Distributed Energy: A Disruptive Force

Distributed Energy: A Disruptive Force

          
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Distributed Energy: A Disruptive Force

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    Distributed energy (DE) technologies have grown significantly in the U.S. Last year, DE represented one of the largest investments in the utilities space, and that investment, along with consequent growth, is likely to accelerate. From 2010 to 2013, DE accounted for about 21 percent of all new capacity in the nation. (See Exhibit 1.) The number of commercial and residential rooftop solar installations, for example, increased by 22 percent in 2013. The increase comprised about 1.9 gigawatts and represented roughly $8 billion in investments.

    exhibit

    Sunny states, such as California (with about 700 megawatts) and Hawaii and Arizona (with about 130 each), led the growth. New Jersey and Massachusetts, with about 225 and 200 megawatts respectively, also are growth markets because of state-funded support. Government incentives, offered at both the state and the federal levels, have helped drive this growth so far, as have improving economics in the form of decreasing costs and rising retail electricity prices. As the trend toward DE gains strength, however, growth will no longer rely on such subsidies.

    Already, costs have declined significantly. In the past decade, prices for residential rooftop photovoltaic (PV) solar systems, for example, have dropped by more than 50 percent, declining from about $9.15 per watt in 2004 to $4.50 per watt in 2013. At the same time, improvements in technology have created new applications and market segments that previously were not viable. These technology improvements and ongoing cost reductions, combined with heightened consumer awareness and federal and state incentives, continue to bolster DE’s growth.

    This growth will be disruptive to incumbent industries, especially utilities. Most U.S. electricity rates are variable, based on the number of kilowatt-hours used. DE reduces the number of kilowatt-hours sold by the utility to the customer. This creates a fundamental shift in cost because the fixed costs of the grid must be paid for by smaller amounts of energy sold. Future changes in rates, such as introducing fixed or demand charges, may help alleviate some of these cost shifts in the near term, but they do not alter the underlying fact that utilities’ primacy in the generation and delivery of electricity is being supplanted. What was once a regulated market is becoming increasingly competitive. This will cause disaggregation of the integrated value chain that has been served exclusively by utilities.

    This is already happening with PV, but storage is not far behind, and others will likely follow. Utilities must learn to compete in this new environment by proactively developing a response for a future with more DE.

    Tracking the Sun VI: An Historical Summary of the Installed Price of Photovoltaics in the United States from 1998 to 2012, Lawrence Berkeley National Laboratory, 2013.
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