Distributed Energy Resources White Paper

West Monroe Partners, a full-service business and technology consulting firm, announced today the findings from its latest study of customers, utility executives and utility regulators on the present and future state of distributed energy resources (DERs). The study found the interest and growth of DERs is increasing among residential customers particularly, but some utility executives and regulators have yet to settle on collaborative ways to prepare for the potential shift.

Commercial and industrial customers have long led the charge for self-generation technologies; however, the tide is changing as residential customers increasingly look to adopt DERs in their homes and neighborhoods through shared resources such as community solar. According to West Monroe Partner’s study, residential customers are the largest group adding DERs as cited by 82 percent of utility executives, closely followed by commercial and industrial customers (77%).

A combination of factors is impacting customers’ interest in DERs, from the social benefits to their economic and reliability benefits. Of customers that have adopted renewable energy sources, 71 percent did so to lower their utility bill and 17 percent did in response to their stated environmental stewardship.

“While DER adoption is beneficial for customers and the environment, it’s forcing the utility industry and regulators to reconsider the traditional utility business model and how the utility monetizes the value of the services it offers to customers,” said Tom Hulsebosch, managing director in West Monroe’s Energy & Utilities practice.

Despite residential customers’ increased interest in DERs, only 37 percent of utility executives offer DER-specific support services, systems or technologies, and 59 percent plan to make no or minimal investments to support DERs unless mandated to do so. Utilities' inaction is attributed to the industry's lack of clarity around DERs' impact on their systems and regulatory uncertainties. The study found 66 percent of executives feel DERs are both a threat and opportunity for their businesses.

Utility executives hold a conservative outlook toward the spread of distributed energy resources within their systems. Sixty-eight percent of executives expect DER technologies to only provide 1 to 5 percent of supply resources in the next five years, and 47 percent believe small residential systems will be the most prevalent source of DERs on their systems in the next five years, followed by third-party power providers, the utility itself, and commercial/industrial systems.

Compared to utility executives, regulators are already modifying their requirements and compliance requirements to support DER integration. Regulators cite a handful of concerns driving the proposed changes. Grid reliability was ranked by regulators as the top factor driving regulatory action to support DERs with 78 percent, followed by rising costs of delivered energy and requests from external stakeholders with 67 percent.

Supporting DERs and integrating them into daily utility operations will not come without challenges. According to the study, 61 percent of utility executives believe capital and financial constraints are barriers to DER adoption and support, while 61 percent of regulators believe regulatory barriers are the most significant obstacles.

“Utility executives and regulators have contrasting views on the amount of DER penetration that can be readily absorbed into the existing grid without fundamental changes being made to accommodate them,” said Paul A. DeCotis, director in West Monroe’s Energy & Utilities practice and East Coast lead. “This divide, along with technology availability and cost, pivoting business models and public policy interests, have put a hold on the amount of DER integration expected to come on line in the immediate future. These and other issues continue to impede the industry’s ability to accommodate new energy technologies and gain greater support, DeCotis said.”

Educating customers on these new technologies is another barrier to DER adoption. The study found 69 percent of customers do not know if their utility offers DERs enrollment and 94 percent say their providers haven’t approached them about alternative energy options. Utilities that fail to educate customers and provide a sufficient DER customer experience may suffer business and compliance consequences, and as a result, more oversight from regulators.

A copy of the full survey results can be found here.