Earlier this week I spoke with an old friend, who works in the utility practice group of a major management consulting firm. We commiserated about the challenges of getting conservative electric utilities to adopt new technology. My friend opined that the only way to get the attention of utility management is to paint a picture of Armageddon. And there is no surer way to do that, he said, than by talking to them about distributed generation.
Electric utilities’ fear of distributed generation is understandable. The business model of most electric utilities is based on their administration of a large, centralized electricity grid or some aspect of it. The rise of distributed generation—electricity customers going off or partially off grid and generating their own electric power—directly threatens that model. The role of a traditional electric utility on a grid largely based on distributed generation is difficult to foresee. This is the Armageddon scenario that keeps utility executives awake at night and, apparently, attentive to their management consultants.
It has long been assumed that the rise of distributed generation is a good thing for the grid, and a good thing for the electricity storage business. But both assumptions need to be questioned. While a grid largely based on distributed generation will have some benefits, it will also come with serious drawbacks. And while electricity storage could help enable large scale distributed generation, it could also be that its greatest commercial value is as a tool to help traditional utilities preserve the centralized structure of the grid by addressing the consumer concerns that are driving demand for distributed generation.
Today, three factors drive demand for distributed generation: environmental concerns, reliability and cost.
Environmental concerns are a prime driver of demand for distributed, renewable generation. Homeowners and businesses wanting to do their part (and wanting to be seen to be doing their part) to reduce greenhouse gas emissions are an early market for such systems. Yet it is a fact that distributed systems are no “greener” than centralized wind or solar power plants. Electricity storage technology enables utilities to more easily integrate bulk wind and bulk solar generation onto the grid. As important, utilities can use distributed electricity storage systems to address the desire of consumers to “see” green power. Deploying a “sun-in-a-box” or “wind-in-a-box” electricity storage system in a neighborhood can do much to demonstrate a utility’s commitment to providing its customers with green power while at the same time saving those consumers from having to endure bulky and unsightly power generation equipment in their communities.
Increasing concerns about the reliability of centralized power also drives a growing interest in distributed generation. Utilities can use electricity storage systems to address this concern. In fact, distributed electricity storage systems owned and operated by a utility are likely to be significantly more robust than consumer-operated PV arrays and small wind turbines in the event of a storm or other power disruption. A visible commitment by a utility to provide back-up power to its customers in the form of distributed electricity storage systems would do much to reduce demand for customer-owned distributed generation motivated by reliability concerns.
The third factor driving the growth of distributed generation is cost. As the price of PV solar panels has declined and as regulatory schemes in some markets have become more favorable for distributed generation, many consumers are calculating that they can reduce their electricity bills by installing rooftop PV systems. This calculation stems in part from the fact that the distribution systems over which centralized power plants must wheel power tend to be congested during times of peak solar generation potential. Accordingly, consumers calculate that with rooftop PV systems can replace high cost, peak electricity with their own, self-generated power.
Utility-owned, distributed electricity storage systems can, of course, directly address this issue. One of the principal benefits of distributed electricity storage systems is their ability to decrease congestion, by giving utilities the ability to wheel power over their systems at the time determined by a utility’s needs and not by its customers’ demands. When power is “used” on the grid is different from when power is “used” by a consumer. If utilities assume responsibility for the former, time of use charges become unnecessary.
Another more troubling cost driver for distributed generation is consumers’ calculation that they can avoid grid legacy costs by reducing their reliance on the grid. The battle over allocation of legacy costs is an old one and is fought out in many contexts other than distributed generation. But the growth of distributed generation is likely to give rise to a particularly bitter battle. As wealthier customers install distributed generation systems, go off (or partially off) the grid, and bring their political muscle to bear on reducing the legacy costs they have to pay, there is the very real prospect that those who are unable, financially or otherwise, to install such systems will find themselves severely disadvantaged. Thoughtful commentators are already warning about the dangers of a system where the rich have private PV and the poor are shouldered with the enormous burdens of grid legacy costs. If distributed generation pushes parts of the population into “energy poverty”, distributed generation cannot honestly claim to be part of a system of “sustainable” power.
Distributed electricity storage is the key to whichever alternative society chooses with respect to distributed generation. Storage can clearly help facilitate the growth of distributed generation. But just as importantly, storage can be used by utilities to address the very customer concerns that are today driving the explosion of distributed generation systems around the country and the coming of Armageddon for the traditional electric utility.
Photo Credit: Energy Storage and the Grid/shutterstock