For over a century, utilities companies have achieved engineering marvels 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 increasing 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 generating 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.

At the forefront of these new operational models are prosumers, also known as “active consumers.” Overall, prosumers expect more from their utility service providers, including greater control over on-demand services, enhanced self-sufficiency, and transparency on their own terms. While DER asset owners may initially appear to be competitors in the energy market, the most innovative and forward-thinking leaders in the utilities industry not only acknowledge that these changes are imminent but are already embracing 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 centrally operated utilities-run power grid. These may include assets such as photovoltaic cells for solar energy, wind turbines, and local battery systems like those found in electric vehicles (EVs). Typically, DER assets have a capacity of 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 utility-owned assets, including the remotely located central power stations and high-voltage transmission lines necessary for large-scale electricity distribution. However, the ability for the owners of DER assets to bring additional resilience and flexibility to the electricity grid through the use of modern technologies makes them a valuable component in the market. For example, energy storage DERs such as battery banks and connected EVs can be used to assist utility companies in the event of a power cut by helping to restart the larger generators of the utility companies so that they can more easily restore power to the entire network. Amidst 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 optimise and bring greater 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 generating 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 utility companies, or other energy distribution services. This model may be applied to both residential and commercial prosumers, with a growing number of businesses connecting their solar panels and EV fleets to the grid.

Prosumers generally fall into three categories:

1. Those who optimise self-consumption rates without a direct connection to the electricity grid
2. Those who optimise self-consumption while remaining connected to the grid
3. Those who provide flexibility services at the system level (virtual power stations)

Based on 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 increasing in number but are currently less significant to the overall energy model.

DERs in the UK 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 US. For prosumers, most modern PV systems are generally established as a two-way connection up and down the existing grid, allowing them both to consume power from the grid when necessary and to supply it to the grid when possible.

Another model for prosumers includes microgrid and energy-storing prosumers who may fall into different categories depending on their specific setup. A university campus, for example, could establish a microgrid where it supplies and provides all its power needs independently of the rest of the main power grid. Furthermore, microgrids can generally connect to or disconnect from the main power grid as required, offering the flexibility to draw from the main grid or to operate as a virtual power station, depending on capacities and requirements.

How do behind-the-meter, microgrid, and DER energy models work?

DER encompasses more than just renewable energy generation or prosumers; it refers to any type of behind-the-meter or off-grid electricity 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 become virtual power stations and energy storage systems. The growth of artificial intelligence (AI) has made this more feasible, as intelligent charging/discharging can be used to charge during off-peak times. This provides the grid with greater flexibility and stability regarding energy storage—and this type of AI also enables lower charging costs for EV owners when combined with variable rates on their electricity bill when they charge during off-peak hours.

This increased adoption of AI systems also creates opportunities for new energy start-ups seeking to capture a share of the market. Competitive new start-ups and utilities giants alike are leveraging AI technologies to better address customers' needs. AI is being used to forecast load requirements and generation capabilities, as well as for grid optimisation 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 economise, demonstrate greater corporate transparency, and minimise environmental footprints. While these new models certainly present some challenges, they also offer an opportunity for existing utilities companies to integrate with this new breed of customers to provide mutually beneficial outcomes across a more diverse range of product and service provisions.

• DER hardware, installation, and maintenance are all becoming cheaper and more efficient over time, especially for PV systems. The price of PV systems has fallen by more than 70% over the past decade, which helps to explain the exponential growth in these types of systems. In fact, with an average annual growth rate for installations in the US of 42% each year over the past decade, it is no surprise that solar represents the largest share of new electrical generating capacity for 2021. And of course, the improved performance and falling costs of PV technologies benefit both the small prosumer and the utility-scale hardware purchaser alike.
• Utilities companies can also support prosumers more directly by addressing their extensive equipment and technology needs through vertically integrating services such as technical support and educational services for customers. This can be achieved in the form of volume-discounted maintenance and installation of items such as 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, geographically specific resources such as coal and oil. This is particularly evident in light of the reduction in the cost of producing renewable energy.

In other words, it may seem that prosumers and DERs pose 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 customers’ demands for transparency and sustainability. By capitalising on these trends and applying their formidable customer networks, extensive resources, and decades of experience, utilities providers can leverage and monetise DERs in order to improve their operational efficiency—and better serve their customers.

Intelligent, data-driven utility solutions benefit both prosumers and utilities

To manage the increasing number of DERs being integrated into the electricity grid without becoming overwhelmed, utility 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 optimise systems and grids. These can then be targeted predictively to augment the overall benefit that prosumers bring to the electricity 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 electricity utility companies in both Europe and North America continues to present an issue. With more players and energy distribution start-ups in the game, the expectations of consumers and prosumers alike are on the rise. The providers best placed to succeed will be those who find ways to add meaningful support and value to this competitive and increasingly complex market.

Through the use of intelligent, AI-powered utilities solutions, providers can manage, analyse, and leverage data across their consumer networks. This can enable utilities companies of the future to personalise customer experiences and energy saving plans, as well as develop predictive insights regarding when and where customers will wish to upgrade or augment their DER and prosumer assets and hardware.

Alternative energy sources and utilities sector business models

Increasing social pressure, political complexity, and catastrophic climate events are fuelling the drive towards decarbonisation. Moreover, 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 on 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. Bringing 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 view it in isolation, but to bring it to life with intelligent systems, using AI and machine learning tools to make it tell actionable stories, provide insightful recommendations, and help inform quick, intelligent decisions in real time.