The great DER divide

Allen Greenberg | Jan 24, 2016


It's been sitting on my desk for a couple of weeks and, to be honest, it's a downer.

I'm talking about a survey from the consultants at West Monroe Partners on how the electric utility industry is coping with the rise of distributed energy resources.

Grab yourself your beverage of choice if you already know the answer to this.

The two most telling (and depressing) findings: 82% of the utility executives surveyed said their residential customers are adding DERs to their systems, while 59% percent say they plan to make no or just minimal investments to support DERs.

What's more, nearly half of residential customers surveyed said they're considering installing DERs in their homes in the next two years.

Talk about a disconnect.

If you really needed yet more evidence that the utility business has left itself as a prime target of some upstart -- or should we call them "disrupters," as is vogue nowadays? -- this report offers it.

Want to hear more?

OK, 80% of utilities say they have DERs on their system but only 37% have services, systems or technologies in place to support them.

Or, how about this nugget? Nearly 80% of regulators feel existing rules allow and encourage utility ownership of DERS, but just over half of the utility execs surveyed agreed.

So what we've got here is either a) utilities failing to heed market demand or b) regulators failing to heed utility requests for permission to do so.

Either way, it's not good for anyone but third-party service providers. And that, in my humble opinion, is just a shame, not to mention an invitation for all kinds of abuses (of the financial sort, in particular) and dysfunction (reliability? What an old-fashioned notion, right?)

Utilities undoubtedly are at least partly to blame for this. According to West Monroe's survey, utility execs are almost three times more likely than regulators to report lack of executive buy-in as an obstacle to DER support. But this, I'd suggest, mostly stems from a failure by regulators to give utilities the green light to recover their costs in integrating DERs. So the regulators are at fault, too.

The better news in all of this is that some regulators are evolving their thinking. Seventy-seven percent of those surveyed said they plan to formally review the technology costs and performance of DERs. A good number (60%) are considering changing tariff designs to promote the addition of DERS. Regulators in New York, California, Massachusetts, Minnesota and Hawaii are certainly thinking along these lines.

On the other hand, too many utilities still view DERs as a threat. That has to change for any shift in regulatory philosophy to work. Utilities still have plenty of options available if they want to combat the rise of DER competitors. That includes using unregulated subsidiaries to invest in DERs. West Monroe points to what AES did through its acquisition of Main Street Power, or Duke Energy, through its investment in REC Solar.

Whatever they do, isn't it time to take command rather than letting yet another governor or billionaire tech CEO make a DER splash?

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resisting disruptive technologies

History says that the best bet is the 3rd party / new technology provider. Just remember the CD music industry, the Kodak camera, paper newspapers, etc.; you get the idea. 

For whatever reasons, the execs lose their incentive to adapt and innovate. Status quo is valued. 

Not all are like this. Geoffrey Moore in his "Crossing the Chasm" shows the New Technology Adoption Curve as a normal / bell curve with a small number of 'early adopters' and 'innovators'  compared to the Later Majority and Laggards. It seems to prove out every time. 

As a software entrepreneur, I sold mostly to 'early adopters' and 'innovators'. The big company laggards were no fun.