When it comes to the rise of distributed energy, it’s not necessarily all doom and gloom for utilities, say progressive industry executives. To stay relevant, though, incumbent electricity providers need to try out new technologies and fundamentally reconsider what business they are in.
Jim Rogers, chairman of Charlotte, N.C.-based Duke Energy, and Ralph LaRossa, president and chief operating officer of Newark, N.J.-based PSE&G, said they are actively seeking ways to participate in distributed energy, if only because they have little choice. Their comments and those of other speakers at the World Alliance for Decentralized Energy conference in Boston last week provide insight into how forward-looking utility companies are adjusting to the potentially disruptive changes from distributed energy technologies.
Both Duke and PSE&G maintain traditional gas and electricity distribution businesses as well as power plants, including utility-scale solar and wind. Beyond that, they’ve invested in residential solar, microgrids, energy storage and smart grid technologies. The business model to earn money in some new ventures is not always clear. But if regulations are modified, utilities can earn money because the core business model of utilities is to invest in power equipment to meet regulators’ objectives, they said.
“I wouldn’t be surprised to see utilities moving from their traditional role … to shift to become active players in distributed generation,” said Rogers. “Because ultimately, a utility is in the investment business. The more we invest, the more we earn.”
Distributed energy concerns
Spurred by the rapid rise of residential solar, electricity providers have become increasingly vocal about their concerns with distributed energy. A major flashpoint is net metering laws, which compensate homeowners with solar PV panels for electricity they contribute to the local grid. Earlier this week, regulators in Arizona agreed to increase the amount of money that solar owners need to pay to fund upkeep of the poles and wires that utilities own and operate. But the debate over what’s fair compensation for solar owners’ use of the grid continues in other states and is far from over.
It’s not just distributed solar. Worries over grid reliability, catalyzed by Hurricane Sandy and other extreme weather events, have prompted more businesses and institutions to install on-site natural gas generators that can provide backup during power outages. Meanwhile, demand response-related products that reduce power consumption at peak times, such as smart thermostats, are improving and becoming more widely used.
At the conference, Eileen Claussen, president for the Center for Climate and Energy Solutions, said that from an environmental perspective, the shift toward distributed energy is good because it's generally more energy-efficient than centralized power generation. It’s people’s concerns over grid reliability that is really pushing distributed generation.
“There will be a big push for distributed generation because you actually need to have some amount of redundancy,” she said. Last year, there were more than 800 extreme weather events worldwide, which cost more than $130 billion. “As we see more and more extreme weather events -- and I’m sure we’re going to see more of them -- we’re going to have to move to more distributed generation."
PSE&G helps lead the way
PSE&G already has about one-quarter of power generating capacity in some form of distributed energy -- either solar, fuel cells, wind, or combined heat and power systems, said LaRossa. The company also put small solar panels on all of its utility poles that feed directly into the distribution grid.
Now, to improve the resiliency of the grid, the utility is eyeing other types of projects around combined heat and power and microgrids. It’s involved in two large-scale microgrid projects, including one for the New Jersey Transit System and the City of Hoboken, where a large gas turbine at a hotel would power several nearby buildings, including a hospital and the municipal government, LaRossa said.
“That small microgrid (in Hoboken) will hopefully become a microcosm of what we can deploy in other places. We want to play a role in that. We aren’t trying to fight it,” he said. “Our (power) generation fleet will not be impacted one way or the other by that. … And many of those generators are going to be retired in the next 50 years or so.”
Challenges and opportunities for utilities
The key sticking point utilities face with distributed energy is how they are compensated for the use of the distribution grid -- the wires and poles that bring electricity to homes and businesses. In many cases, utilities have a monopoly for the distribution business, but distributed generation has begun to chip away at it, the same way that deregulation at the state level broke up the monopoly in power generation, Rogers said. “We have to make sure we get the pricing right for the use of the distribution network,” he said. Even if a homeowner provides all her electricity with solar panels, for example, that home still uses the grid to absorb excess electricity and provide power when the sun’s not shining.
Another challenge for utilities is knowing which technologies to bet on and what the optimal timing is. In many cases, this will vary from state to state because the price of electricity and regulators vary greatly, but they need to work with technology providers. “You can see us as competitors, but utilities can also play side by side with (distributed energy companies) because, with demand flat, distributed energy is one of the few opportunities to grow business over the next 20 or 30 years,” Rogers said.
In the end, utilities and regulators need to rethink what they provide as distributed energy grows. PSE&G, for example, is in discussions with the operators of MetLife Stadium, which is hosting the Super Bowl, to ensure that there is no interruption in service during the game, as there was last year. The best approach could be beefing up the surrounding grid with redundant systems, putting in on-site generators, or perhaps even changing the lights themselves, said LaRossa. “We need to be solution providers."
Solar power photo by Gencho Petkov via Shutterstock