Contact Information:
Don Seville 802-436-1277 dseville@sustainer.org
Distributed Generation (DG) is emerging as an exciting new approach to stationary power generation in the US and around the world. The term "distributed generation" is used to refer to small-scale power generation devices that can be placed "on-site" at manufacturing plants, office buildings, and even residential homes. This approach varies from the current paradigm of large-scale, centrally located power plants connected to customers via miles of networked transmission and distribution lines that is predominant throughout most of the industrialized world. While the size and location of the generating units relative to customers may be the most obvious distinction between the DG model and the conventional central station approach, the most relevant difference from a sustainability perspective is in the technologies used to generate the power. Emerging new DG technologies include small, high efficiency internal combustion engines, mini and micro turbine generators, solar photovoltaics, and soon fuel cells. The DG model, and the new DG technologies, can provide better environmental performance than the central station model for several reasons:
These potential environmental benefits are countered by the fact that DG is a new and disruptive technology. Distributed generation may require a very different relationship between energy providers and energy consumers. Energy providers shift from selling kWh through capital-intensive transmission and distribution systems to selling on-site energy services and solutions. Consumers shift from buying anonymous electrons through a set of wires to installing equipment in their factory or at their home, or joining with nearby neighbors in a local "microgrid". Understanding these potential shifts and their implications is extremely important to those companies selling DG and developing DG-based services and solutions. History has shown that many new products, technologies and business models fail not because the technology isn’t innovative and valuable to consumers, but because existing organizations, paradigms, behaviors, and supporting infrastructure are not congruent with the new product, technology or business model.
DTE Energy and its unregulated subsidiary DTE Energy Technologies (d|tech), which is investing in this alternative approach to its traditional business, initiated this project to explore the kinds of organizational and behavioral changes necessary for these new technologies — and this new approach to generating and delivering energy — to be successfully commercialized. This process was inspired by the SOL consortium work with Interface to explore why their new Evergreen Service Agreement was not as successful in the market as they had hoped. In the case of distributed generation, most of the new technologies are just beginning to appear in the marketplace, so this project was designed to help DTE Energy learn about the customer perspective on DG prior to the full launch of the DG sales efforts.
The premise of this research is that many of the challenges that new products, technologies and business models face don’t emerge until consumers are actually in the process of making decision about investing in them. This is the point at which tradeoffs are assessed, and the value of a new product is matched against its cost — both tangible and intangible. To learn at the level of actual decision making, DTE Energy partnered with a number of SOL consortium members who volunteered to act as prospective DG customers. For each company, we identified a potential disturbed generation application at a specific site, and met with both the sales representative (d|tech) and facilities manager (customer) who would be involved in any real sales discussion, along with someone from each company who is connected with SOL and interested in sustainability. This allowed us to step back from the details of the sale and reflect together. A third party consultant provided facilitation and helped set the stage for the reflection portion of the meeting.
The goals of the sessions were to ask potential DG customers directly about how they think about distributed generation, what attributes they found attractive, what kinds of service and ownerships arrangements would be of interest, and what kind of decision making processes are used to evaluate a product like DG. From this we hoped to gain insights into both the specifics of distributed generation and more generic strategies for how companies can work with their customers to introduce increasingly sustainable products. We were also interested in learning about the process of collaborative learning itself and how this might be an effective way for companies to learn from each other in modes not possible through the more traditional approaches, like focus groups and analytical research.
The collaborative learning process has highlighted a number of strategic questions.
It’s about Energy Service, Not Energy Technology. The most consistent feedback from the companies as potential customers is that they were not interested in becoming power generators themselves and were interested in DG only when it was within the context of a full service package (operation and maintenance, service, monitoring, financing, etc.). Facilities managers were interested in more cost effective ways to purchase kWhs and BTUs, not in owning, operating and maintaining energy assets. While d|tech has begun to develop a service package directed toward meeting these customer needs, it appears that there are still gaps between the customer preferred model and the d|tech’s current business model.
The Sales Process Is Consultative, Not Bid Spec. The cost effectiveness (and relative reliability and environmental performance) of distributed generation depends on a number of site-specific factors such as electrical load profile, heating/cooling needs, costs of natural gas and electricity at the site, and local regulations. As a result, the sales process requires a significant engagement with the customer, and a willingness of the customer to take the time to explore DG without initial hard data on costs and benefits. This requires a reward system and sales approach that is conducive to a long sales cycle, explorative learning with customers about potential DG applications, and a sales "close" that may result in a service contract rather than a simple purchase order.
Sustainability Is A Tenuous "Hook". Since distributed generation with combined heat and power has significantly lower emissions than most options available over the grid, we asked each of the customers how the relative sustainability attractiveness of DG played into their decision making. We found that:
During this research process we asked prospective customers to go through a realistic sales pitch and discussion, and then reflect together on their thoughts about DG, the sales process, and their decision process. Was it worth it? Why should customers participate in this?
Three different sales managers from d|tech participated in various sessions, both leading the sales portion of the meetings and contributing in the reflection discussion. They all felt that this environment provided a unique opportunity to learn together with customers, both about the products themselves and about their sales process. We did, however, find it an ongoing facilitation challenge to keep the interactions in a learning mode and not slip into two dynamics that seemed to be typical sales habits. For customers, we found that there was a reflex to be suspicious and closed about a sales effort — most of these companies are swamped by people hawking new and better technologies. The d|tech sales managers, on the other hand, had to temper their natural reflex to answer or "rebut" every question or concern raised about distributed generation, and simply listen to each concern as if it might be something they could learn from. As all sales people know, in a typical sales encounter, there is often only one chance to convince the potential customer why he or she can’t go another day without the product!
Another important success factor of this collaborative process was the willingness of companies to participate as customers. DTE clearly had the greatest opportunity to learn through the project, but it was also critical that the participating customers received value from the process as well. When talking about why they were willing to participate, they reported that they were interested in:
While the goals of learning about distributed generation and exploring real applications were met by the process, there is still progress to made in terms of learning how to facilitate the process to ensure that the each customers’ company also has a chance to reflect and learn about themselves and their decision making processes.
The DG project is continuing, with two of the participating companies continuing to explore a distributed generation application at a facility — now with the understanding that an actual transaction may take place. As the conversation between the companies continues, the project team plans to hold additional learning sessions to continue to explore the decision-making process closer and closer to the point of making a go/no-go decision.
In addition, another effort is beginning to emerge driven by several of the customer participants in the project. These participants have expressed a desire to explore further what they learned about how sustainability plays into their decision-making around energy. If successful, this would demonstrate an even higher level of collaborative learning than what has been done to date.
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