How must the roles and business models of incumbent utilities change to support the growth of distributed energy?

DER-SmartGrid Integration

The growth of distributed energy resources (DERs) represents a huge transformation for electric utility companies across the board. The traditional paradigm, which has been largely unchanged for decades, will become gradually more obsolete as we move away from large-scale, centralised, carbon-intensive generation. Instead of one-directional flow of electricity from generation, to transmission, to distribution, and finally customer, we are now faced with a far more complicated landscape of supply and demand.

Each of these players needs to invest in new skills and capabilities to perform roles which were previously beyond their remit, while at the same time accessing new revenue streams as their previous business models are eroded. Furthermore, the level of interaction and information exchange between each of these domains is increasing exponentially as the need to deliver a greener and more flexible, yet still reliable energy system grows.

In the old model, the role of the network operators was simply to transport energy from centralised locations to end customers. However, with the growth of energy resources connected directly into the distribution grid, balancing the network becomes far more complicated at both transmission and distribution levels. System Operators must now balance a far more complex picture of supply and demand, while at the same time dealing with reduced visibility of energy resources. This is made even more challenging by the intermittent nature of much of this generation.

Moreover, the growth of ‘prosumers’ means dealing with customers who can, on a moment’s notice, change from net generators of power to consumers. At distribution level, this transformation will require significant investment in new systems to automatically and dynamically balance the network. Against a backdrop of downward pressure on margins, DSOs must carefully allot investment to maintain the reliability of their networks while facilitating the continued growth of DERs.

For generators, an even greater shift in operations is called for. As fossil fuels must inevitably give way to more renewable sources of energy, so generators must diversify their portfolios to remain relevant. Take Centrica, for example. Since 2015 it has transformed itself from one of the ‘Big-6’ UK power generators by selling off its entire fleet of large-scale generation plants. Instead, it has focussed on smaller and more flexible distributed generation assets able to respond quickly to sudden shortfalls in power when renewable generation is not sufficient. Additionally, Centrica has invested in services and platforms allowing other small generators to access additional revenue streams through mechanisms like demand-side response. Centrica’s success in rapidly transforming a significant portion of its core business demonstrates how utilities can make the most of the growth of DERs by acting proactively to embrace them.

We are still at the beginning of a profound shift in the way electricity works. Looking forward, the further decentralisation of electricity will pose even more existential challenges. With the growth of Microgrids and even Peer-to-Peer energy trading, the traditional role of utility companies will be further eroded. It is therefore vital that these organisations act now to cement their support for the uptake of DERs and avoid being rendered obsolete by them.

DER-SmartGrid Integration 2019 (London, 14-16 May) brings together 120+ experts for a case-study driven programme addressing the strategic, commercial and technical challenges posed by the uptake of DERs. Please visit https://www.smartgrid-forums.com/forums/der-smartgrid-integration-2019/ for more information.