The Future of U.S. Utilities and Implications Of Off-Balance Sheet Financing Models for Mid-scale Customer Sited Distributed Generation

Abstract

The current U.S. electrical generation and delivery system will inevitably undergo a fundamental shift over the coming two decades. Distributed generation has the potential to bring similar flexibility and cost savings to energy as personal computers did for the computer market. Mid-scale customer-sited distributed generation (MCSDG) will play a critical role in this transformation as a technological and regulatory transition step and as foundational generation assets. This master’s project explores the rapidly evolving utility business model within new social, economic, environmental and technical forces, including Distributed Energy Resources (DER) like Customer Sited Distributed Generation (CSDG) and integrated microgrids. It examines how current energy regulation impacts CSDG adoption among commercial and industrial end-users, the role utilities can play in financing and sustaining these projects, as well as likely industry outcomes in this disruptive business landscape. Although there is general consensus among industry experts that utilities will play a vital role in any credible future energy scenario, final outcomes remain uncertain. The two most plausible models either shift utilities towards customer-centric, products and services companies, or retrench their monopolistic roots as pipes and wire integrators. Either way, utilities will likely coordinate millions of individual demand and supply-side resources, including critical MCSDG assets. Regulators will need to leverage different public and private financing models to not only scale MCSDG market adoption through utilities, but also sustain utility revenue for essential integrator functions over time. Basic energy financing models already exist from utility and ESCO efficiency and CHP projects; however, these don’t fully translate due to massive risk differentials between efficiency and generation assets. Regulators will need to determine how utilities play in the MCSDG market and whether regulated utilities can rate base behind-the-meter DERs. Many of the most common utility business assumptions and engineering practices will have to be reexamined by both utilities and their regulatory bodies in more sophisticated and holistic ways. Appropriate regulation could open a flood of innovative business models, technologies and private energy investment; however, finding the elusive balance between competitive markets and regulated monopoly efficiencies will be a significant and painful mid-term challenge.