Distributed energy resources (DER) and the rise of the prosumer
For over a century, utilities companies have accomplished marvels of engineering that have brought power to billions of people around the world. Without their enormous and complex undertakings, we could never be where we are today. However, modern utilities companies are under growing pressure to reduce carbon emissions and transition to renewable energy sources. So, for the first time in their long history, utilities are not the sole energy providers, as distributed energy resources (DERs) owned by third parties and prosumers are also producing power for the grid. Lower costs for photovoltaic (PV) solar equipment and other renewable energy assets, along with government incentives, are driving the growth of DERs in the energy sector.
Leading the charge toward these new operational models are prosumers, also known as “active consumers.” As a whole, prosumers demand more from their utility service providers, including more control over on-demand services, improved self-sufficiency, and transparency on their own terms. While DER asset owners may at first seem like a competitor on the energy market, the most innovative and fearless utilities industry leaders not only accept that these changes are coming but are already seizing new opportunities for growth and industrial diversification.
What is DER and how is it changing trends in the utilities industry?
Distributed energy resources include any assets used for generating, storing, or distributing power that exist outside the central utilities-run power grid. These can include assets like photovoltaic cells for solar energy, wind turbines, and local battery systems such as those on electric vehicles (EVs). Typically DER assets have a capacity less than 10 MW, are located at or near the consumer, and exist “behind-the-meter,” meaning they are on the consumer-side of power grid metering systems.
These resources are in contrast to the traditional utilities-owned assets, including the remotely-located central power plants and high-voltage transmission lines necessary for large-scale electrical distribution. However, the ability for the owners of DER assets to bring additional resilience and flexibility to the electrical grid through the use of modern technologies makes them a valuable component in the market. For example, energy storage DERs like battery banks and connected EVs can be used to assist utilities companies in the event of a blackout by helping to kick-start the larger generators of the utilities companies so that they can more easily restore power to the whole network. Between the social and political pressures for a more energy-efficient future and the expectations for a more stable energy grid, DERs have the potential to optimize and bring better value to existing grid networks.
What are prosumers and how do they work with utilities?
“Prosumer” is a portmanteau word combining “producer” and “consumer.” Energy prosumers typically remain connected to the central grid. However, they are also capable of producing and even storing energy – typically with photovoltaic solar panels and EV batteries. Depending on the amount of power generated, this energy can either be used to offset monthly bills or be sold back as surplus to utilities companies, or other energy distribution services. This model may be applied to both residential and commercial prosumers, with a growing number of businesses plugging their solar panels and EV fleets into the grid.
Prosumers typically fall into three categories:
- Those who optimize self-consumption rates without a direct connection to the electrical grid
- Those who optimize self-consumption while remaining connected to the grid
- Those who provide flexibility services at the systems level (virtual power plants)
Based upon current growth rates, DER assets that are connected to the main electrical grid (categories two and three above) are major stakeholders, while isolated prosumers are growing in numbers but are currently less significant to the overall energy model.
DERs in the U.S. are expected to generate 387 GW of power by 2050. Of these DERs, small-scale solar is one of the most common forms for prosumers, who are currently responsible for nearly one-third of all solar energy produced in the U.S. For prosumers, most modern PV systems are generally established as a two-way connection up and down the existing grid, allowing them both consumer power from the grid when necessary and the ability to supply it to the grid when possible.
Another model for prosumers includes microgrid and energy-storing prosumers who can fit into different categories depending on their specific setup. A university campus, for example, could establish a microgrid where it supplies and provides all of its power needs independent of the rest of the main power grid. Furthermore, microgrids can generally connect or disconnect from the main power grid as needed, offering the flexibility to consume from the main grid or to function as a virtual power plant, depending on capacities and needs.
How do behind-the-meter, microgrid, and DER energy models work?
DER encompasses more than just renewable energy production or prosumers; it refers to any kind of behind-the-meter or off-grid power generation and storage. A familiar model is that of a diesel backup generator or a series of backup battery cells for energy storage. These are traditional examples of DER, but with more advanced technology, new systems are constantly evolving.
With the growth of the electric vehicle market, for example, it is projected that EV car companies will soon turn into virtual power stations and energy storage systems. The growth of artificial intelligence (AI) has made this more feasible, as smart charging/discharging can be used to charge at off-peak times. This gives the grid more flexibility and stability in terms of energy storage – and this kind of AI also facilitates lower charging costs for EV owners when coupled with variable rates on their electricity bill when they charge at off-peak hours.
This increased adoption of AI systems also makes room for new energy startups looking to capture a share of the market. Competitive new startups and utilities giants alike are leveraging AI technologies to better address customer needs. AI is being used to forecast load requirements and generation capabilities, as well as for grid optimization and network planning, all of which can prevent outages, save money, and improve operational efficiency.
The age of the prosumer: Challenges and benefits
Prosumerism and “smart,” data-driven business models are driving change that better meets consumer demands to economize, show more corporate transparency, and minimize environmental footprints. While these new models definitely present some challenges, they also provide an opportunity for existing utilities companies to integrate with this new breed of customers to provide win/win benefits across a more diverse range of product and service provisions.
- DER hardware, installation, and maintenance are all growing cheaper and more efficient over time, especially for PV systems. The price of PV systems has dropped by more than 70% over the past decade, which helps explain the exponential growth in these types of systems. In fact, with an average annual growth rate for installations in the U.S. of 42% each year over the past decade, it’s no surprise that solar represents the largest share of new electrical generating capacity for 2021. And of course, the improved performance and dropping costs of PV technologies benefit both the small prosumer and the utility-grade hardware buyer alike.
- Utilities companies can also support prosumers more directly by addressing their extensive equipment and technology needs by vertically integrating services like tech support and educational services for customers. This can be realized in the form of volume-discounted maintenance and installation of things like PV equipment, solar panels, and batteries.
- Finally, switching to alternative energy sources and DER assets also has the potential to reduce political and financial dependency and risk associated with the use of finite, geo-specific resources like coal and oil. This is particularly evident in light of the reduction in the cost to produce renewable energy.
In other words, it may appear that prosumers and DERs represent a threat by taking a share of the energy market from major utilities providers. But in reality, the world’s energy consumption is only going to continue to grow, along with customer demands for transparency and sustainability. By seizing upon these trends and applying their formidable customer networks, extensive resources, and decades of experience, utilities providers can leverage and monetize DERs in order to improve their operational efficiency – and better serve their customers.
Smart, data-driven utilities solutions benefit prosumers and utilities alike
To handle the growing number of DERs being integrated into the power grid without becoming overwhelmed, utilities companies need to rely more heavily on smart utility infrastructures. These AI-powered solutions can improve data collection and management in order to inform operators of risk, inefficiency, and opportunities to optimize systems and grids. These can then be targeted predictively to augment the overall benefit that prosumers bring to the power grid, as well as the value they receive as contributors.
And while there are emerging opportunities for energy sector businesses to engage with their consumer networks, low customer satisfaction with electrical utility companies in both Europe and North America continues to present an issue. With more players and energy distribution startups in the game, the expectations of consumers and prosumers alike are on the rise. The providers best positioned to succeed will be those that find ways to add meaningful support and value to this competitive and increasingly complex market.
Through the use of smart, AI-powered utilities solutions, providers can manage, analyze, and leverage data across their consumer networks. This can allow utilities companies of the future to personalize customer experiences and energy savings plans, as well as develop predictive insights as to when and where customers will want to upgrade or augment their DER and prosumer assets and hardware.
Alternative energy sources and utilities sector business models
Growing social pressure, political complexity, and disastrous climate events are fueling the drive to decarbonization. And, the desire for more efficient and cost-effective energy sources is motivating a new generation of more engaged consumers.
For innovators and thought leaders in the energy generation and distribution sector, the future of their industry is highly dependent upon the provision of superior customer satisfaction. This means reshaping infrastructure and services around the customers of the future – specifically, the prosumers. If managed strategically, this can lead to a win/win for both the utilities sector and prosumers. To bring prosumer-pleasing solutions to life requires the ability to gather and understand a wide variety of disparate and complex data sets. And not just to collect this data and look at it in isolation, but to bring it to life with intelligent systems, using AI and machine learning tools to make it tell actionable stories, make insightful recommendations, and help inform fast, smart decisions in real time.
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