Spread the gain

Distributed generation is a threat to traditional utilities, but also an opportunity, say Berthold Hannes and Matt Abbott.

Solar panels, small windfarms, combined heat and power plants – these are all increasingly popular ways for homes and businesses to generate their own power. They signal technological progress as they become commonplace in Europe and North America, but utilities may be forgiven for watching their rise with mixed feelings.
After all, some of their most profitable customers will use less power from the grid and instead use their own. These customers will still depend on the central grid for their emergency, peak or night-time needs, so utilities will have to maintain costly grid and power generating capabilities even as revenues from consumption decline.
The rise of distributed energy systems, which tap these small generation sources and distribute electricity through low-voltage networks, owes much to the high costs of power, environmental concerns and regulatory pressures.
In Germany, the rise of energy prices by 60 per cent over the past decade has created a strong incentive to produce your own power and heat. In the UK, the Renewable Heat Incentive (RHI) pays private generators for the heat they produce, creating attractive economics for running small boilers (less than 200kWh) with biomass fuel rather than oil. In the US, environmental concerns and financial incentives have encouraged distributed generation.
Given these pressures and the investment that customers are making in their own systems, it seems unlikely that the tide will turn back on this trend anytime soon. So how can utilities play a role in these new models?
We see three main opportunities for utilities in direct energy: helping customers generate their own energy; managing end-user demand for energy; and controlling the distribution and consumption of energy within a distributed network. For some of these opportunities, they will need to develop new capabilities. For others, they may already have the skills internally but will need to develop sales and marketing models to deliver them to customers.
Rooftop solar photovoltaic panels, small combined heat and power plants, and small wind parks are three popular sources of distributed energy. Utilities should explore offering services that include planning, building, installing and operating these systems for customers, as well as financing and risk management.
Industrial and commercial clients will need help monitoring and reducing their power consumption. Utilities can help them make their buildings more energy efficient, build more efficient heating and cooling systems, and raise their efficiency.
Many utilities already have the capability to steer energy usage, given their experience managing their own grids and networks. In this new model, they manage a distributed energy network in real time via a control centre that monitors generation from various sources and distributes it according to demand. By analysing the data over time, the energy controller can predict usage and balance loads to reduce overall investment in generation.  
To make a go of these new businesses, utilities have to boost their capabilities in a few areas. Their current skills managing large, centralised power systems should help them extend to the adjacent opportunity managing smaller networks of distributed energy systems.
They will also need to begin to take “no regret” decisions that will put them in a better position to make the most of new opportunities. Foremost among these is improving customer loyalty and getting to know customers’ needs and preferences better.
They will also need to explore new business opportunities as contractors who provide building and demand management services. Acquisitions, partnerships and joint ventures are likely to be the quickest and most efficient way to do this.
Distributed energy is being pursued as a goal in many countries. The sooner utilities identify the opportunities inherent in this growing movement, the more likely they are to capture the profits available  to them.
Berthold Hannes and Matt Abbott are partners with Bain & Company