Research firm Morningstar has come to the conclusion, in its latest report, “Distributed Generation: The Death Spiral”, that distributed generation poses a potentially existential threat to the future of electric utilities.
The report points out that rooftop solar and other technologies are decreasing the value of utilities’ legacy assets and centralized networks, as well as destroying their efficient-scale competitive advantage.
By 2016, there will be a new distributed solar PV installation every 83 seconds in the US. More distributed solar has been deployed in the past 2.5 years than in the 50 years prior, and GTM Research predicts another doubling over the next 2.5 years.
This is bound to reduce electric power purchases from the utility grid. It seems that the only option for utilities is to spread their costs and operations across a smaller customer base and increase customer rates.
The report points out that the threat will be even more severe for utilities with significant baseload power generating assets, including coal and nuclear plants.
Death of the centralized system?
There is no doubt that there is definite move from a centralized energy system to a next-generation distributed energy system. The increase in renewables, development of storage solutions, net metering, microgrids, "prosumers," an aging workforce, environmental regulations, and the data deluge are all threatening to bury the utility as we know it today.
The need for grid reliability is another factor to consider. Thanks to climate change, superstorms are on the increase and are predicted to occur more regularly. These storms put major pressure on the grid. As a result, more people are recognizing the inherent reliability of distributed, islanded systems to avoid widespread power outages.
Opportunity for the utility
But, utilities should not be despondent and throw in the towel. This is the time for adaptation. The utility needs to finds ways to survive and even prosper. They need to embrace the change by branching out and offering a wide variety of services to support the decentralised grid. Actually, this is a strategy that all businesses should follow because business environments and markets are changing constantly.
Utilities need to invest in equipment and software that is flexible, versatile and interoperable, while still providing security and privacy to the consumer. Gone are the days of using single-purpose gear that forces operations onto a single, inflexible path to nowhere. This is what the utility should focus on:
Meters that can “talk” with multiple communications networks, giving utilities optimum flexibility.
Meters with on-board memory and processing power so that meters can provide the data for new "apps" which the customer can download.
Highly interoperable multi-layered networks can be used for a wide variety of applications.
Developing systems so that data management can accept data from many different sources and share it with different applications.
From an operator level, it means that a single environment is able to operate multiple applications within the same interface.
The idea here is to purchase products that have multi-purpose capabilities so that they can easily adapt to ever-changing market trends. In our article, Investments Should Be Aimed at Innovation, we discuss how utilities can no longer rely on traditional business models and aging equipment.
It’s also time for the utility to invest in their customers and find better ways of communicating with them. In our Utilities Should Adopt Multi-Channel Platforms, we discuss the numerous benefits for utilities and their customers.
A number of utilities have already grabbed the opportunities on offer-NextEra, Duke and Integrys believe that there's big money to made in distributed generation.
Utilities will find themselves up against a number of obstacles along this transformation phase.
It’s important to choose a reputable vendor that has a proven commitment to open standards and maximum interoperability.
Employees must be trained to understand the relevance of a multipurpose and multi-technology approach. Even regulators will need to be convinced of this new approach so that they can provide relevant support.
The multipurpose approach is the utility’s only option as it seeks to adapt to the new market trend.