We’ve all heard that phrase about leading or following. In today’s energy world, and more so in tomorrow’s, this saying takes on a new meaning that can be summed up in two words: distributed generation (DG). What’s changing the view is a combination of customer demands coupled with new technologies. These changes are impacting not only utilities but also equipment manufacturers, research and development laboratories, lenders, consumer advocacy groups, and policymakers.
Deliver What Customers Desire
Customers will always get what they want, sooner or later, in some way or another. They are leading the pack and “changing the view” that’s modifying the traditional power supply planning models. They are using more energy-efficient appliances. Load growth in some areas has flattened, in other places it has decreased. Older power plants have been scuttled, commercial and industrial (C&I) customers have renewable corporate energy goals and edicts from their boards of directors, and financial institutions are assessing lender risks on long-term assets without a co-terminus power purchasing agreement (PPA). The power planning model has turned upside down.
But a disrupted marketplace doesn’t mean the sky is falling. It is not, especially for utilities whose attitude is to embrace these changes and view them as opportunities. This is particularly true in the C&I customer segments. Just as utilities can’t control energy efficiency utilization in homes, they also can’t do that when corporate edicts call for certain percentages of power supply from renewables. In each case the application is on the customer’s side of the meter.
What’s a utility to do? My suggestion, from 40 years in the business, is to look for ways to assist the customer with their energy goals, be a part of their energy plan, and maintain contact, credibility, and the revenues associated with that load. In the case of C&I loads, consider distributed generation. No case has a one-size-fits-all answer and that’s the beauty of DG. It can be applied using different or combined technologies, in different localities, on the distribution grid, or even on the customer’s property as a utility plant asset in some cases. Each of these should be analyzed on a case-by-case basis to include economics, legal, and engineering aspects. That’s always been the approach to planning; now it’s just focused on a different marketplace.
Utilities should exercise caution in choosing partners, such as the equipment manufacturer, the lender, and so on. This is especially true when choosing a third-party-developer partner. Be sure that entity’s approach is to work with and through the utility, supporting the utility’s effort to serve the customer. Some developers will provide technology studies, design services, capital, a tax appetite, and a long-term PPA. The investment tax credit provides a price break to the not-for-profit utilities such as electric cooperatives and municipally owned electric systems that are tax-exempt.
Be the Expert
Utilities should work to maintain their status in the customer’s eye as the energy expert. In meeting with a major trade association that represents distributor-served industries, the association’s CEO said his members want the utility to provide the methods for them to comply with their corporate renewable energy mandates. His members produce a certain product or service; they aren’t in the power supply business. Having to build, operate, and maintain renewable energy facilities is a distraction from their central business focus and requires extra budget allocations or may dilute existing budgets.
To get the correct answer on any subject, ask the correct question. The key question when discussing DG is: What can we change versus what can we manage? The analysis tells us we can’t control what the customer does on their own property. So, what do we manage and how? As a long-time utility person, I suggest the following steps:
- ■ Get in touch with your customers regularly. Know their upcoming power needs before they call. This shows concern for the customer, builds credibility, and allows the utility more time to plan.
- ■ Look at new challenges as opportunities. Be nimble, responsive, customer-focused, and head off behind-the-meter threats by being proactive to maintain revenue.
- ■ Plan how to minimize your risks of response. Answer these questions: Should the utility bear all the risks? How many risk profiles should be considered? Which one produces the most benefit to the customer and stockholder? Should you partner with a utility-friendly developer to moderate some risks?
The sky isn’t falling because the power markets are changing again. As an industry, we’ve always adapted to major changes. Disruptive doesn’t mean destructive. DG is no exception if we become participants with our customers. We can’t stop the train; the customer is now the driver. So, do we want to be in front of the train or riding on it? I prefer to be a passenger. It’s a much more comfortable way to take a trip. ■
—Roy Palk is president and CEO of New Horizons Consulting in Lexington, Kentucky, where he represents and advises energy and energy-related clients in areas including production technologies, project development, strategic planning, corporate governance, and financing. He will be a keynote speaker at POWER’s Distributed Energy Conference in Golden, Colorado, October 15–17, 2018.