Survey: Distributed Generation an Opportunity, Not a Threat to Utilities

Distributed generation is the most disruptive technology to the utility business model, but rather than look at it as a threat, most utility executives perceive it as an opportunity, according to a survey commissioned by engineering firm Siemens.

The survey, “The State of the Electric Utility,” is based on the responses of 527 senior utility executives, the majority of whom said they worked for an investor owned utility (62 percent). Executives from public power agencies (17 percent), municipal utilities (13 percent), retail cooperatives (5 percent) and wholesale cooperatives (3 percent) rounded out the remainder of the responses.

“A significant majority — 67 percent — believe utilities should take a direct role in supplying distributed generation to their customers, either through owning and leasing distributed assets or by partnering with estimated distributed generation companies,” according to the survey, which was conducted by Utility Dive.

Fifty-three percent of executives said distributed generation has the most disruptive potential for their utility’s business model, and 57 percent of executives said it provided an opportunity, compared to 38 percent who said it presented a threat. Five percent said distributed generation was “ultimately unimportant” to utilities.

Other perceived disruptive technologies included demand-side management (28 percent) and energy storage (19 percent).

Confronted with the short-term outlook of little to no demand growth, utilities are looking at distributed generation as an investment opportunity.

The “vast majority” of respondents said their utilities expect little to no demand growth in the next five years, nearly one-quarter of which said they expect zero or declining load growth, according to the survey. According to the survey, however, 21 percent of respondents said they expected significant demand growth. These results are not broken down by geography.

To address the flat demand growth future, utility executives’ responses were overwhelmingly proactive. The majority said developing a new business model was the appropriate step to take (65 percent), followed by investment in distributed generation (43 percent), seeking decoupling of electricity sales from profits (33 percent) and seeking rate loss recovery mechanisms (26 percent). Four percent said no action was appropriate.

The majority of executives, or 46 percent, indicated that a vehicle for electricity growth was perhaps being overlooked and not deploying public charging stations for electric vehicles was a missed opportunity.

However, 37 percent of executives said they were not missing an opportunity by not deploying public charging stations and 17 percent said the electric vehicle business did not provide an opportunity for utilities.

Utilities’ Top Challenges

The U.S. utility industry’s top challenge is aging infrastructure, according to the survey. After aging infrastructure, the second and third most pressing challenges are the current regulatory model and the aging workforce.

Grid reliability and coal plant retirements fell behind distributed generation and flat demand growth as concerns, with cybersecurity falling into last place.

By category, 48 percent of executives said aging infrastructure was the greatest challenge, followed by the current regulatory model (32 percent), the aging workforce (31 percent), distributed generation (30 percent), flat demand growth (28 percent), smart grid deployment (23 percent), grid reliability (21 percent), coal plant retirements (17 percent), renewable portfolio standards (17 percent), energy efficiency mandates (16 percent), emission standards (12 percent) and cybersecurity (11 percent).

The majority of respondents, or 57 percent, said they expected their utility’s regulatory model to change over the next 10 years, while 38 percent said they “minimally” expected the regulatory model to change. Five percent said they did not expect their regulatory model to change.

Eighty-one percent of respondents said they would continue to expand their demand response programs, and 83 percent said they planned to grow their energy efficiency programs over the next five years, according to the survey.

Natural Gas and Renewables

Fifty percent of utility executives said natural gas would be their primary generation fuel in 20 years, followed by coal (14 percent), nuclear (12 percent), hydro (8 percent), solar (7 percent) wind (6 percent) and other (3 percent).

Fifty-four percent of utility executives said they were under pressure from stakeholders to supply clean energy, while 27 percent said they were already providing sustainable energy and 19 percent said they were “not under any pressure.”

Renewable energy comprises a portion of the generation portfolio for the vast majority of utilities, according to the survey. Thirty percent of utilities’ generation portfolio contain 0.1 to 5 percent of renewable energy; 26 percent of portfolios contain 5.1 to 10 percent of renewable energy; 22 percent of portfolios contain 10.1 to 20 percent of renewable energy; and 15 percent of portfolios contain over 20 percent of renewable energy. 

This article was originally published on GenerationHub and was republished with permission.

Lead image: Solar and wind via Shutterstock

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Rosy Lum, Chief Analyst for TransmissionHub, has been covering the U.S. utility industry for over six years. She began her career as an energy journalist at SNL Financial, for which she established a New York news desk. She covered topics ranging from energy finance and renewable policies and incentives, to master limited partnerships and ETFs. Thereafter, she honed her energy and utility focus at the Financial Times' dealReporter, where she covered and broke oil and gas and utility mergers and acquisitions.

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