Interest in the market for distributed generation (DG) solutions is growing. A number of factors, including the restructuring of the U.S. energy industry and the introduction of new technologies, are driving this interest. Deregulation will likely lead to a number of new types of DG applications. The introduction of the microturbine and various types of fuel cells, and the continued evolution of the reciprocating engine and combustion turbine are making DG increasingly competitive. Existing and potential stakeholders in the energy industry are evaluating where DG should fit into their business planning process.
Utilities, energy service companies (Escos), and other energy companies need to know how to benefit from using DG equipment. Should they lease or sell DG to their customers? Should they market environmental benefits, reliability, or power quality? Should they stress or minimize the economics of DG to potential customers? How will DG impact consumer electric costs? Will all this become a threat to the energy company if it chooses to ignore DG developments?
Developing a DG Strategy
What is still needed by most players is a detailed, quantifiable justification for making a business investment in DG opportunities and a plan for responding to potential threats. Going beyond conceptual theory, detailed economic analyses and numeric valuations of applying DG in your potential markets are needed. The following services provide you with such a quantifiable justification for DG – sorting out when, where, how and under what circumstances DG makes sense and how to respond to DG threats. You will then be able to make sound business decisions based on actual market and technology information. With the emerging competition and improved technologies, the ability of small, decentralized, and distributed power generators to provide customers with solutions has led to significant business opportunities.
The Resource Dynamics Corporation (RDC) is offering these services to help energy companies position themselves in the evolving but uncertain DG marketplace. These services combine a detailed knowledge of DG technologies and markets with sound, individualized business and financial planning. The bottom line is coherent understanding of the potential impact that DG may have on your company and a practical plan for profiting from the trends through well-thought out offensive and defensive strategies.
Making Strategy Happen
RDC will work with your company to assess the potential impacts of DG on your company and to develop a practical business plan for increasing shareholder value. This involves:
With more than two decades of providing advice on small-scale power production, we can provide you with the information and credible data required to formulate an appropriate DG business strategy. This data can be prepared at varying levels of detail, providing perspective on the international, U.S. and regional markets. We offer four distinct services that can assist energy companies when developing their DG business strategy.
Estimates indicate that the market for DG applications will grow significantly over the next few years. Varying state regulations for environmental parameters, utility interconnection requirements, and access to the retail electric market greatly affect the market potential of specific DG products. Thus, in this service, forecasts of DG use are made at the state level to assist you in understanding the market potential in states or regions of interest, including:
Six major customer DG applications have been identified:
This service will help energy companies assess market size for each of these applications, together with ways to reach customers by following these steps:
Analyses are performed using our DIstributed Power Economic Rationale SElection (DISPERSE) model. DISPERSE is the leading tool used to forecast the potential for DG technologies. Using DISPERSE, the costs and benefits of DG to energy users and the impacts of policy alternatives on DG can be estimated, while considering multiple parameter changes. DISPERSE was extensively vetted and peer-reviewed for the critical role it played in estimating DG impacts for the Administration’s Clean Energy Futures Study (April 2000).
The bottom line is an estimate of the potential size of a DG business in your states of interest, with a disaggregration by customer type, technology, size, and application. Revenue estimates are prepared by examining possible DG equipment pricing strategies. Finally, we perform a preliminary identification of strategies you can use to implement profitable ventures, such as selling DG equipment, leasing equipment, designing and constructing the installation of equipment, maintaining the equipment, selling fuel to DG operators, providing project finance, or providing an environmental monitoring service for government agencies. Business strategy recommendations highlight issues such as partnering and go-to-market strategies.
The objective of this service is to provide you the quantifiable justification for investing in DG – deciding when, where, how and under what circumstances DG makes sense and how to respond to DG threats. You will then be able to make sound business decisions based on actual market and technology information. This service will provide you with a DG business strategy and plan which is integrated with your corporate plans.
DG issues are particularly important for traditional utilities who sell both electricity and gas. For them, typically DG means increased gas sales and decreased electric sales. A combination of exploiting DG opportunities and mitigating the threat associated with customer loss is needed.
Beyond the 6 customer applications noted in the first service, 5 other utility DG applications are:
In using DG to meet these applications, companies will be involved in the DG market in a variety of roles along the value chain, such as equipment manufacturing, equipment distribution, packaging, facility operation, maintenance, fuel supply, engineering services, financing, and power sales. Each energy company will be seeking to establish a profitable position in one or more of these roles. To do so, they need to know where in the value chain profits exist. Based on your existing market position compared with your competitors, we can assess your most profitable value chain position, or combinations of positions. This is done using profit pool analysis; a financial analysis technique that estimates profitability by examining how profits are created.
A typical project has five tasks. In the first task, we provide a summary of the current DG market. Task two characterizes the eleven different applications for DG and quantifies the markets for these applications in your service territory or other region of interest. The third task models the impacts of DG on you in terms of opportunities and risks. The fourth task conducts a value chain profitability analysis. The final task develops a coordinated DG Business Plan incorporating specific practical business strategies.
EasyDG, a DG site-specific economic evaluation software tool is available for use via license. This model packages the economics engine of our DISPERSE model in a user-friendly, flexible form that can be tailored to your individual needs. Pull-down menus, automated data entry, and familiar spreadsheet operation all facilitate ease-of-use. Either specific and detailed information can be entered for the most accurate results, or the user can elect to use defaults for quick answers or when not all information is available. The model includes default data on unit price and performance parameters, utility rate structures, electric and thermal load profiles for commercial and industrial facilities, fuel costs, financial parameters, and potential to provide system benefits. Users are able to calculate the financial impacts of projects ranging from residential fuel cell baseload power, to office building peak shaving, to industrial cogeneration. Advanced versions of the model also have an optimization routine which allows the model to select the best DG unit type, application, and unit size; for given site characteristics, fuel and electricity prices. We license this software to you, and provide training in its use, so that you can assess the market potential for both your current and future DG product offerings.
This service provides fuel supply services to companies offering DG equipment. This service has three components; you may select any combination of support.
The cost of these services depends on the exact scope of the effort. Typical costs range from $60-120,000 for a market assessment, varying by the number of DG services considered and the level of state detail desired. The cost of assessing how to integrate DG into your business plan ranges from $70-150,000, based on the level of detail and whether you commit in-house staff resources to the effort. Software models may be licensed from $30-60,000 depending on what information you desire and the level of training anticipated. Fuel supply service costs vary widely based on your requirements.
For More Information, Please Contact
Director of Technology Analysis and Deployment
Resource Dynamics Corporation
8605 Westwood Center Drive, Suite 410
Vienna, VA 22182
703-356-1300, ext. 215 (p)
Distributed-generation.com was last updated March 16, 2005 © 2005, Resource Dynamics Corporation