Distributed Generation, Electricity Storage and the Utility of the Future

solar farm

by James J. Greenberger, National Alliance for Advanced Technology Batteries

I attended InterSolar North America 2013 in San Francisco in early July. It is the largest solar energy trade show in the U.S. I left with two impressions: First, based on the traffic at the National Alliance for Advanced Technology Batteries (NAATBatt) booth, the solar industry is finally waking up to the potential importance of electricity storage. Three years ago, when NAATBatt last attended the show, storage was no more than a curiosity. The attitude today is different. If not quite yet rushing out to buy storage systems, solar developers are starting to think seriously about storage. It is starting to make sense.

My second impression was perhaps more significant: Distributed solar generation of electricity is poised for explosive growth. Improved technology, lower cost solar panels, greater transparency in electricity pricing, increased concern about grid reliability and rising electricity prices are all pushing solar energy towards economic parity with traditional sources of electricity–and perhaps even past it in some jurisdictions. The real action appears to be in the types of distributed commercial and residential systems that are increasingly dotting rooftops around the country rather than large, utility scale projects. Distributed solar installations in California are growing dramatically. The economics that are driving demand in California are likely to start spreading to other jurisdictional markets soon.

The significance of my second impression, however, is not really about the impending growth of distributed solar energy. Rather it is about the implications of that growth on the business of traditional electric utilities. Widespread deployment of distributed generation resources will be fundamentally disruptive to the way the electricity grid has been organized in the United States since its inception. The business model of the electric utility is based on the assumption that a utility will sell the electricity generation, transmission or distribution or a combination thereof. What role will utilities play on a grid where electricity, or at least a significant amount of it, is generated by the consumer and no transmission or distribution is required?

The answer is that the grid as we know will not go away entirely, even if distributed generation becomes the principal source of electricity for consumers. The grid will remain a vital source of backup power, a source of primary power for some, and a resource for owners of distributed generation to monetize the value of electricity they cannot use themselves, by wheeling it to other users on the grid. The role of the utility of the future might be less involved with selling electricity than with managing and balancing the needs of various stakeholders on the grid. That includes the needs of distributed generators, whose actions the utilities will not be able to fully control.

These changes lead us to electricity storage. Storage is a nearly ideal tool for managing a grid comprised of independent distributed generators. On the future grid, electricity storage will provide a mechanism by which electric utilities can buffer generation they do not control and dispatch it, at the time of the utility’s choosing, to provide the highest possible value of services to the grid. Storage will not be just useful to the utilities of the future, it will be central to their core mission.

Most utilities don’t yet see this future. Most of the inquiries we received at the NAATBatt booth at InterSolar concerned storage systems that would be located inside the meter–owned by consumers rather than utilities. This despite the fact that storage would theoretically be far more valuable on the utility side of the meter, where it could be more easily aggregated and dispatched to other consumers or used for other grid functions. It almost appears that utilities are ceding the incipient market for storage to distributed generators, which would be a bad mistake for the utility industry.

If the market for storage grows up inside the meter, rather than on the utility side of the meter, utilities will have a hard time getting that market back. In the absence of any attempt by utilities to capture the storage market, third party aggregators and other business entities are likely to step in and fill the need. Once they have done so, it will likely be difficult for a regulated utility to compete against them. By ignoring storage technology in the short run and letting the market for storage grow up inside the meter rather than on the utility side, the utility industry might shut itself out of a service offering which, in the long run, might be central to its new role as power manager rather than power seller.

A wise utility should think about forces that will disrupt electricity power markets over the next few decades. Distributed solar generation will be one of those disruptive forces, with storage being a key driver of its value. Utilities that focus on only short term storage challenges, and not on its implication for their future businesses, are doing themselves and their shareholders a serious disservice.

The winners and losers among electric utility companies in the new, distributed generation-dominated world will be decided by the decisions utilities make (or don’t make) today. Those not investing in the technologies that will allow them to manage power on the grid–such as electricity storage–and, worse, are allowing those technologies to be developed and deployed by non-utility competitors are consigning themselves to eventual irrelevance. That might work well for managers with limited time horizons,but it will wreak havoc on investors and eventually on rate payers.

The future world of distributed power generation is coming. Judging by what I saw at InterSolar, it might be coming sooner than many believe. Smart utilities should move aggressively to own electricity storage technology on the grid–a technology that will be a key component of distributed generation and central to the power manager role of the future utility.

James J. Greenberger is executive director of the National Alliance for Advanced Technology Batteries. Reach him at jgreenberger@naatbatt.org or 312-588-0477.

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