The Potential Impact of Distributed Energy Resources

by Reihan Salam

Earlier this year, Peter Kind of Energy Infrastructure Associates prepared a report for the Edison Electric Institute (EEI), the trade association for shareholder-owned electric utilities, warning that the proliferation of distributed energy resources (DER) threatens to devastate the U.S. electric utility industry and its centralized utility service model. If solar photovoltaics and battery storage become more cost-effective over time, as seems likely, EEI projects a scenario in which a growing number of firms and households will deploy DER technologies, thus reducing demand for the grid power provided by traditional electric utilities. This is turn will force utilities to increase electricity bills for their remaining customers, which will in turn spur further adoption of DER technologies. The following is one of the more entertaining passages from the report:

While the immediate threat from solar PV is location dependent, if the cost curve of PV continues to bend and electricity rates continue to increase, it will open up the opportunity for PV to viably expand into more regions of the country. According to ThinkEquity, a boutique investment bank, as the installed cost of PV declines from $5/watt to $3.5/watt (a 30-percent decline), the targeted addressable market increases by 500 percent, including 18 states and 20 million homes, and customer demand for PV increases by 14 times. If PV system costs decline even further, the market opportunity grows exponentially. In addition, other DER technologies being developed may also pose additional viable alternatives to the centralized utility model. [Emphasis added]

David Roberts of Grist has more analysis of the report. It is easy to see why EEI and its members dread the prospect of a DER revolution that would cripple incumbent utilities. And the transition from a centralized utility service model to reliance on DER will be a difficult one, as the vast majority of customers will continue to rely on grid electricity while some small but growing number of early adopters in sunny climates defect, thus generating strong political pressure on lawmakers to force electric utilities to hold down tariffs or increase subsidies as lucrative customers head for the exits.

But to those of us excited about the prospect of new empowering innovations — innovations that, according to Clay Christensen, “transform costly and complicated products into simpler, cheaper products available to the many,” and that create jobs “because they require more and more people who can build, distribute, sell and service these products” — the rise of DER technologies is excellent news. 

The Agenda

NRO’s domestic-policy blog, by Reihan Salam.