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 / February 2008

5. Simplified adoption model
Candidate locations
Financing cost
Capital cost
Res/Comm
deployment
Incentives
Grid parity
Simple payback
Operating cost & output
Expected penetration
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 caseGW
Solar, with no operating cost, is most attractive alternative for deployment

9. Uncertainty cannot be ignoredNY 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