Coal

Study Says Distributed Energy Resources Market On Rebound

Issue 3 and Volume 108.

After shrinking dramatically in 2002, the market for distributed energy resources (DER) such as engine generators, microturbines, and fuel cells began to rebound in 2003, according to energy market intelligence company Primen. The new Primen study — Converting Distributed Energy Prospects to Customers — estimates that there are more than 12,000 North American energy users with demand in the 100 kW to 10 MW range that are strong prospects for DER — meaning companies exploring DER options and that rate themselves as having a 50% or greater likelihood of adopting a distributed energy solution in the next two years.

“Surprisingly, these strong prospects have very realistic expectations on the economic payback for a DER project, with 86% saying they’re willing to accept a payback of four years or longer,” says Nicholas Lenssen, a senior director at Primen. “But the challenge for distributed energy providers remains: how can these prospects be converted into DER buyers?”

Primen conducted 100 in-depth qualitative interviews with U.S. and Canadian commercial, industrial, and institutional electricity customers — supplemented by more than 800 quantitative interviews — to find answers to this question. “Although the bottom line

on selling distributed energy systems is just that — the bottom line — economic savings alone won’t tip a DER prospect into being a DER customer,” Lenssen says. “Distributed energy vendors also need to satisfy energy user concerns such as ongoing maintenance of equipment, environmental permitting, and natural gas fuel price escalation.”

Specifically, says the report, energy users want assurance that equipment will be maintained to operate as promised, and they want assistance in navigating through the morass of environmental compliance. They also need concerns alleviated about natural gas price volatility and price increases before signing off on products, even though natural gas still remains the preferred fuel among prospective adopters of DER.

“Regarding maintenance, it’s complicated,” says Lenssen. “Users want to do as much maintenance, and retain control, as feasible. However, they want a dependable partner they can call on for the maintenance they can’t do in-house. Also, there’s only narrow interest among energy users in full-service, outsourced DER offerings.”

The study also explores how electric utilities can proactively influence DER prospects, whether to encourage or discourage them from pursuing a distributed energy option. Surprisingly, it often isn’t necessary for utilities to offer cheaper or more reliable electricity to dissuade energy users from adopting distributed energy solutions, as other approaches can be equally effective. Simply alternating tariffs can confound users to the point that they are frozen into inaction, like a deer in the headlights.

The Primen study identifies the specific times when energy users are most likely to consider a DER solution. These instances occur not only in the wake of major blackouts, such as the August 2003 outage that hit the Northeast U.S. and Canada, but at other less obvious times. Such opportunities for distributed energy providers are time limited, as their effects attenuate fairly quickly.

The study also provides information and data on equipment and service provider preferences, technology preferences, standby generation market information, and how companies make decisions about acquiring DER solutions