Distributed Energy Resources: Utilities Are Not Leaving Money on the Table

April 12, 2016 By Ken Silverstein

solarWant to get a message to your family members? When was the last time you penned a letter, sealed it in an envelop and went to a mailbox? It was probably around the same time that you waited several hours to see the latest, breaking news on the TV as opposed to having it read over your mobile device or computer.

Indeed, just about every industry today is under the same technological pressures, which is either to get in the game or to get sidelined. Utilities and energy managers are no different, now having to acclimate to a host of distributed energy technologies that include microgrids and energy storage devices that have fundamentally altered the playing field.

“Absent imagination, the utility industry will change dramatically,” says Brian Keane, president of the non-profit clean energy marketing firm Smart Power, in an earlier talk with this writer. “Utilities can have a successful brand. I would not suggest that the grid is going away but there will be advances that bypass the grid, like my Google phone that will get wirelessly charged.”

Utilities, of course, have twin concerns: losing customers and the associated revenues, as well as losing customers who pay for the upkeep of the grid. They say they spend $25 billion in the aggregate each year on maintenance.

The worries are not theoretical. SolarCity Corp. (NASDAQ: SCTY) said last week that it got a $150 million non-recourse loan from Credit Suisse to support the development of commercial solar projects that include battery storage systems. It also received a $188 million from some investment partners that include Bank of America, all to cover the cost of solar equipment and installation.

Just how big could it get? In 2014, about a third of all new power generation was installed using solar energy. According to the Solar Energy Industries Association, the plunge in solar PV prices has led to the installation of 1,393 megawatts of rooftop solar generation in the second quarter of 2015. It’s now 22,700 megawatts total, which is enough to service to 4.6 million American homes. 

The association adds that there are now 1,400 megawatts of concentrated solar power here in this country, with an additional 390 megawatts to be installed within a year. Those are centrally located plants that require the transmission network. Add in storage and localized microgrids and the potential only multiplies.

“Our asset portfolio enables us to continually bring in new capital from top tier institutional and corporate investors,” said Jeff Munson, Director, Structured Finance, of SolarCity. “Additionally, our proprietary, in-house technology provides us competitive advantages that have led us to become one of the top commercial solar providers in the U.S.”

That’s just part of the competition, which could eat into utility revenues and bump up their cost of borrowing. Conspicuously, the older coal-fired units are being retired and will need to be replaced as energy demand resumes. That also bodes well for onsite energy. After all, such distributed power created and consumed by customers is typically comprised of cleaner fuels.

To remain relevant, utilities are looking to upgrade their grids and to improve upon their analytics, all to beef up their operational efficiencies. More than likely, they will seek partners to achieve that. And utilities may be ideal, given that they are well capitalized and could provide the monies for growing ventures.

“Utilities are poised to be part of the future,” says Darren Hammell, co-founder of Princeton Power that makes energy storage devices and microgrids, in an earlier talk. “But they may play a much smaller role and they may not have totally come to terms with potentially smaller revenues.

Princeton, for example, constructed in 2011 a solar-powered microgrid for the former prison Alcatraz that had been dirty and inefficient, using imported fuel to run it. The San Francisco site now has reliable service all-day, everyday.

A lot of businesses are currently using microgrids, not just to kick in when the central grid goes down but to also keep their operations going all the time, like Alcatraz. Therein is the opportunity for utilities — to engineer and to build those sophisticated grid systems, which is right in their sweet spot.

Are distributed energy resources a threat or an opportunity? It depends on where one sits and what their appetite for risk is. Corporate America is demanding cleaner  and more reliable energy and the technologies to do this are getting better and cheaper all the time. Energy managers need options and the more ambitious utilities realize this, and aren’t leaving any money on the table.

Ken Silverstein is editor-in-chief of Business Sector Media, publisher of Environmental Leader and Energy Manager Today.

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