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Utilities Need Smart Solutions to the Challenges Posed by Distributed Generation

Utilities Need Smart Solutions to the Challenges Posed by Distributed Generation

The rapid growth of residential solar photovoltaics and technologies including fuel cells is a major disruptive threat to utilities’ grid infrastructure, and as a result, to their business models. However, distribution companies seeking to turn this threat into an opportunity have a long way to go in creating new approaches to accommodate existing and new customers.

A recent Accenture survey of more than 100 utilities executives across more than 20 countries revealed that 58 percent of distribution utility executives believe the rise of the energy “prosumer” – the residential customer who also generates and sells power back to the utility – and the resulting  increase in distributed generation (DG) will cause revenue reduction by 2030.

The concern is higher in North America and Asia Pacific than in Europe, due to the prevalence in these regions of vertically-integrated utilities, which face the double impact of declining energy sales revenue and increased network costs to support reliable energy delivery.

The speed at which DG has grown is remarkable, spurred on in large part by the decreasing costs of solar photovoltaics.  This utilities industry version of “Moore’s Law” is bringing significant changes in consumer behaviors. The latest edition of our New Energy Consumer research shows that more than half (57 percent) of consumers would consider investing in becoming power self-sufficient.

In some countries, such as Australia, this move has already happened at high speed—utilities saw a hundred-fold rise in new, small-scale PV installations from 2007 to 2011, increasing from around 3,500 a year to 360,000 a year. Australian PV penetration has continued to grow, with 1.66 million, or around 15 percent of residential households owning a small-scale PV systems by early 2017 1.

Regardless of where they live, consumers believe their energy providers should be delivering the services and support to fulfill their goals to become power self-sufficient. Nearly six out of 10 consumers expect energy providers to work with technology companies and other organizations to offer packages for distributed energy resources (DER) that can enable them to access more sustainable ways to generate and store electricity2.

While a balanced, network-wide approach is required for utilities to successfully integrate DG and enable them to benefit from its proliferation, the key will be to strike the right balance between capital investments and operations and maintenance spending optimization, while navigating regulation on deployment.

Our research indicated that most energy providers actually anticipate deploying a broad set of new capabilities over the next 10 years in network capacity planning, storage support and distributed generation operations.  However, no North American utilities said that they have a very clear forecast of potential DG hosting capacity on their networks, compared to a third of European utilities.

In this environment, we believe distribution utilities should be taking three major steps: 

  1. Recognize and meet new customer expectations.  Customers do not see themselves as becoming independent from their utility companies; rather, they envision working in partnership with their utility, with the utility providing new services such as the installation and maintenance of solar PV panels, PV system design, locational incentives and financing services.  Customers also expect the utility to keep systems running reliably and to manage surges in supply and demand. Distribution utilities should be mapping out possible new business models to accommodate these shifting needs and expectations. 
  2. Step up modeling and forecasting initiatives.  Distribution businesses anticipate a wide range of regulatory changes in the next 10 years, with changes in tariffs and/or pricing at the top. Companies will need to undertake a careful analysis of the likely direction of developments, and particularly whether deployment will be market-enabled rather than regulatory- mandated. That analysis should also consider the extent to which consumers are likely to engage directly with new distribution services.
  3. Re-think capital expenditures.  Optimizing operations and maintenance spending, while managing regulatory constraints on deployment and investing in customer-facing smart grid solutions could reduce capital spending for small-scale DG network reinforcement spending by around 30 percent by 2030 in the United States and Europe, equating to reductions of $6 billion and €16 billion, respectively3.  This kind of reduction in capital spending can free up resources for investment in the network reinforcement and automation required to facilitate the hosting of small-scale DG integration, as well as in the new service offerings that customers seek. 

While many distribution utilities have started to integrate DG more effectively, their efforts to date have mostly been fragmented, focusing on only a part of the problem. For example, many utilities have streamlined their connection processes and shortened queue times for customers. But few have integrated those connection process improvements into a better forecasting approach for DG hosting capacity needs.

One requirement is clear:  Utilities need smarter solutions that can help them make better use of smart meter and network sensor data and to undertake far more granular analyses to assess and optimize hosting capacity across the network.  Finally, smart solutions can help utilities reduce capital spending on network reinforcement and operating costs, while maintaining the quality and reliability of the power supply.

Combining solar PV with more economical options for battery storage, demand response, and energy efficiency will give consumers more power and require distribution utilities to provide more flexibility and different types of services.  The question is not whether but rather how quickly this will happen. Distribution utilities without clear, comprehensive plans for addressing DG may find themselves losing ground to more innovative players from inside and outside the industry. 

  1. Postcode data for small-scale installations, The Clean Energy Regulator, Australian Government,; Accenture analysis
  2. Page 5 of “Power Surge Ahead”



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