One of the major differences I didn’t appreciate when first entering the energy industry was the distinction between utility-scale generation and distributed generation. I knew that utility-scale generation featured bigger projects (20MW+) that generated and sold electricity to wholesale buyers, while distributed generation involved smaller projects that generate and consume energy for end users, such as residential homeowners or corporations. However, I didn’t realize that the roles in these two markets differ greatly. I’ll go through some of the basic differences in this article in the hope it’ll help narrow your job search.
Market Structures:
Utility-scale assets interface with wholesale electricity markets – the markets most people refer to when talking about energy (PJM, NE-ISO, CAISO…etc,). The US power grid is divided into various power markets – each with multiple structures and markets. If you work on the utility-scale side, you might investigate how the PJM capacity market is evolving, or when CAISO is changing the day-ahead market for battery storage. You must understand the nuances of each market and follow regulatory developments, because it is the policies that dictate how your projects will get paid. There’s a ton of complexity in learning about the US electricity markets and infinite amounts to learn because each market is so different. However, if you find this stuff interesting, you’ll love exploring all the various market dynamics as you progress in your career.
Distributed energy projects rarely interface with wholesale market dynamics, but the retail electric market. Retail electricity markets are determined at the state-level. While some retail markets are regulated and require customers to obtain generation through their utilities, other markets allow for retail choice and provide customers options on their generation. A lot of this has to do with the utility business model and how tariffs (i.e. customer pricing is set), but this gets quite complicated and beyond the scope of this article.
Most of the time, you won’t need to understand the electricity markets if you are trying to estimate customer-bill savings, which can be great depending on your interests. Rather than trying to understand day-ahead energy prices and capacity payments, you’re more likely to be going through rate schedules to understand how customers are billed, monthly charges, potential demand charges…etc. (For example, if you’re buying a 5kW solar system in California, you won’t care what the market structure in CAISO is as much as the actual time-of-use rate charged on your electric bill. ) That’s because wholesale and retail markets, and specifically wholesale and retail electricity prices, aren’t necessarily aligned. If you’re interested in learning more, research the utility ratemaking process and how utilities set their rates.
Companies & Business Models:
I’ll avoid talking about the utility-business model as that’s a series of articles in itself, so the below will primary refer to wholesale and retail power or development companies (e.g. Invenergy, Sunrun).
Companies that align more towards wholesale markets will typically try to develop and invest in large-scale assets (i.e. power plants) and maximize their return on equity invested. A large developer such as Invenergy will try to develop projects for as little capital as possible, and sell the project to other institutions (investors, utilities) that may own and operate themselves. Greentechmedia has a very insightful 4-part series of solar development (https://www.greentechmedia.com/articles/read/how-to-value-a-solar-development-pipeline-part-1) that you can learn more aboutthere, but you’ll be very focused on minimizing project-level risks by finding offtake, ensuring the company gets its necessary permitting…etc. . Wholesale energy companies are also much more ‘transactional’ given the financing structure. largely energy company might only develop or operate several assets each year, which will be more than enough to offset its costs. Finance is one of the major required skills given project structures are large, complex and require niche valuation techniques.
Companies that develop distributed energy projects also seek to maximize returns, but given each project is much smaller, they typical need to scale to create enough gross margin to cover the overhead. Furthermore, as end customers can be retail buyers individuals, such companies use sizeable decent sales and marketing. Thus, much of the business opportunity involves a customer focus, customer lifetime value, sales ops….etc. There is a project finance angle to it, the company is more well-balanced and representative of a typical startup. These companies are smaller, leaner, have a tech-focus / startup-focus. Rather than trying to raise project finance, you’ll much more likely trying to calculate customer attrition rates, figuring out sales ops strategy.
Jobs:
So what does this mean in terms of the job search? The market you operate in greatly affects the day-to-day responsibilities of the job. If you’re more interested in wholesale electricity markets, finance, and transactional nature, you’ll want to look more into the utility-scale side of the energy business. If you’re in more of day-to-do business, the customer experience, sales and marketing, business operations, tech, and want a more relatable field (i.e. you can purchase your own solar system), then the distributed energy side might to be better for you. It’s not impossible to switch back and forth (I went from the distributed space to utility-scale), but the longer you work in one field, the more you’ll realize how different they are (which is one reason I think utility companies are great to get access to both sides of the market).
A few parting thoughts:
Given the two segments are so different, it’s very difficult and usual for a company to succeed at both. Utility-scale projects are commoditized given it’s a manufacturing scalability and cost of capital game (for mature assets at least), so some companies are getting out of utility-scale altogether due to depressed margins. Some companies such as SunPower have recently shifted their business from a mix of utility-scale to solely distributed.
Beware of startup companies pitching themselves as focusing on both end-markets. I’ve often seen energy storage companies claim how they serve both customers segments. What this really means is they don’t have a defined business model and still are figuring out ways to grow. I’m not saying serving both is impossible, but they are different markets and models.
There’s probably a bit more innovation going on in the distributed side than utility-scale side. A lot of energy tech startups are working on difficult distributed energy problems (e.g. virtual power plants). Three words you keep hearing about are decarbonization, decentralization, and decentralization, and this all refers to the evolution of distributed generation. With that said, there are cool companies such as Sunfolding that are bringing much needed innovation to the utility-scale side. There’s definitely a lot more nuance to the subject, but hopefully this gives you some idea of where to start looking.