Distributed Generation Complicates Resource Planning

Distributed generation is complicating the utility’s previously simple task of resource planning.
Published: Tue 04 Mar 2014

An increasing number of customers are opting to produce their own power using rooftop solar panels. The main drivers are long-term cost-effectiveness and less reliance on the centralized utility for their power needs.

This turn towards distributed generation is complicating the utility’s integrated resource planning.

Now more than ever, utilities need predictive analytics to predict population growth and economic trends in order to stay ahead with regards to the development of distributed generation. The utility needs to estimate the number of people that may employ rooftop solar in the future. The failure to accurately predict these numbers could result in the utility over-building or under-building generation. This could have serious financial and operational implications for the utility.

While the majority of the population in developed countries still receive their electricity from the utility’s centralized power plants, the growth of distributed generation continues to complicate the traditional utility compact where regulated electric monopolies provided power to captive customers.

Utility Must Plan Ahead

However, if self-generating customers are no longer obligated to buy power from the regulated utility, it could have a major impact on the utility business as we know it. While the current setup allows distributed generation participants to use the utility’s network of wires and infrastructure “as a battery”, the introduction of cheap batteries to the retail market could have a devastating effect on the utility business. This could see many independent power producers go off-grid completely. It is therefore critical that utilities formulate a business strategy to account for this possibility. Even electric vehicles are being developed with their own solar panel charging system so that they don’t need to be plugged in to the grid for charging.

Distributed generation is growing in popularity as these power producers are offered various subsidies, payouts and legal incentives which tend to offer distributed generation customers a break from some of the expenses that go into reliable electric infrastructure.

With more customers looking into self-generation, it has created some talk of a “utility death spiral” where the regulated companies’ cost of maintaining infrastructure remains high while profit potential erodes. In our article, Utilities Can Overcome the ‘Death Spiral’, we discuss how utilities can circumnavigate this change by developing a whole new social compact between utilities, regulators and the public.

As prices come down, utilities will be forced to alter their business models dramatically to avoid stranded assets. While this shift may take a while, it is advisable that utilities plan for it in advance in order to remain competitive.