Power Points

DERs: get or get got

Remember classified ads? Flagging down a taxi? Calling a travel agent to book a hotel?

If you are under the legal voting age, probably not. Disruptive platform companies — like Lyft, Facebook, LinkedIn — are democratizing how we connect, creating networks with multidirectional information flows. Technology is removing the gatekeepers of services and is empowering every user to be a consumer or a producer.

A similar upheaval has been underway in energy.

For the last 10 years, converging technologies have been fundamentally changing energy generation, too. Distributed energy resources (DERs) are creating cleaner two-way power flows, challenging centralized, one-way power systems.

For the record: Distributed energy resources are essentially any electric power that doesn’t come from a centralized plant. They can be physical (solar panels) or virtual (algorithms that trim power consumption during peak periods) and can aggregate and optimize energy systems. DERs include distributed renewables, energy storage, microgrids, energy efficiency, demand response, etc. In other words, it’s a very broad category.

Four DER trends I’m watching:

1. DER capacity is growing. Fast.

DERs are expected to grow nine times faster than net-new central station generation (including renewables). On paper, Navigant research found that DERs could theoretically usurp the need for centralized generation entirely by 2030, shifting value from centralized plants downstream. Navigant calls this proliferation “among the most disruptive trends to the traditional energy industry for the foreseeable future.”

Why it matters: 

The democratization of energy resources means value could shift away from the product (the energy) and move to the platform (the digital network). As with other technological disruptions, the most profitable organizations may not own the resources they provide. (After all, Airbnb, which owns no hotels, yet is worth more than any legacy hospitality company.) That opens new opportunities for utilities and energy companies to aggregate energy resources and manage financial transactions, providing cleaner and more flexible energy delivery.

2. DERs include “negative generation” — that is, efficiency and demand response.

Energy efficiency is moving beyond siloed technologies and is integrating with demand-side management to uncover where and when reductions will matter most. Analysts expect investment in efficiency, fueled by DERs, to significantly grow for the foreseeable future. Navigant forecasts efficiency spending in North America to top $11.3 billion annually by 2028, with a compound annual growth rate of 4.6 percent. American Council for an Energy-Efficient Economy, Institute for Electric Innovation and Lawrence Berkeley National Laboratory all agree efficiency will be big business (although analysts do see a range in the rate of growth).

Why it matters: 

The growth of DERs as part of a larger energy cloud ecosystem — including the internet of things and artificial intelligence — means we could be moving quickly into a dynamic energy future that would automate shaving energy peaks and shifting load profiles in the near future.

3. DERs could be a business opportunity for utilities.

Most energy customers care about reliable, safe and affordable energy, and don’t want to think about the how or why behind it. But DERs can offer new value in the context of lower prices and better environmental performance to customers, and energy companies are starting to realize that. Utilities, which may have once thought of DERs as a threat, are now thinking more about how to harness that value and get a piece of the DER pie. (For a deep dive into the utility challenge and opportunity, check out Andrew Lubershane of Energy Impact Partners’ blog post, What to Do about DERs.)

Why it matters: 

Depending on the region and regulator, ratepayers can expect utilities to restructure prices and invest in technology to monitor and optimize energy use. That means new schemes may arise for utility customers, and utilities may be open to working with commercial and industrial customers.

4. How we understand the economic value of DERs is evolving.

In a watt-to-watt comparison, DERs cost more than centralized energy generation. It’s hard to beat the economy of scale. But a straight-across comparison may miss some of the benefits of DERs, according to IEEE’s article Why Distributed?. Namely: location, location, location. Here’s why:

  • DERs provide energy where we need energy. That means fewer electrons traveling through the grid, less congestion on electricity networks and less energy loss during transmission (which average 6-7 percent).  

  • DERs save the grid money. By reducing grid demand and congestion, DERs may delay or avoid investments in upgrades or new network capacity.  

  • DERs increase reliability and climate resilience. When the grid goes down, DERs can continue providing energy. Some places are already playing with this option. One PG&E plan to combat wildfires in California includes de-energizing the grid in high-fire-risk areas and use DERs for continuity of power.

Why it matters:

How we value DERs influences the incentives available to scale the resources. New York has taken on this challenge with its policy Value of Distributed Energy Resources (VDER), aimed to help the state meet its ambitious New York REV targets, which would benefit the solar industry and other distributed energy providers. These conversations could lead to the policies and incentives that allow for more types of organizations to consider DER solutions.