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Identifying Distributed Generation and Demand Side Management Investment Opportunities

Distributed generation and targeted demand side management programs offer electric utilities alternatives to large transmission and distribution (T&P) system capacity investments. This paper presents a method to estimate how much a utility can afford to pay for these alternatives when the change in system capacity due to the distributed resource is constant from year to year and when there is no uncertainty. The method is concise, has intuitive appeal, has minimal data requirements, and is accurate when benchmarked against two existing case studies. Analysts who want to screen distributed resource investment opportunities with a minimal amount of effort will find the method particularly useful.

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Energy Specializations: Energy Investment and Finance – Public and Private Risks, Risk Management; Energy Investment and Finance – Project Finance; Electricity – Distributed Generation; Electricity – Markets and Prices

JEL Codes:
D81 - Criteria for Decision-Making under Risk and Uncertainty
G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
L94 - Electric Utilities
D42 - Market Structure, Pricing, and Design: Monopoly

Keywords: Electricity, Distributed generation, DSM, electric utilities, energy investment

DOI: 10.5547/ISSN0195-6574-EJ-Vol17-No4-4

Published in Volume17, Number 4 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.