What’s Driving Distributed Generation Adoption?
For a majority of the United States’ electricity and grid network’s 100 plus year history, utilities have largely been unchallenged monopolies because of high barriers to market entry, among other reasons. Traditionally, electricity generation in the United States has relied on large, centralized assets, such as coal-fired power plants, to achieve economies of scale and supply cheap and reliable power to customers. However, as steep cost declines have enhanced the price competitiveness of alternative energy resources, a greater level of investment in technologies such as small-scale solar photovoltaic (PV) systems has ensued.
To illustrate, home and business owners have been at the forefront of this contemporary energy transition, often via the adoption of behind-the-meter distributed solar PV (that is, small rooftop or ground-mounted arrays) or micro wind turbines, also referred to as distributed generation (DG). Though still in its relative infancy, the exponential increase of DG has been revising the traditional electricity procurement model and forcing the utility industry to adapt. While there have been numerous arguments both for and against the value of DG on either side of the stakeholder aisle, despite protracted ideological battles, many utilities, for a variety of emerging reasons, are now embracing DG or at least exploring the prospect of doing so.
Historically, arguments in favor of DG deployment have largely been led by environmental nonprofit organizations, the renewable energy industry, and more progressive politicians. One argument, of course, relates to the myriad of environmental benefits of DG, such as reduced greenhouse gas (GHG) emissions, compared with conventional electricity generation via fossil fuels. Another pro argument is how DG can enhance economic development by creating/supporting jobs in industries such as solar module manufacturing or installation, in addition to stimulating local tax contributions for governments.
One advantage of DG that has unexpectedly come in handy in the face of coronavirus (COVID-19)-related disruptions is the stability that localized, renewable energy can provide, particularly as remote work and social distancing — at least in the short term — have become the new norm. Recent years have also given rise to growing concerns around emergency preparedness and being able to have resilient power sources in the event of grid disruptions, especially in areas prone to more natural disasters. Onsite energy generation not only reduces vulnerability to such disasters but it also has the added practical benefit of minimizing line losses seen through traditional electricity transmission as part of the centralized utility model.
Conversely, many have pushed back against the ‘disruptive challenge’ of DG deployment, including, at least historically, electric utilities themselves. One frequent argument is how lower revenues, given the decreased amount of electricity being purchased by ratepayers, has impacted utilities’ bottom lines. Others have cited that DG is too intermittent to be reliable during peak hours. Another argument is how state net-metering laws have created a cross-subsidization situation, in which utilities have raised rates to cover grid upkeep, which are costs that are passed on to non-net-metering customers. Some utilities have taken it a step further by implementing monthly ‘stand-by’ charges for solar PV owners to help cover these costs, first championed by House Bill 1983 in Virginia in 2011.
