Why Distributed Generation Isn't a Threat to the Utility Industry

I recently came across a study from KPMG that predicted decentralized power supplies will account for 39% of the global energy market by 2030, surpassing both renewable energies (29%) and conventional generation (32%).

Initially, this forecast may give utilities cause for concern, and not for nothing. But decentralized power also presents a huge aftermarket service opportunity. KPMG discovered utility customers are “calling for a full service supplier, who offers planning, delivery, operation, services, etc.” Power companies could accommodate this need by delivering both product-dependent and product-related aftermarket service models.

Scaling the legacy expertise and infrastructure

Consider the possibility of system operators managing power supply and demand at a much smaller scale. Instead of overseeing a network of 300 generators, the person behind the generation desk monitors resource capabilities at individual customer locations, or perhaps across a micro-grid of interconnected consumers.

Such a situation isn’t hard to imagine. Utilities are already equipping their generation desks with the means to assess real-time output of renewable resources. So why not extend that capability to commercial buildings with combined heat and power (CHP) units, for example?

But where’s the market opportunity in all of this? Does it make sense to procure the talent and capital needed to manage distributed generation assets?

The billion-dollar aftermarket service opportunity

Consider the potential impact of the CHP on commercial and residential markets. In a guest article for Forbes, the World Economic Forum (WEF) noted 60 million U.S. homes are heated by natural gas. Those boilers typically burn at 2,000 degrees Celsius, but the typical home only needs 50 degrees Celsius to supply its hot water and space heating needs.

What if micro-CHPs burned natural gas at the same temperature, but recovered all of that excess heat to generate electricity? Micro-CHP units can attain overall efficiencies of 90%. That represents huge savings for homeowners.

Markets and Markets estimated that the micro-CHP market will be worth $4.4 billion by 2020, growing at a compound annual growth rate of 14.2% between 2015 and 2020.

While this demand applies globally, imagine if you, as a utility, had aftermarket service contracts to install and maintain 50,000 of those units. You could set up multi-year service contracts that guarantee annual recurring revenue. Better that than trying to sell consumers with micro-CHPs or solar panels power generated from legacy plants across the conventional grid.

Assessing the competition

Who’s to say the companies that install solar panels and micro-CHPs aren’t offering their customers service contracts? Many do so through warranties. So how can you differentiate your service offerings from that of a manufacturer’s? What is your utility doing to prepare for distributed generation? I’m curious as to how people in the industry are addressing this opportunity.

If you’re looking for ideas as to how to build your aftermarket presence, the two white papers below offer some insight as to how discrete manufacturers are expanding their service capabilities:

PTC IDC companion white paper on service journey