Barriers to Market Entry

Although technological advancements have made distributed resources a credible option for on-site generation, there are currently many institutional barriers impeding widespread adoption of these technologies. If left unresolved, these obstacles will seriously hamper future market growth. They are as follows:

• Government regulations (state and federal)
• Grid interconnection issues
• Utility tariffs

Government Regulations

Potential development of distributed generation markets depends in large part on the regulatory policies and market rules developed by the Federal Energy Regulatory Commission (FERC) and state regulatory agencies. Some major issues pertain to:

• Utility stranded investment
• Siting and permitting
• Interconnection to the grid
• Environmental impacts
• Transmission system scheduling and balancing

Grid Interconnection Issues

Interconnection is the linking of on-site generation to the electric utility's distribution grid. It requires the customer and utility to install a variety of relays and monitoring devices on the customer's premises and at the connecting distribution lines, to ensure stability and protection of the grid and protection of the customer's site and generation. The complexity and costs of the interconnection tend to increase with the scale of the on-site generation project. The costs of interconnection at the customer's site and required upgrades to the distribution system are paid for by the customer.

There are numerous problems related to interconnection that need to be addressed by regulators and utilities before DER markets can thrive. They include:

• Technical issues at the point of interconnection
• Safety issues posed by grid connection
• Distribution system reliability impacts
• Lack of uniform interconnection standards

Utility Tariffs

Tariffs and other charges may alter the economic feasibility of distributed generation for those interested in generating electrical power while remaining connected to the grid. Two principal types of tariffs impact DER decisions:

• Back-up tariffs, consisting of supplemental and standby charges, can significantly alter the economics between grid and distributed power. Back-up charges that are too high can make it uneconomical for the customer to bypass the system.
• Competitive transition charges are charges placed on distribution services to recover utility costs incurred as a result of the customer leaving the system (i.e., stranded costs usually associated with generation facilities and services), which are not recoverable in other ways.