Distributed generation, the world of DIY generation

Distributed generation means many of your customers will be generating their own electricity – you should help them do so, say James Basden, Adam Witkowski and Tim Wright.

The days of the traditional electrical power utility are numbered. Despite recent changes to the subsidy regime announced by the government, disruptive forces – a combination of subsidies and advances in technologies such as micro-combined heat and power boilers, solar photovoltaics and battery storage – are making it relatively easy and cost-effective for people in developed countries to unplug from the grid.  

Yes, fossil fuel prices have fallen, but photovoltaic and battery storage prices are also dropping quickly. As a result, households and small businesses are rapidly becoming more energy independent.

If current trends hold, the amount of power generated by UK residential and commercial customers will more than double within the next ten years, reaching a record amount of approximately 23 terawatt-hours a year. While that represents just under 10 per cent of the UK’s consumption, this amount is steadily growing. By 2050, UK customers will generate the equivalent of £4.5 billion-worth of electricity, provided energy prices stay close to their present level, supportive regulations remain in place and low-cost technologies become even more commonplace.  

The major shift underway in electricity generation is similar to upheavals that other industries have experienced, and have emerged all the stronger for it. Consider the telecommunications industry. In the 1990s, when deregulation fundamentally reshaped the market, smart competitors refocused their attention on anticipating and meeting their customers’ preferences – by pioneering a wide range of alternative products and services. Now, as well as a basic landline phone service, most telecoms companies offer internet, cable and applications that communicate with and remotely manage everything from home security systems to car temperatures and bill payments.

Coming out on top

To come out on top of this disruptive wave, the utilities industry will need to better anticipate and meet their customers’ needs – even if that means enabling customers to become their competitors. Specifically, utilities are best positioned to understand the economics of power generation. Instead of just trying to sell their power, they should sell their knowledge, by advising a broad range of customers on whether they should invest in making their own electricity.

Increasingly customers, ranging from businesses to households, are turning to a variety of sources for energy to ensure that their power is secure, abundant, hassle-free, cheap and sustainable. But they need technical expertise and practical support – the core competencies of utilities. In addition, utilities (like telecoms before them) will have to streamline and automate their legacy operations while investing in developing their people. Employees will need to be capable of articulating and delivering a much more expansive range of new products and services than is currently offered.

Finally, the electric utility of the future will have to be at the forefront of incubating, developing, investing in and implementing new energy-related technologies. To do so, utilities will need to co-operate effectively with a much broader network of investors, researchers, government policymakers and development programmes.

It is tempting for utilities to think customers’ fledgling efforts to produce their own electricity are temporary. They are not. They portend a new, more diversified wave of electrification that will alter our way of life. Utilities need to become more attuned to customers’ needs – and start acting as both expert providers and advisers – to remain part of their old customers’ new electric equation.

James Basden is a partner, Adam
Witkowski a consultant, and Tim Wright a principal, with Oliver Wyman