Part Three
A Call to Action: Policy Recommendations and Market Implications for Distributed Generation

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3.1 A Framework for Action

The evolution of the energy sector is determined by the interaction of technology, policy, and markets. The regulatory and legislative policies adopted have a major influence on how the market environment for distributed generation will evolve, and therefore, on the behavior of private market players. The preceding chapters have set out the context for the emergence of distributed generation resources and the benefits of their greater use. This chapter seeks to explain the real-world policy issues and tradeoffs related to the rapid development of the distributed generation sector, and the implications for the major private-sector players.

Part 3 identifies the broader energy policy goals and discusses the key policy issues for distributed generation in light of the distributed benefits identified in Part 2. Within a U.S. context—but using an approach adaptable to other societies—it offers a portfolio of policy recommendations at the federal and state level that support the rapid development of distributed generation. Given the ongoing debate over further restructuring of the power sector, we provide separate recommendations both for states that have adopted or will adopt some degree of restructuring and for those that have decided to continue traditional utility regulation. As of 9 May 2002, seventeen of the United States had adopted or were implementing "retail choice," twenty-six had chosen not to, one (California) had abandoned it, and six had deferred action; these proportions are constantly changing, but U.S. restructuring seems at best stalled.

We have not made specific recommendations for the private sector, because each company has unique strategic objectives, market conditions, and organizational capabilities. Instead, we provide implications for the private sector: for investor-owned utilities, public power utilities, financial markets, commercial and industrial customers, and real estate developers. The implications provide insight into distributed generation's threats to and opportunities for current business models, and into the issues that arise as organizations attempt to respond, drawn from the practical experiences of early market adopters of distributed generation options. Finally, Part 3 addresses the question of relevance—why the outcome of the distributed generation debate matters to the customer.

Like distributed benefits themselves, market and policy issues are highly company-, geography-, and time-specific. While it would be impossible to capture a fully detailed understanding of these issues in every specific context, we have endeavored to identify the common issues facing most regulators, managers, developers, users, and supporters of distributed generation technologies. From this basis, we define exciting and rewarding opportunities to accelerate distributed generation (DG) and to capture its wider benefits to society.

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