By Peter Asmus
Declining technology costs for distributed energy resources (DER) and new energy as a service business models linked to long-term financing offers are driving accelerated adoption of smaller, smarter, and cleaner energy systems. The DER assets that underpin this shift can support a variety of mutually shared value propositions in the new energy landscape that Guidehouse has dubbed the Energy Cloud. DER assets such as solar PV once viewed as the most expensive available have now been declared the cheapest by the International Energy Agency, which also forecasts that 80% of all new capacity deployed over the next decade will be some form of renewable energy.
Increasingly, the capital costs attached to individual DER assets are dipping to grid parity in key global markets. It is already cheaper to build new renewables than to build new coal plants in all major markets across the globe. As a result, existing centralized power plants powered by coal and nuclear that once benefited from traditional economies of scale are being retired due to simple economics and stranded asset risk. While the specific responses vary, all global regions are seeing increased prioritization of a more resilient, sustainable, and affordable energy future, with DER a key piece in the future energy system puzzle.
The value of DER assets can only be fully realized if they are integrated into markets, customer sites, and the grid in a way that creates shared value. In short, this concept of integrated DER (iDER), which is detailed in a new Guidehouse white paper, is our energy future.
An iDER Example for Your Home
Here’s a quick iDER example to sum up the concept. A resident may have installed a rooftop solar PV system some time ago. If they live in Northeast, Deep South, Texas, or California, there is a good chance the power went out. Even though the home may have a clean onsite source of renewable energy, that system will go down when the larger grid goes down—unless the solar system is paired with a battery and some special switching and controls. This could be one form of iDER aligned with the concept of resiliency in the form of a home microgrid.
While this could be viewed as a self-serving system focused on one home, what if this home, along with similarly equipped neighbors, then created a virtual pool of resources that could be tapped to support the local grid when it is fully functioning? This pool might not only include solar PV and batteries but EVs, pool pumps, and water heaters, each device optimized by a software platform and, when needed, provide extra energy and other grid services to the local utility? This is yet another form of iDER: a virtual power plant.
With the recent adoption of the Federal Energy Regulatory Commission (FERC) Order 2222, these same homes could help balance wholesale markets by this time next year. (Each regional grid operator is empowered to implement FERC Order 2222 in their own distinct way.) If the capacity from a bundling of home-based DER assets reaches the threshold amount of 100 kW anywhere in the US served by a regional transmission organization or independent system operator, this new FERC Order allows these virtual aggregations to be paid for keeping the larger grid in balance.
This example captures the very essence of iDER. The sharing of bidirectional value, merging onsite resiliency with larger grid support. Both host and grid benefit, along with many other stakeholders along the value chain.
Big Picture iDER Trends
By 2030, new DER capacity additions will be nearly twice the capacity on an annual basis as centralized generation systems. For conventional utility industry paradigms, this trend would be significantly problematic. However, if DER can be orchestrated by market participants at scale, these assets can enhance the value of energy and power infrastructure and activate a broader stakeholder ecosystem that creates and receives value in dynamic markets.
The shift away from centralized generation requires integration platforms that can aggregate, organize, optimize, schedule, and settle the rapid-fire transactions necessary to keep the grid in balance. For energy providers, including utilities, iDER represents a platform for ambitious ventures into system orchestration and value creation in the future energy system. Ownership of assets has been the traditional way for energy stakeholders to reap financial rewards. Yet, in the future, value creation is less about ownership and more about orchestration in real time.
Think about Uber and Airbnb. The value created is through scheduling of use with ease in new digital platforms, not just ownership of hard assets such as cars and homes. The same approach to value creation through orchestration is now happening in energy. This iDER shift offers value to multiple stakeholders (see Figure 1).
Realizing this iDER vision requires intelligent DER integration that recognizes the need for innovative strategies to deliver increased value to all stakeholders. Key to this integration is better long-term planning and improved interconnection processes. This integration can support greater visibility of DER, shared control, real-time insights, and interoperability standards. Utilities and other stakeholders need to take a lead role in this emerging Energy Cloud ecosystem to maximize shared value from DER integration, enabling industry transformation to be sustained across the entire value chain.
About the Author:
Peter Asmus is a research director leading Guidehouse Insights’ Microgrids solution and supporting the Microgrids Tracker and Virtual Power Plants solutions. His focus is on emerging energy distribution networks models, and his expertise also includes wind energy, marine hydrokinetic technologies, and renewables generally. Asmus has over 28 years of experience in energy and environmental markets as an analyst, writer, book author, and consultant.
Asmus is the author of four books covering key energy market issues: Reaping the Wind, Introduction to Energy in California, Reinventing Electric Utilities, and In Search of Environmental Excellence. He is a frequent speaker at industry conferences and is quoted regularly in major publications, including The New York Times, The Washington Post, The Christian Science Monitor, and Reuters. Prior to joining Guidehouse Insights, Asmus was president of Pathfinder Communications, serving clients such as the California Independent System Operator, GE, and the California Energy Commission. Additionally, he was editor of the Clean Power Journal, assistant editor of California Policy Choices, and has written for a number of energy trade publications, including Windpower Monthly and Electric Utility Week. He holds a BA in journalism from the University of Wisconsin.
January’s DISTRIBUTECH Plus series focuses on Grid Modernization and Energy Storage and includes a session specifically related to how DER can provide grid stabilization services. Learn about DISTRIBUTECH plus here. Register to see the full list of sessions being offered in January.