Distributed Generation: A Huge Market Opportunity for Contractors

By William Atkinson, IEC

Demand for distributed generation, also known as distributed energy resources (DER), is growing for a number of reasons – unexpected utility power outages, planned rolling blackouts, power quality problems, increases in the overall cost of power, mid-day price spikes, and much more.

Customers have always wanted reliable, high quality, reasonably-priced power. Until recently, they have had to cross their fingers and hope that their local utilities would provide all of these. Now, with the increasing availability and cost-effectiveness of distributed generation, more and more customers – industrial, commercial, retail, governmental and residential alike – are taking power generation, and even power storage, into their own hands.

Distributed generation is composed of small-scale power generation sources located close to the points of use. In some cases, this locally-produced generation is set up to supplement existing utility grid power, operating as backup generation when outages occur or prices spike. In other cases, the opposite occurs: distributed generation equipment becomes the primary source of power for the customer, with grid power playing a backup role in case the distributed generation equipment experiences problems or requires maintenance.

Distributed generation can include one or more of the following sources of generation: natural gas (such as is used in generators turbines, and microturbines), hydrogen (used in fuel cells), combined heat and power (known as CHP, which uses waste heat from the generation to provide on-site heat), as well as renewable generation sources such as solar, wind, and biomass.

An additional feature of some distributed generation units is energy storage –large-scale batteries (with the most popular currently being lithium-ion) that store the distributed generation for use when the generation capacity temporarily comes to a halt (such as when the equipment breaks down or requires maintenance) or weakens (as can be the case with the instability of solar and generation). The recent introduction of the Tesla Powerwall storage battery is seen by many experts as a huge “game changer” that will encourage the growth of distributed generation even more, especially at the residential, retail, and small-commercial level.

Many customers, particularly industrial and large commercial customers, combine several of these generation and storage technologies to create what is are known as microgrids.

The trend toward distributed generation and storage is opening a huge new market for private electrical contractors, who now have the opportunity to help customers of all sizes and types to design, install and maintain these distributed generation and storage resources. In the past, of course, the only people who could design, install and maintain power generation for customers were the engineers and electricians who worked for the utilities, and virtually all of this generation was at a centralized power plant.

How big is the opportunity for electrical contractors to work on distributed generation? A December 2014 report, “Global Distributed Generation Deployment Forecast,” published by Navigant Research, stated that the global market for distributed generation is expanding at a rapid rate – expected to double in the next 20 years. That is, while distributed generation was providing 87,300 megawatts of power a year in 2014, Navigant projects 185,000 megawatts in 2023. In fact, the growth of distributed generation is threatening utility business models. “Utilities in Western Europe are losing hundreds of billions of dollars in market capitalization as DG reaches higher levels of penetration in leading countries such as Germany, the United Kingdom, and Italy,” said Dexter Gauntlett, a senior research analyst with Navigant. “The prospect of similar losses by utilities in the United States is prompting a struggle among utilities, the DG industry, and regulators over the future of DG models.”

Besides growth in distributed energy generation, growth in distributed energy storage is also seeing rapid growth. According to a recent report by GTM Research, the solar-plus-storagemarket is expected to reach $1 billion by 2018, and the U.S. energy storage market in total is expected to reach $1.5 billion.

And, according to another recent report, “State of the Electric Utility 2015,” published by Utility Dive, U.S. energy storage capacity grew 40 percent from 2013 to 2014, and is expected to grow almost another 300 percent from 2014 to 2015, to 220 megawatts. Lithium-ion batteries represent about 70 percent of the storage market, with the remaining 30 percent being composed of flywheels, flow batteries, and sodium chemistries. “Broadly speaking, we expect lithium ion to be the biggest battery technology deployed through 2019,” said Ravi Manghani, an energy storage analyst with GTM Research, who was quoted in the Utility Dive report.

What opportunities exist for IEC contractors? A lot of it depends on where you are located in the country.

“Pennsylvania hasn’t seen much in the way of opportunities here,” said Bruce Seilhammer, electrical construction and service group manager for SECCO Inc. in Camp Hill, Pennsylvania and national senior vice president of IEC’s executive committee. “When tax credits and other incentives were readily available a few years back, there was a significant boom in solar. However, as soon as those subsidies dried up, a lot of this kind of work dried up.”

In other parts of the country, though, things look more promising. One area is the southwest. “Because of the growing economy, we have rising demand for energy,” said Robert Bass, president of R.K. Bass Electric in Belton, Texas and regional director, Texas Region, on the IEC National Board of Directors. According to Bass, distributed generation systems help to elevate and supplement a lot of the fuel that we have to burn to keep up with the growth. Growth is also occurring because of the cost savings involved in installing localized systems compared to centralized systems. “Maintenance on these systems is also more practical,” he said.

Bass has seen many homes and smaller commercial businesses start to install rooftop solar systems. “This growth seems to be from tax credits and falling prices,” he said. “I have also seen many campuses install microgrids for localized areas of their campuses. With the microgrids, they are able to take care of a number of facilities with a single system and keep maintenance costs down.”

R.K. Bass has already been involved in a few smaller home solar projects, but is still in the process of evaluating where the company needs to go next in this market. “We do know that the market is here to stay, but, in the past, we have been very cautious about venturing in too far into something until we learn more about it,” he said.

Brian Haines, vice president of Pyramid Electric in Memphis, Tennessee and regional director, Southeast Region, on the IEC National Board of Directors, sees significant opportunities, especially for small solar. “From the perspective of a third-generation electrical contractor in the southeast region, and more specifically in the mid-south region of the U.S., large centralized power generation has long been the domain of state and municipal utilities, which traditionally employ electricians deeply entrenched in electrical unions,” he said. “Thus, a greater consciousness of the cost of electrical power and the impact that traditional power generation has on our environment has spread among Americans.”

According to Haines, opportunities for new or refined power generation means and methods have created an entry point for IEC’s merit-shop contractors. “Most notable is the greater frequency of the captivating vistas of arrayed solar panels that are beginning to appear in Memphis and the mid-south,” he said. Examples include solar installations at Brother Industries in Bartlett, the Agricenter International in Memphis, and the West Tennessee Solar Farm, which is one of the Southeast’s largest solar arrays generating over five megawatts of power annually. “Solar installations are providing opportunities for merit shop contractors to profit from a new income source,” said Haines. “While a brief conversation with our Shelby County electrical inspection department revealed that permits for solar installations might appear only once every couple of months, someone is installing those systems. Why should it not be IEC contractors who do so? In my experience with the IEC, our primary currency is training and education.”

With new power generation technologies come new standards and techniques for installation. In order to advance in these niche markets and penetrate with capable, safe and reliable electricians, Haines believes that the local IEC chapters may be the real ones who shine as they are poised to train and educate the workforce to become competitive in these new arenas.

William Atkinson is a freelance writer with experience in the construction and contracting industries.