While President Trump campaigned on a promise to boost opportunities for fossil fuels and revitalize the coal industry, market forces might already have limited his opportunities for fulfilling that pledge. A recent survey sees both utility executives and their regulators anticipating significant growth in distributed energy resources (DERs), especially rooftop photovoltaic (PV) panel installations, and both groups are much more focused on what’s needed to support further adoption than how to stop it in its tracks.
The observations and plans of these executives and regulators are more important than any campaign promises, because the federal government has little say in state-level generation planning and procurement. Additionally, with prices for both PV panels and balance-of-system equipment continuing to fall, home and business owners are seeing faster payback on such investments, based on monthly electric-bill savings.
More than 100 electric utility executives, dozens of regulatory officials and almost 2,000 utility customers were surveyed for West Monroe Partners’ report, “Keeping the Lights On,” released in December. The Chicago-based consulting firm sees DERs—which also include combined heat and power systems, on-site wind, fuel cells and microgrids—as a market on the verge of rapid expansion.
“While the presence of DERs among residential, commercial and industrial sites is still limited, customer interest is on the rise,” said Paul DeCotis, a senior director with the firm. “Adoption is on the brink of booming in many states across the U.S.”
Supporting that forecast, 82 percent of utility executives surveyed said residential customers are adding DERs to their system at a rate higher than commercial and industrial users, and 48 percent of residential customers are considering installing DERs in the next two years. Not surprisingly, executives and regulators see solar—either as rooftop systems or larger community solar installations—as the technology that will continue to have the biggest impact on utility operations and revenue streams. However, battery storage and electric vehicles are moving up in that ranking, with executives and regulators ranking such systems right behind solar.
Where regulators and executives differ is just how quickly customer-sited DERs will affect distribution-grid operations. Notably, regulators see DERs reaching that tipping point much more quickly than the utility executives operating those grids. In fact, most regulators feel we are already there, with 75 percent saying a penetration rate as low as 0–10 percent could necessitate significant grid operational and management changes. The biggest number of utility executives (49 percent) don’t see this point being reached until DERs hit 11 to 25 percent of system penetration.
“Where regulators believe adding even small amounts of DER will impact the distribution system, utility executives responsible for operating the system see the impact as fairly small until significantly more DER is added,” DeCotis said. “Since residential solar acts more as a load modifier—like demand response or load shifting—larger penetrations are required before there is a noticeable difference, as believed by utility executives.”
A broad distribution of small generation resources can actually support local grid operations.
Executives and regulators also have different views on the most significant barriers to the adoption and support of DERs. One might assume the executives would be the first to point a finger in the direction of the regulators, but they’re actually more likely to focus on their own internal capital and financial constraints. Regulators are similarly internally focused, as they see regulatory barriers as the primary hindrance.
DeCotis thinks this disparity is not from lack of communication between the two groups but rather the understanding each group has of its own difficulties encouraging greater adoption.
“The disparity in opinion here is due in large part to regulators recognizing that existing industrial-era regulatory paradigms are not conducive to creating a 21st-century distributed utility grid,” he said. “Regulators see the need to change their regulatory model. Utility executives see more market forces emerging to shape the industry that will be dependent on availability of more financial capital.”
That uncertainty has resulted in an ambivalence among executives as to whether DERs are a threat or an opportunity for their business—two-thirds of those surveyed believe they are both. This could be due to the lack of clarity in most states as to the allowable involvement of utilities in DER deployment and ownership. State-level policy decisions will prove to be more important to DER success than any federal pronouncements, especially as tax credits diminish and expire over the next few years.
“In some states, utilities are not allowed to own generation—even DERs—while in other states, they are encouraged to,” DeCotis said. “These represent two very different business and regulatory models being used to achieve state-level energy, DER policy and environmental goals.”