Grid interconnection with the utility continues to stand in the way of Distributed Generation. This is according to a report [Small-scale Distributed Generation Opportunities from Renewable Energy-December 2013], compiled by Frost and Sullivan.
Excess power generated by Distributed Generation can be sold to the utilities as long as appropriate grid connections are in place and there is a willingness from the utility to buy electricity from small power producers. Unfortunately, the report shows that in many cases, the terms and conditions given in power purchase agreements (PPAs) seem to favour the utility. As a result, investors perceive there to be very little incentive to invest in these plants.
This is surprising since there are numerous advantages of small-scale distributed generation technologies (using renewable energy) for both the utility and consumer:
- A decrease in carbon emissions
- Efficiency-Generation of energy within close proximity to area of consumption improving reliability and decreasing transmission losses
- Less funds needed to maintain or improve the ageing centralised generation infrastructure
- Increased reliability-a distributed generation system with microgrids can localise failures and reduce the number of consumers affected
- Flexibility-smaller distributed generation plants cost less than the large traditional power plants and can be easily decommissioned as new technologies are adopted
- Upgradability-smaller generation plants will cost less to upgrade
- Distributed generation technologies are mostly well established and are experiencing strong growth
- Economy of Scale-mass production of small power plants will drive down the cost
- Diversity-less dependence on one energy resource as distributed generation supports a variety of power generating technologies
- Energy generation and storage innovation, it is easier to pilot and show ROI cases in contained environments.
Distributed Generation on the tipping point?
The report shows that distributed generation is poised to take off to a new level, especially in Europe. This will, in turn, create opportunities for suppliers of micro-generation technologies. Power-gen companies and utilities should already be implementing new strategies and business models in order to stay ahead.
Already, more universities and businesses are looking to establish microgrids that can “island” themselves from the grid if the power goes out. Utilities need to re-examine policies that create incentives for renewable energy, particularly net metering, and advocate pricing changes to ensure that utilities are able to recover the cost of maintaining the physical grid infrastructure.
As more attractive business models are defined, with or without the utility’s involvement, the distributed generation market may boom regardless. Consumer demand and technological innovation will make change inevitable.
Long term role for the utility
In the longer term, this issue will only be truly resolved when utilities have more consistently decided the roles they see themselves playing in micro distributed generation markets. It is better to plan than to resist disruption as distributed generation is something that cannot be stopped.