Accenture Research has found that distributed electricity generation, driven by residential solar, poses an ongoing threat to utility revenue and hosting capacity. Accenture warns that utilities will need to shift their investment spending toward encouraging distributed hosting capacity at the edge of the grid and better planning relative to network demand, to complement the growth in solar.
Embracing this approach should reduce the utilities’ energy generation costs, as end-customers demand less electricity from the grid thanks to the increasing penetration of solar. The balancing act for utilities is in the grid, making sure that their distribution grids can accommodate the new dynamic.
An electrical grid is built to handle a certain amount of electricity, typically called the ‘hosting capacity.’ Distributed generation resources, such as solar panels, push electricity back towards the transmission network, in a model that differs from the decades-old practice of pushing electricity from the center out to the edge (the end-users).
The main cause of distributed energy generation related stress on a utility’s network hosting capacity will come from energy prosumers – who are mainly driving small-scale distributed generation. Rapid price falls in the cost of solar PV panels, increased accessibility, and growing environmental appeal, has pushed distributed energy into the mainstream and is now a major factor for utilities to contend with. Solar adoption often looks like it’s out of the hands of utilities, something they are forced to adapt to.
The Accenture study amounted to a survey of 100+ utility executives, of which 59% said distributed generation will result in a decrease in utility revenue by 2030. This is by no means a revolutionary finding, as more utility customers become prosumers in the energy market and will naturally reduce the total electricity demanded on the gird – and also offloading surplus electricity into the grid.
A fall in revenue resulting from lower energy demand doesn’t mean a shrinkage in a utilities’ long term margins. Even though less electricity might be sold, the cost of producing that electricity should be lower for the utility, which should lead to better margins – if managed correctly. Distributed generation can also enable lower capex spend on large-scale fossil fuel generation plants, which could also provide a boost to the bottom line.
Getting to this point will require a network-wide approach, encompassing capital investment in smart grid technologies that will better optimize generation, transmission and distribution to meet demand.
The same group of execs expect to give up hosting distributed generation capacity on their grid networks within ten years – meaning that they don’t want to pay to effectively funnel this electricity around their networks, and likely using storage at the edge to store that energy.
Given the volumes anticipated in the battery market, many expect the cost of such technology to continue to decline at the rapid speed, making the option of installing battery storage considerably more viable – and something that utilities look set to encourage themselves.
The Accenture report chimes with the significant activity of forward-thinking utilities, already trying to counter act this issue. Dutch utility Tennet, is partnering with battery storage vendor Sonnen, and IBM to develop a demand response system to take the pressure off the utilities network – experimenting with blockchain as a way of recording the transactions.
This project will use Sonnen’s batteries as a back-stop between solar panels and the grid. If the energy generated by the distributed resources can be stored in a battery then it can then be deployed back onto the grid when there is a suitable amount of spare hosting capacity.
The survey finds that concerns around distributed resources are most prevalent in the US and Asia, execs in Europe are less concerned with distributed energy. The prevalence of vertically integrated utilities, those that own all levels of the supply chain, is greater outside of Europe where the electricity generating facilities, the transmission network and distribution networks are operated by different entities.
Distributed energy resources cause vertical utilities double the impact of declining energy sales revenue and increased network costs to support reliable energy delivery.
The study also asked if utilities had clearly forecasted their potential distributed energy generation network hosting capacity within the next ten years – to which only 14% say they had done so with accuracy of the next 10 years.