Why Focus on Distributed Energy Resources?

A DER is a resource sited close to customers that can provide all or some of their immediate electric and power needs and can also be used by the system to either reduce demand (such as energy efficiency) or provide supply to satisfy the energy, capacity, or ancillary service needs of the distribution grid. The resources, if providing electricity or thermal energy, are small in scale, connected to the distribution system, and close to load. Examples of different types of DER include solar photovoltaic (PV), wind, combined heat and power (CHP), energy storage, demand response (DR), electric vehicles (EVs), microgrids, and energy efficiency (EE).

DERs are being adopted at ever-increasing rates due to favorable policies,…improvements in technology, and reduction in costs, as well as becoming more widely accepted with identifiable customer benefits, both at the individual level and, possibly, for the grid. However, once DER adoption passes certain levels, DERs can begin to cause significant issues for traditional rate making, utility models, and the delivery of electricity.... Importantly, having a plan in advance of that determination will facilitate the ability of a jurisdiction to be proactive in planning for and responding to increased levels of DER in concert with the increase.

Propelled by strong policy support concentrated mostly in Europe, the United States and Japan, distributed solar PV deployment has been growing exponentially. Rapid investment cost reductions of 60-80% since 2010 have raised the economic attractiveness of solar PV, facilitating the adoption of residential and commercial applications. Furthermore, the levelised cost of energy (LCOE) of distributed solar PV is lower than variable retail electricity prices in many countries where electricity prices are not subsidised. In 2018, distributed PV additions accounted for 40% of total PV growth worldwide and exceeded the net capacity additions of coal and nuclear combined.

Ongoing policy incentives and cost reductions in the next five years are expected to further improve the distributed PV business case, expanding its adoption by residential and commercial consumers. Global distributed solar PV capacity, including off-grid applications, is expected to almost triple – even reaching over 600 GW by 2024 in the accelerated case [the accelerated case assumes rapid consumer adoption under favourable economic, policy and regulatory conditions]. In fact, of all renewable technologies, residential and commercial PV applications demonstrate the most potential for additional expansion in the accelerated case....

Even in the accelerated case forecast, however, global installed capacity in 2024 represents only 6% of technical potential based on available rooftop area. Increasingly affordable and economically attractive distributed PV systems for hundreds of millions (or even billions) of private investors could therefore lead to a distributed PV expansion boom in upcoming decades.

Self-consumption and BTM storage: the combination of distributed solar PV and BTM storage can create economic value by increasing self-consumption or delivering services to the grid (ancillary services if PV is coupled with storage). Adding storage raises investment costs considerably, however, so additional revenue is required to recover the investment. Additional revenue can be gained by increasing the share of self-consumption or by using energy arbitrage to shift the sale of electricity to the grid to times when electricity prices are higher (peak hours). Government incentives may also help to recover part of the additional investment. The success of these measures depends on tariff design and time-based electricity pricing (time-of-use, peak and off-peak). In addition, the aggregation of multiple BTM storage units could provide ancillary services to generate additional revenue. Government subsidies have been the main driver for BTM storage in recent years, while costs have dropped by almost half since 2016.

Electricity systems with high demand growth and clean energy goals may want to consider accelerating the development of demand response programs specifically tailored to providing additional reliability in the short to medium term, and the ability to help integrate variable generation in the medium to long term. To that end, modern, verifiable forms of emergency demand response from large commercial and industrial customers may be a natural place to start. Residential critical peak pricing programs can also be effective, and they do not require much communication infrastructure. Static ToU [Time of Use] tariffs...are likely to become even less effective as additional variable generation makes net load curves less predictable and more correlated with weather rather than schedules.

Instead, in preparation for deeper forms of demand response on the residential side, utilities and regulators may want to consider which types of appliances and other loads might be able to provide useful services in the future, and what the most effective means of tapping into those resources might be. Advanced metering might be desirable if real-time pricing plus automatic controllers are anticipated, or if the responses of third-party aggregators are to be verified through official meter readings. If other forms of control or verification are anticipated, for instance, direct load control of select appliances plus verification based on a sample of participants, or automatic control of programmable communicating thermostats, widespread investments in advanced meters may be unnecessary.