The introduction of more DERs on utility systems and at customer sites provides support for increased reliability and resiliency, if appropriately located and properly configured.
Distributed Energy Resources
Paul A. DeCotis | West Monroe Partners
According to West Monroe’s study, residential customers are the largest group adding DERs, cited by 82% of utility executives. However, while interest in DERs is growing, only 37% of utility executives offer DER-specific support services, systems or technologies.
Can you give us a short description of what DER’s are with a few examples?
DER is an acronym for distributed energy resources. Such resources provide electricity for use on- site or at strategic locations on the utility transmission system or distribution grid. DERs can provide electricity for use on-site or operate as a load modifier, shifting the need for grid power from peak periods to off-peak periods, and support and enhance system reliability. Some examples of these types of resources are solar photovoltaic, wind, fuel cells, and bio-digesters, which are smaller in size and electric generating capacity, as well as located closer to load than larger-scale conventional generation like nuclear, oil, natural gas and coal.
What about DERs make utility executives hesitant to integration?
Distributed energy resources present a new layer of complexity to utilities’ operations, while at the same time promising to inject new life into the traditional business model. Eighty percent of utilities in our survey report have DERs on their systems, but executives and regulators do not share a common vision when it comes to how regulations currently (or should) impact DER support and ownership. Utility executives are hesitant to integrate DERS for several reasons, including:
Most do not know the optimal place on the distribution system to locate DERs and utilities would have little control over where DERs are placed—unless system constraints prevent interconnection at certain customer sites
Most utilities do not have the software and operating systems to monitor and report on system output which would be important for maintaining reliability
It is not clear in many jurisdictions, if utilities are able to own DERs and have certainty of regulatory approval and cost recovery.
The rapid rise of DERs on utility systems is also creating difficulties for utilities to enroll customers and manage the interconnection process. Many utilities and regulatory commissions are looking at electronic enrollment and interconnection software to improve customer engagement and satisfaction.
Why do you think residential customers are showing increased interest in DERs?
We found that while the presence of DERs among residential, commercial and industrial sites is still limited, customer interest is increasing and adoption is on the brink of booming in many states across the U.S. Eighty-two percent of utility executives say residential customers are adding DERs to their systems, more so than commercial and industrial users or the utility itself. And, 48 percent of residential customers are considering installing DERs for their homes in the next two years. Commercial and industrial customers have long led the charge to adopt self-generation technologies, for a variety of economic reasons. In recent years, however, residential customers have begun to participate in the growth of DERs and enjoy the associated financial benefits.
In most jurisdictions, utilities are required to purchase excess renewable energy generation not used on site through net metering provisions of state law, and usually at retail electricity rates. This means utilities are required to buy excess power from customers at a rate much higher than they would otherwise be able to generate or purchase equivalent power. This significantly increases the economics for customers and reduces the payback period for DERs. In addition, many residential customers are socially conscious and see investment in DERs as a way to demonstrate their stewardship for the environment.
What are the main advantages and benefits of DERs?
The introduction of more DERs on utility systems and at customer sites provides support for increased reliability and resiliency, if appropriately located and properly configured. DERs can also provide economic benefits to all utility customers as opposed to more costly new transmission, distribution or generation investments that would require serving a load. Investments in DERs also create jobs and support clean-tech industry growth. Environmental benefits of renewable energy-sourced DERs are also widely known and valued in many parts of the country. Through the sale or purchase of renewable energy credits companies are able to meet compliance requirements of state renewable portfolio standards.
What factors are driving regulatory action to support DERs?
Utility regulators and government policies support the adoption of DERs through rebates, financial incentives like low-cost borrowing, leasing arrangements, tax credits, information dissemination and in some cases, assistance with vendor certification. Regulators and policy makers are promoting DERs for their environmental and economic benefits, and to transition the economy away from fossil fuels to more renewable energy resources—which currently make up the bulk of DERs being added to the utility system. Federal support, along with utility and state-sponsored financial incentives for purchases and leasing of rooftop solar PV systems, has accelerated adoption of DERs by residential, commercial, and institutional customers.
What are some of the barriers to DER adoption?
We found that while the presence of DERs among residential, commercial and industrial sites is still limited, customer interest and adoption is increasing. While utilities and regulators alike acknowledge this potential shift, in many states they have yet to settle on clear and collaborative ways to prepare for it. Barriers include:
Lack of customer knowledge of the availability and benefits and costs of DERs
Longer payback for customers from DER investments, which in some cases extends beyond expected life of building ownership
Lack of ability to finance investments in DER even with low-cost financing available and a leasing option (more of a transactional barrier)
How can potential customers be educated into the adoption of DERs?
Information on DERs is available to customers from their local utility provider, trade associations, business groups, and now increasingly from non-utility DER providers themselves marketing directly to customers. A number of internet websites also provide information to customers and can help customers estimate the benefits from DERs if installed on their premises. In many parts of the country, competitive markets already exist for DERs and many customers bypass their local utility provider and purchase DERs directly from third-party providers.
How can utility executives be convinced that DERs would benefit their businesses?
Utility executives already see the value of DERs on their systems. However, utility IT and operations systems are not yet in place to support rapid growth of DERs, and regulatory uncertainty for utilities causes them to be a bit cautious.
Paul DeCotis is a director in West Monroe Partners’ Energy & Utilities practice, based in New York City. He leads the firm’s Energy & Utilities team on the East Coast and is a leader for the Energy & Utilities regulatory offering. He has more than 30 years of experience as an executive, consultant, and educator and an exemplary track record for applying business and technology expertise to address the needs of an industry in transformation.
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