Utilities should embrace distributed solar generation, offering O&M, aggregation, or marketing services, rather than lament a lost business model.
Distributed Generation: Competitive Threat or Opportunity?
electricity producers, it will make sense in a growing number of situations to look for alternative ways to supply the customer during the most costly hours in a year.
At EPRI, we have conducted high-level and utility-specific case studies that demonstrated that distributed generation can provide utility planners with an added degree of freedom in managing T&D assets. In the case studies, nearly every utility system found attractive, high-value applications related to capital investment decisions and load-growth projections.
s In an area of slow or uncertain load growth, distributed generation technologies introduced to defer upgrades to the distribution system (substation, transformer, feeder) can provide significant capital savings and add cash management flexibility.
s In high-power-density, high-growth urban areas, distributed generation technologies can provide opportunities for utilities to remain the "provider of choice" by entering partnerships with large customers to install, operate, and dispatch onsite backup generation.
The Strategic Reassessment
In all likelihood, the strategic role played by distributed generation will depend on the evolutionary pace of wholesale and retail access to electricity, as well as potential disincentives such as transition costs or "exit fees" imposed by regulators. Here are some key conclusions of market assessments developed at EPRI:
s Rapid Transition. A rapid structural evolution to access at the retail level would make major players of "mini-Gencos" and ESCos (energy service companies). Distributed generation would be implemented heavily at customer sites and substations, awarding a 25-percent market share to new electric capacity by 2010.
s Slow Transition. A slow, incomplete structural evolution to wholesale access would make Distcos (distribution companies) the major implementers of distributed generation. Market penetration (em estimated at 10 to 40 percent of new capacity by 2010 (em would depend primarily on whether power producers show aversion to the business risk of adding central station capacity. This scenario appears unlikely, however, because large electricity consumers will probably continue to escalate pressure for direct access (em i.e., the evolution will not be slow.
s Phased Transition. The most likely scenario involves a complete evolution to wholesale access and a slow, phased transition to retail access. The key players will be mini-Gencos, Distcos, and ESCos. Distributed generation will be implemented at customer sites and substations, implying a low-to-modest market share of new capacity additions until 2010.
Regarding the choice of technology, these market assessments emphasize flexibility. They suggest that, in the next decade, distributed generation technologies based on fossil fuels and suitable for peaking service dispatchable by customers or owners (such as internal combustion and engine generators, combustion turbines, and microturbines) could dominate over emerging technologies such as photovoltaic solar, fuel cells, and storage (batteries and flywheels), unless this second group of technologies can achieve significant capital-cost reductions. Market entry of fuel cells would be enhanced by growth in demand for baseload capacity or by rising natural gas prices, which should encourage higher efficiency.
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Although it will never supplant bulk-power generation as the dominant electricity supply and revenue producer, distributed generation offers a higher-leverage, higher-margin business opportunity. In the industrial sector, distributed generation applications using gas turbines will