet to encounter a situation where CHP is creating a system operability issue. After all, most of those units will be running 24/7, so they actually reinforce base load supplies. In addition, the economics, while improving, are still somewhat marginal for end users without significant incentives. Thus, there’s still not an overwhelming amount of CHP to help us predict what operating issues might evolve.
However, that’s not the case for PV, where specific utilities are starting to see system challenges. But I’ll save that discussion for another blog post. In the meantime, what are your thoughts on DG and the future impact on our electric utility industry?
