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U.S. electric utilities are increasingly confident that distributed generation – that is, power assets with a capacity less than 20 megawatts – will grow significantly from today’s current levels. Furthermore, while many utilities see distributed generation as a potential threat to their business, they are quite open to considering investments in that space and related technologies.

These were some of the findings that came from the 2015 Strategic Directions: U.S. Electric Utility Industry report. Concerning distributed generation, approximately 5 percent of total U.S. power generation comes from this area, but more than half of respondents feel that margin could increase to six to 10 percent by 2020. This represents a significant increase over survey years 2013 and 2014, when the response came in at 43 percent.

Eighty percent of respondents say they believe that distributed generation, particularly solar photovoltaic (PV), represents a threat to their business. Almost two-thirds expect the impacts to be significant.

“In reality, many utilities are still in the ‘review stage’ when it comes to assessing how they will manage distributed generation,” said Ryan Pletka, Associate Vice President for Black & Veatch’s energy business.  He noted how utilities are dealing with the issue of net metering. Nearly one-third of respondents are currently reviewing their policies internally or working to change net metering tariffs to account for the policies’ net costs and benefits.

While distributed generation may be viewed as a threat, that is not stopping utilities from being open to considering investments in the technology, Pletka said. Nearly 75 percent of respondents are open (“Yes” or “Maybe”) to investing in behind-the-meter and distributed grid infrastructure, and two-thirds say they will increase their renewable energy generation investments in the next five years.

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“In the past year, we’ve encouraged utilities to become more proactive and ‘flip’ the distributed energy equation,” Pletka said. Examples of proactive steps could include direct ownership of distributed resources, restructuring customer rates to remove cross-subsidies, compensating distributed generation customers fairly for benefits to the grid, and developing proactive transmission and distribution plans to accommodate distributed generation growth.

“Black & Veatch has been working with utility clients on the first steps of these processes,” Pletka said. “This activity shows the increasing recognition of both the potentially disruptive nature of distributed resources and, at the same time, the potential benefits they might bring.”

Rethinking Traditional Business Models

Bill Roush, Renewable Energy Consultant for Black & Veatch’s energy business, said third-party energy storage technologies are also altering how electric utilities function. With the Teslas and Daimlers of the world working to install behind-the-meter battery storage for commercial and industrial utility customers, electric utilities are facing a variety of challenges and opportunities.

“Black & Veatch is working with utilities that are rethinking their approach to planning in the face of third-party innovation and disruption,” Roush said. “Some are using segmentation, more often seen in the marketing arena, to get a better understanding of how to communicate, collaborate and deliver the services that fit the needs of their customers.”

Roush said that as electric utilities continue to prepare for the changes sweeping the industry, the ability to plan and evolve will be directly tied to readiness. He said electric utilities can begin to gauge their ability to transition by examining some of these questions:

  • Are you currently equipped financially and operationally to meet regulatory requirements?
  • What is your relationship with your customers?
  • Do your models currently account for a decline in revenue from sales of electric power?
  • What is the condition of legacy infrastructure?
  • What investments have you made to ready infrastructure for distributed generation?

“Answers to those questions will go far toward determining a utility’s ability to move with the changes sweeping across the marketplace,” Roush said.

Published originally on Black & Veatch Solutions