The Impact of Distributed Generation

Distributed generation is getting increasing attention for impact on the electric utility industry.  DG has been the subject of a number of high profile articles in Business Week, the Wall St. Journal and several online business and industry news sites.  The Business Week article was particularly provocative, leading with the title, “Why the U.S. Power Grid’s Days Are Numbered“.

Residential DG, primarily solar, remains relatively sparse in the U.S. compared to Europe, especially Germany.  Commercial/Industrial DG is getting greater penetration with large initiatives such as Walmart installing solar on the top of every store, and low-priced natural gas leading industrial customers to generate their own power.  Although circumstances differ, the September 17, 2013, WSJ article, “In Post-Tsunami Japan, Homeowners Pull Away From Grid”, describes how Japanese homeowners could foreshadow even more disruption.  While residential fuel cells are not presently economical, higher volume production and deployment in Japan could certainly change that.  Low cost fuel cells could enable every customer with natural gas service to make the economic analysis about when or whether it’s worth turning to self generation.

Much of the utility industry continues to go about business as usual, expecting that if DG ever does impact them, it will be many years down the road.  But utilities in prime solar areas like Southern California and Arizona are starting to be impacted.  The impact occurs in two main areas: Distribution impact and Economic impact.

Distribution Impact is the effect of variable solar output on the voltage levels and load of distribution feeders.  Economic impact is the effect of net metering, the present regulatory incentive for residential solar, on utility revenues and customer rates.

Visibility and concern about self generation has reached the level that the Edison Electric Institute (EEI), through their affiliate, Innovation Electricity Efficiency (IEE) commissioned and just published a report, “The Value of The Grid to DG Customers”.  The IEE report discusses the interaction of DG, net metering and the grid and proposes new economic regulatory models as well as business opportunities for utilities to embrace DG.