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Moody's report examines risks and rewards of distributed generation


From the April 28, 2014 issue of Public Power Daily

Originally published April 28, 2014

By Robert Varela
Editorial Director
There are large negative consequences for utilities associated with a widespread deployment of distributed generation (DG), "but only if we assume everything else associated with the utility structure as we know it today stays the same," Moody’s Investors Service said in an April 23 report. If distributed generation "emerges quickly and catches a utility and regulator somewhat flat-footed where neither has taken any meaningful strategic steps to address whatever the impact DG has created, the likelihood of negative credit events would rise due to the technological disruption," Moody’s said in the report, U.S. Regulated Utilities: Regulatory framework holds key to risks and rewards associated with distributed generation.

However, the technologies are still years from commercial mass-market deployment, Moody’s said, "which leaves plenty of time for utilities to work with their regulators to amend or restructure the suite of recovery mechanisms, refine its service offerings and protect their credit profiles." While the report focuses on regulated investor-owned utilities, much of it applies to public power utilities.

Distributed generation offers benefits for both utilities and consumers in three key areas, Moody’s said: economic, environmental, and reliability and security. For the consumer, the economic benefits are primarily related to self-generation, thereby saving money. For the utility, the economic benefits relate primarily to the creation of a more efficient load (demand) curve, which reduces capital investment needs and operating costs. "A wide-spread intelligent network also provides a utility with a more interactive grid management tool (at the local level)," Moody’s said.

The environmental benefits of distributed generation come from a reduction in greenhouse gas emissions and a reduction in the need for land resources associated with both big generation needs and big transmission lines, the report said.

The principal reliability benefit "is associated with reduced outage times and higher-quality power," Moody’s said. The principal security benefits are that widespread deployment of distributed generation: 
  • creates a stronger and more resilient electric grid; and
  • can "help insulate a region from energy import needs, or the security of energy supplies, such as natural gas transmission to New England during a polar vortex."
"The risks and rewards associated with commercially available DG technologies ultimately reside with the regulators, because they approve the revenue recovery mechanisms associated with the grid’s installed infrastructure," Moody’s said. A change in the allocation of fixed charges to customers with distributed generation would solve the revenue recovery problem, Moody’s said, adding that "today’s DG economic proposition is somewhat fragile" because the solution is so simple.

Another big regulatory consideration relates to planning, the report said. Because a considerable amount of planning goes into the engineering of the grid’s reliability, Moody’s said it does not, "at this time, think regulators will allow customers to add numerous DG devices across the grid without including some form of planning in the mix." 
 

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Vice President, Integrated Media and Communications
Meena Dayak
202/467-2948
MDayak@publicpower.org

Editorial Director
Robert Varela
202/467-2947
RVarela@publicpower.org

Editor, Public Power Daily
Jeannine Anderson
202/467-2977
JAnderson@publicpower.org

Communications Assistant
Fallon W. Forbush
202/467-2958
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Manager, Integrated Media 
David L. Blaylock
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Integrated Media Editor 
Laura D’Alessandro 
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LDAlessandro@publicpower.org