The relationship between utilities and distributed energy resource (DER) companies is fraught, strange and complicated.
It’s not surprising that acrimony exists between the two industries. They compete for a nearly half-trillion dollar US retail electricity market.
But it’s not a typical business rivalry because they both must play on the same platform, the electric grid, which utilities control with monopoly clout. That means if distributed energy resource (DER) companies want their projects to access the grid, and they mostly do (at least so far), they need to secure an interconnection agreement with a utility, their competitor. That’s not always easy.
But it’s even more complicated than that. The footing that distributed energy companies traverse changes from state to state. In some states, like New York, utilities aren’t allowed to own generation, making it easier for distributed energy companies to make inroads. In other states, like those in the southeastern US, the utility owns and controls the entire system — generation, transmission and distribution — and can more easily keep distributed energy competitors at bay. Witness what’s happening in Colorado with virtual power plants.
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And adding to the strangeness, sometimes utilities and distributed energy companies act not as competitors but as partners working to build projects together. Given that utilities have big balance sheets, such partnerships are lucrative for these distributed energy companies, and they’d rather keep the peace than appear as outright challengers to the utility monopoly model.
Utilities are the Goliath to distributed energy’s David. Investor-owned utilities account for 57% of retail electricity sales, with another 29% sold by municipal and public power utilities and cooperatives. The remaining 15% is sold by competitive retail suppliers, of which some provide distributed energy resources.
So it’s not surprising that DER companies consistently describe utilities as among their biggest obstacles to success.
This is the kind of business relationship no one wants to have.
So, how the heck did we end up here? Needless to say, this weird dynamic didn’t come from nowhere.
In this week’s Energy Changemakers podcast, What Utilities and DER Companies Don’t Get about Each Other, senior energy and climate leader Bill Prindle traces the historical events and policy changes over several decades that led us to this uneasy point. I chose to bring this topic to him because he has worked with both utilities and DER companies during his 40-year career with such organizations as ICF, the American Council for an Energy-Efficient Economy, and the Alliance to Save Energy. He gets where both utilities and DER companies are coming from. I think you’ll find this conversation interesting and walk away with a strong perspective of the utility industry’s history and motivators.