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Part I of this article provided an overview of the current state-of-the-art.

Conventional Grid-Connected Applications

Conventional PV applications can act as distributed resources when the sun is shining -- rather than solely as a reduction in load. They also can help diversify supply portfolios and meet other goals. The most basic scenario is for utilities to aggregate grid-connected PV installations owned by others and to treat them as demand-side resources. Generally, distributed PV can alleviate loading and provide voltage support, allowing deferred investment in new or upgraded distribution infrastructure and additional supply. Specifically, distributed PV offers quantifiable grid support value only where interconnected to heavily loaded feeders and when output is coincident or nearly coincident with peak demand. Though not dispatchable in the traditional sense, consumer-side PV systems can offer very high value on sunny days when air conditioning loads rise at the same time with solar generation.

Many public utilities and cooperatives and some investor-owned utilities provide rebates or other incentives to stimulate deployment of consumer-owned PV throughout their service territories. These expenditures generally are reimbursed through system-wide charges or public benefit funds, and they are not capitalized or included in the rate base. Utilities may be able to secure rate-based returns from incentive programs targeted to encourage consumer-owned PV applications -- as alternatives to investment in conventional infrastructure -- in areas facing congestion problems and in states where least-cost procurement policies have been adopted. To shave peak loads by taking advantage of time-valued solar output, San Diego Gas & Electric (SDG&E) has proposed an innovative rate structure that would substantially reduce demand charges for commercial customers that deploy PV systems. A second, rapidly emerging utility engagement strategy involves direct financial involvement in PV deployment at customer sites or other distribution-level installations.

Another shared asset scenario, where the consumer owns the panel and the utility owns the inverter, is being explored by Chelan County Public Utility District in Washington. The inverter and PV production meter are installed at the point of common coupling -- the utility meter. Utility ownership of the inverter can benefit consumers by reducing up-front costs and transferring interconnection and protection to the utility. By gaining control of the distribution system interface, utilities can improve safety, monitor and control dynamic interactions with the power system, and expand their revenue base.

SDG&E, Southern California Edison, PP&L, Northeast Utilities, and several others are leasing rooftop space from consumers to develop their own distributed PV systems on large buildings. Output is being managed within a larger portfolio of assets or sold to host consumers via long-term PPAs. Duke Energy, Xcel Energy, and Sacramento Municipal Utility District are among those that have signed long-term PPAs with larger PV installations deployed by IPPs to supply solar energy directly to the distribution grid.

Through various levels of engagement, utilities are diversifying supply portfolios, procuring RECs for RPS compliance and investment purposes, increasing use of non-emitting generation, and meeting other societal and business objectives.

Many of these initiatives are being pursued with support from regulators and policymakers, potentially facilitating future rate-based return on investment from PV installations.

Advanced Inverter Applications

Advanced PV applications that provide power quality and service reliability functions create additional opportunities for utility involvement and benefit. Conventional UL1741/IEEE1547-compliant, line-interactive inverters typically do not supply any ancillary services. With relatively minor modifications, inverters can provide reactive compensation, voltage regulation, and power factor correction by adjusting output phasing to operate as either a "lagging" or "leading" source of reactive current depending on power system conditions. These advanced inverters can help smooth out or completely compensate for the voltage variations caused by fluctuations in real power output from large distributed PV arrays on partly cloudy days.

Reactive output also can be adjusted to filter out voltage regulation transients arising from other sources, while customized anti-islanding schemes can offer enhanced safety for lineman. With further modification, advanced inverters can incorporate more elaborate "custom power" features to insulate consumer loads against voltage flicker, voltage sags and swells, harmonic distortion, lightning transients, and other disturbances. Examples include static VAR compensator emulation and dynamic power factor correction.

The premium power and grid support functions available from advanced inverters make these devices potentially attractive assets for utilities. For systems where consumers own the PV and utilities the inverter, ancillary services can be targeted to just the local customer where PV is installed with energy storage batteries. Fully utility-owned PV with storage connected directly to a feeder or sited at a substation can mitigate power quality problems and serve as distributed resources providing voltage restoration, black-start capability, and additional services.

PV-DC Applications

PV power does not always need to be converted to AC in order to be used. In fact, PV output can be fed directly to the many grid-connected end uses that run on DC power, including adjustable speed drives, electronically ballasted lighting, vehicle charging stations, and UPS systems. Other potential applications are large-scale loads such as data centers, subway and light rail transportation systems, and certain manufacturing processes. A recent EPRI project demonstrated PV-powered circulating pumps at an ice arena at Bowling Green University, and commercial PV-DC lighting and air handling systems are in operation.

Technologies and experience developed for PV-DC appliances also represent stepping stones toward use of distributed PV as a supplemental energy source in DC microgrids tied to the conventional AC grid or as a primary source in standalone microgrids. The PV-DC source runs in parallel with the grid, supplementing AC power fed through a rectifier. Output from a properly sized PV array must be run through a power conditioner, but DC-to-DC converters are about half the cost of inverters, which can account for as much as 10 to 20 percent of the up-front cost of a conventional PV system. In addition, inverter energy losses can be greatly reduced or avoided, improving useful PV annual energy output by a few percent. On an overall basis, properly designed PV-DC systems may reduce the cost of solar energy by up to 25 percent over standard inverter-based installations. Grid-connected charging stations for plug-in hybrid vehicles and all-electric vehicles represent a particularly promising PV-DC application. If solar output exceeds the charging load, then it can be fed to the grid through a bi-directional inverter. With appropriate station and vehicle controls, battery energy can even be dispatched when needed for grid support purposes.

Issues & Opportunities

For the U.S. electric sector, the advances in PV technology and the explosive growth in deployment, especially in Germany and Spain, over the past decade are most noteworthy as harbingers of the future. Major challenges will emerge on two fronts. First, distributed PV is approaching cost-performance thresholds in some U.S. regions at which the technology -- and nonutility providers of energy services -- may begin to capture a noticeable fraction of loads traditionally served by conventional electricity infrastructure. Large PV installations supplying commercial and industrial buildings will continue to attract much attention, but every additional consumer-owned PV system deployed on a residential rooftop will affect traditional utility sales. PV-powered streetlights and other grid-independent applications may as well. Further, the design process for new homes, buildings, and developments will integrate both grid-tied and grid-independent systems, potentially affecting future demand growth.

Second, unsystematic siting of grid-connected PV by consumers and third-party providers along with increased penetration of nondispatchable, variable-output PV systems will impose new stresses on the distribution system. Accommodating substantial PV capacity will create needs for advanced grid performance and status monitoring tools and distribution automation, as well as needs for new ways of interaction between the grid and PV system inverters to maintain power quality and ensure reliability.

Together, these trends will challenge the industry to implement the upgrades and improvements required for maintaining control over grid operations and reliability and to still meet the expectations of consumers, regulators, and other stakeholders. The potentially disruptive changes associated with distributed PV also promise opportunities for utilities prepared to move into new markets and to collaborate with others in finding ways to deploy this clean and versatile technology while modernizing the grid and reducing greenhouse gas emissions. For utilities across the United States, an initial, critical step is to consider the following:

• Distributed PV is ready now and is broadly supported by policymakers and the public.
• Continued subsidies and cost-performance improvements across the next decade are expected to lead to widespread PV deployment.
• Distributed PV will likely have significant effects on the electricity enterprise and society.

A near-term priority for individual utilities is to define the grid-interactive and grid-independent applications and markets that offer the potentially highest risks and greatest rewards and to develop plans for addressing them. Although this is particularly important in areas with excellent solar resources, strong incentives, or both, this also holds true across the country under current policy and market conditions: Proactive approaches and direct utility involvement will prove more effective in reducing adverse impacts and increasing benefits associated with accelerating PV penetration -- whenever it occurs.

Applying conventional distributed PV as a grid reinforcement tool merits a fresh look, as PV can be sited to provide real and reactive power consistent with location-specific needs. Advanced PV inverters promise additional grid support opportunities -- and the potential for premium power applications -- via reactive power control, voltage control, power quality management, frequency regulation, and UPS functionalities. As components in smart grid infrastructure, multifunctional interface devices incorporating inverter, metering, communications, and control capabilities may enable higher penetration of distributed PV along with improved energy management and more efficient and economical grid operations.

Even with continued technological progress, incentives, rebates, and other support mechanisms are expected to continue and will be critical to widespread PV deployment over the next decade. Current 14 states have solar set aside in their RPS. In several states, recent policies and regulatory proceedings are compensating utilities for offering novel incentives and making other investments that encourage PV application, increase the likelihood that RPS targets will be met, and support other policy objectives. These developments highlight the need for utilities to reassess (see EPRI project with SEPA) traditional business models and to examine new practices and application paradigms involving distributed PV. In lieu of the traditional flat incentive approach, targeted incentives might be employed to encourage PV installations on feeders from heavily loaded substations nearing transformer upgrade. Rate structures that reward consumers for PV generation during peak periods could serve the same purpose.

Similarly, economic incentives might be offered to encourage deployment of advanced inverters that improve grid reliability. Partnerships between consumers, IPPs, and utilities -- where utilities provide low-cost financing or long-term PPAs, where the utility owns the inverter, etc. -- might represent options for facilitating PV applications with quantifiable support benefits and/or premium power potential. Going further, fully utility-owned PV systems with battery backup or other features might offer potential as assets for delivering premium power and increased reliability. All of these approaches would engage utilities in applications serving technical and business aims consistent with the societal objective of accelerating PV deployment, thereby increasing the likelihood of rate-based cost recovery.