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November 26, 2012

Distributed Generation Drives Industry Transformation

Rick Geiger
Executive Director for Utilities and Smart Gr, Cisco

Power Channels: Smart Grid Power

The growth of distributed energy resources and consumer-generated power is creating enormous challenges for energy providers. Utility companies are faced with evolving their current business models to adapt to the shift in revenue driven by new technology. The rise of generation everywhere means more of the electricity used by end consumers is generated locally, rather than generated and delivered by the legacy electric power supply chain.

Legislative requirement for utilities to accept non-utility-owned generation at every point on the grid is one of the central goals of smart grid. Policy goals have been mandated to reduce emissions and avoid building additional conventional generation. Various incentives such as net metering, feed-in tariffs, tax incentives, and mandatory purchase requirements are helping to promote these policy goals. So far, results have been increasing amounts of renewable energy from sources such as wind, solar and other small-to large-scale technologies.

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However, in almost all cases, installations of distributed generation are not designed or intended to be completely self-sufficient microgrid or “off-grid” solutions. Residential solar installations generate highly variable amounts of power during the day, but rely on the local utility for power outside of daylight hours and whenever the output of their solar panels is insufficient for their needs. As long as electric utilities remain the supplier of last resort and responsible for reliable power, a more descriptive label could be "Insufficient Generation Everywhere."

Creating a New Business Model

In 2010, only about 0.1 percent of power on the grid originated from Distributed Energy Resources. However, short-term goals set by Renewable Portfolio Standards, plans to increase power from renewable resources in individual states from 15 percent to 33 percent by 2020. Most of this will come from large wind farms, but it will also include increasing amounts of residential and medium scale solar.

Distributed generation at the edge displaces energy that would have been delivered by the grid, reducing the power purchased by those customers. It is an absolute necessity for the electric power industry to create a business model that is sustainable as future revenues from the sale of electric power decline.

An example of what the industry might look like in years to come can be seen in northern Europe, specifically in Germany and Scandinavia. In these countries, some of the world’s largest integration of renewable energy is taking place driven by national policies and generous feed-in tariffs.

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We welcome the opportunity to publish your opinions. Please email us at editorial@darnell.com.

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