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Distributed Generation Adoption Decision Making Under Uncertainty

Distributed Generation Adoption Decision Making Under Uncertainty. Mark Sanford Michael Leifman. Agenda. Assumed buyer behavior & resulting model Forecasting uncertainties Product adoption & grid parity Incentive induced dynamics. Underlying business question.

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Distributed Generation Adoption Decision Making Under Uncertainty

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  1. Distributed Generation Adoption Decision Making Under Uncertainty Mark Sanford Michael Leifman

  2. Agenda • Assumed buyer behavior & resulting model • Forecasting uncertainties • Product adoption & grid parity • Incentive induced dynamics

  3. Underlying business question • Will residential and small commercial demand for distributed generation justify the investment required to serve these consumers?

  4. Predicting adoption Deployment = Opportunities x Penetration x Adoption Consumers don’t do sophisticated financial analysis … simple payback more closely represents decisions Source: Adapted from Navigant Consulting, NREL/SR-581-42306/ February 2008

  5. Simplified adoption model Candidate locations Financing cost Capital cost Res/Comm deployment Incentives Simple payback Grid parity Expected penetration Operating cost & output Electricity price Time since introduction But … capital cost is declining while retail electricity and fuel prices may go up or down

  6. Geographical variance is significant Retail electric prices, natural gas prices, and renewable annual output vary widely among states Source: US Energy Information Agency

  7. Capital costs are coming down But … opinions differ considerably as to how far and how fast, particularly for residential applications Source: One of several Illustrative example from GE Energy

  8. Rapid adoption in mid-point case GW Solar, with no operating cost, is most attractive alternative for deployment

  9. Uncertainty cannot be ignored CA NY GA Cumulative Probability IL Probability of “grid parity” Grid parity: cost of production = retail electric price, assuming net metering Even with fixed customer behavior assumptions, amount of adoption remains highly uncertain Source: GE Energy, Energy Strategic Marketing

  10. Incentives dynamics GW Tax credit incentives accelerate market, but create potential for severe trough when removed Source: GE Energy, Energy Strategic Marketing

  11. Conclusions • Mid-point case shows significant growth in distributed solar generation • Uncertainty analysis shows a wide range of outcomes to be possible • Incentive programs have desired effect of accelerating adoption, but introduce risk of suspending demand when removed Uncertainty analyses illustrates risks in entering a new business that might otherwise be ignored

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