Utilities See Distributed Generation as a Challenge—and Owning It as the Solution
A new survey found 82% of utility executives believe utilities should be able to own and rate-base distributed energy resources.
Virtually all utility executives believe the industry’s century-old business model is changing and that utilities need to adapt. Where there’s less consensus is around how.
Only 3 percent of utility executives said they believe their company’s business model does not need to change, according to a recent survey conducted by Utility Dive. The results stem from an online poll of 515 U.S. electric utility executives conducted at the end of 2015 and the beginning of 2016.
So there’s a near consensus on the need to evolve, which goes for all utility types — investor-owned utilities, municipal utilities, public power agencies and electric co-operatives. But respondents see several hurdles in the way.
The report notes that the 21st century has seen the emergence of the smart grid, renewable portfolio standards, federal carbon regulations and new disruptive market players, among other factors. And yet, while new challenges have emerged, the survey found that legacy issues continue to dominate, with utility executives citing an aging workforce, outdated regulatory models and aging infrastructure as the most pressing challenges facing their company.
These issues have long plagued utilities, but they’re arguably exacerbated by changes in the energy system. The falling cost of renewables and increased availability of distributed energy resources (DERs), like rooftop solar and energy storage, are driving concerns around load reduction and cost recuperation. Investor-owned utilities are particularly concerned that their regulatory models will not serve them well in this changing environment.
Next to legacy issues, renewable energy integration and stagnating load growth were cited as some of utility executives’ top concerns.
For many utilities, DERs present a particular set of opportunities and challenges.
Choosing from among a suite of advanced clean energy technologies, 66 percent of utility executives said they are currently most invested in utility-scale solar and wind, 64 percent said demand-side management and 50 percent said distributed generation.
Out of the technologies they felt they should invest in more, energy storage rose to the top, with 65 percent of utility executives reporting this as a priority. Distributed generation was second at 52 percent and utility-scale solar came in third at 47 percent.
These responses track last year’s Utility Dive survey, in which 56 percent of respondents said that DERs presented an opportunity, but at that time, executives were unsure how to build a business model around them. This year, utility respondents clearly favored two approaches: partnering with third parties to deploy DERs and installing DERs by rate-basing investments through the regulated utility.
When respondents were offered five DER business models and asked to select all that apply, the results show 60 percent of utility executives believe they should partner with third parties and 59 percent believe they should rate-base their investments. Some utility respondents (39 percent) were open to procuring or aggregating power from DERs owned by third-party providers, and others (29 percent) were open to owning and operating DERs through an unregulated subsidiary. Very few (5 percent) said they do not believe their utility should have a business model around DERs.
Because the choices aren’t mutually exclusive, responses show that utilities are considering and possibly pursuing multiple DER business models, which is likely a reflection of regulatory uncertainty.
In the same vein, a recent Greentech Media survey found that a majority of respondents, including utility personnel, policymakers and industry leaders, wanted regulators to issue rulings that would help determine the value of DERs. One respondent said regulators should “implement policies that allow incumbents to effectively and fairly compete with un- or less- regulated competitors.”