Scenarios for the 2025 competitive environment for Distributed Energy Resources in New York State

Abstract

The electricity distribution system in New York State is at the dawn of an evolutionary change in which a new role for distributed energy resources (DER) is envisioned in enabling enhanced system resiliency, lower electricity costs and reduced carbon emissions. Deregulation, technological developments and market reform are amongst the driving factors which could allow for a growing and differentiated DER industry. This complex evolutionary change is accompanied by many uncertainties, and the future DER industry is likely to have a fundamentally different structure than today. DER providers thus encounter problems in anticipating the 2025 competitive environment, which limits focused innovation of their business models to adequately participate in the future DER industry. Four scenarios were built for the 2025 DER industry in New York State to provide a substantiated and strategically relevant industry structure forecast. Literature review provided an overview of the current DER industry, while interviews with ten DER industry experts revealed factors that are likely to drive change in this current industry structure up to 2025. Quantitative analysis of the experts’ perceived potential impact of the factors on the DER industry structure and their uncertainty of occurrence allowed for identification of two scenario determining dimensions. These were: 1) the extent to which a thriving market is enabled with differentiated DER products and high levels of customer participation, and 2) the economic performance of DER products through cost, incentive and performance developments. Definition of the extreme positive and negative developments of both dimensions, allowed for the identification of four unique industry structure scenario combinations between which the future DER industry is very likely to develop. The strategic relevance of the scenarios was demonstrated by analyzing the competition faced by an aquifer thermal energy storage business model in the scenarios. Porter’s five forces analysis provided the basis for framing competition which originates from the DER industry structure of the four scenarios. The main competition faced by the ATES business model is an intensification of the threat of entry, while industry rivalry and the power of customers was lowered. Building defenses against entrants and positioning itself to benefit from the lower rivalry and customer power was recommended to strengthen its position. The obtained industry structure scenarios thus provide DER companies with strategically relevant knowledge that allows for more focused innovation of their business models to more adequately participate in the 2025 DER industry in NYS.