ORIGINAL REPORTING: The Potential In Utilities Buying DER Providers
Utility buy of DER providers: A perfect match or a problematic combination? For utilities, it may be buy-in or be disrupted. But DER providers and their customers need an up side.
Herman K. Trabish, April 29, 2019 (Utility Dive)
Editor’s note: The shift by the U.S. power sector toward distributed resources continues. The emerging question is how far it can go.
Utilities can meet customer demand and reap new revenues by finding ways to deliver distributed energy resources (DER), but there is a more urgent reason for them to buy in.
At present growth rates, five types of DER — distributed solar, combined heat and power, smart thermostats, electric vehicles and battery storage — will provide enough cumulative capacity by the early 2020s to flatten power sector peak demand, according to 2018 data from GTM Research. Capitalizing on this growth of customer-owned generation through their unregulated subsidiaries, utility holding companies can transform their business, according to Boston Consulting Group (BCG).
"This growing but fragmented market represents a huge opportunity," a March 2019 BCG white paper reported. "With few DER market leaders so far, power companies that strike quickly" through unregulated subsidiaries "can rapidly realize a competitive edge."
The core regulated utility business of selling electrons "is already being eroded by DER growth and the resulting declining loads," BCG Partner and paper co-author Thomas Baker told Utility Dive. "Utilities need to look at the potential value streams in new DER opportunities because those that focus solely on central station fossil fuel generation will not survive."
Utilities are clearly beginning to see the opportunity and the need to seize it. What is not yet clear is whether utilities and DER providers can overcome the cultural differences between innovative startups and cautious institutions to work together effectively.
A utility buy-in on DER may be an idea whose time has come, but the best way to do it is far from clear. Utility holding companies can form unregulated subsidiaries alongside their regulated utilities and use merger and acquisition (M&A) strategies to acquire established DER providers, Baker said. But "it remains to be proven that this M&A strategy will deliver success," he acknowledged. Using M&A strategies "may be a good idea for utilities," though it is not yet clear whether best strategy is buying in or developing their own technologies, Raj Prabhu, CEO of Mercom Capital Group, which has provided clean energy market research and consulting since 2010, told Utility Dive… click here for more
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