What Is Distributed Energy Resources?
Distributed energy resources (DERs) are small-scale sources of electrical generation or demand management that are connected to the electric grid at the distribution level, closer to the end-use customer. These resources, which fall under the broad umbrella of Energy Finance, offer an alternative or enhancement to the traditional centralized power system by producing or managing electricity where it is consumed. Examples include rooftop solar panels, battery storage systems, electric vehicles, and demand-side management technologies that facilitate demand response. The proliferation of distributed energy resources is transforming how electricity is generated, delivered, and consumed, contributing to grid modernization and increased resilience.
History and Origin
Historically, electricity generation primarily relied on large, centralized power plants, often located far from consumption centers, transmitting power one-way across vast networks. The concept of localized power generation gained traction with the rise of renewable energy technologies and concerns about energy security and environmental impact. As the costs of technologies like solar photovoltaic systems and energy storage decreased, deploying these resources at a smaller scale became economically viable for individual consumers and businesses.
A significant regulatory milestone in the United States that accelerated the integration of distributed energy resources into wholesale markets was the Federal Energy Regulatory Commission (FERC) Order No. 2222, issued in 2020. This order required regional grid operators to establish rules allowing aggregated DERs to participate and compete in capacity markets, energy markets, and ancillary services markets on a level playing field with traditional resources. The FERC stated that these reforms would remove barriers for DER participation, enhance competition, and lead to lower costs for consumers through increased grid flexibility and innovation.10
Key Takeaways
- Distributed energy resources (DERs) are decentralized, small-scale power generation or demand management units located near points of consumption.
- Common examples include rooftop solar, battery storage, and electric vehicles.
- DERs contribute to grid resilience, reduce transmission losses, and can lower energy costs for consumers.
- Regulatory changes, such as FERC Order No. 2222, are enabling greater participation of DERs in wholesale electricity markets.
- Their integration presents technical and regulatory challenges, including managing grid stability and coordinating diverse assets.
Interpreting Distributed Energy Resources
Understanding distributed energy resources involves recognizing their role not just as individual power sources but as interconnected components within a evolving electric grid. For consumers, the presence of DERs can mean greater energy independence, reduced electricity bills through self-generation, and opportunities to participate in energy markets. From a grid operator's perspective, interpreting DERs means assessing their collective impact on grid stability, voltage regulation, and overall reliability. The ability to aggregate numerous small-scale distributed energy resources into a "virtual power plant" allows them to provide services traditionally supplied by large, central generators, such as managing peak demand or providing grid support during outages. The National Renewable Energy Laboratory (NREL) conducts research to help utilities efficiently manage consumer electricity demand by supporting objectives related to distribution grid operations and market participation.9 This shift necessitates advanced smart grid technologies and sophisticated control systems to manage bidirectional power flows and ensure system stability.
Hypothetical Example
Consider a small industrial park that decides to invest in distributed energy resources. Historically, the park relied entirely on electricity purchased from the local utility. To enhance energy resilience and reduce costs, the park installs a large array of solar panels on its factory rooftops and several commercial-scale battery storage units.
During sunny hours, the solar panels generate electricity, which is first used to power the park's operations, reducing its reliance on grid power. Any excess solar generation is then stored in the battery units. If the batteries become fully charged and the park is still generating more power than it consumes, the excess electricity can be sold back to the grid, potentially earning revenue for the industrial park. During periods of high electricity prices or grid instability, the park can draw power from its battery storage instead of the grid, or even reduce its demand, participating in a demand response program. This integrated approach allows the industrial park to optimize its energy consumption and production, providing both economic benefits and increased reliability.
Practical Applications
Distributed energy resources are increasingly applied across various sectors, impacting energy markets, infrastructure planning, and consumer behavior.
- Grid Modernization and Resilience: DERs are crucial for building a more resilient and flexible electric grid. By decentralizing power sources, they reduce the vulnerability associated with relying on a few large power plants and long-distance transmission lines, especially during extreme weather events.8 The National Renewable Energy Laboratory (NREL) is involved in efforts to help integrate and manage distributed energy resources, particularly in regions like India, which aims for significant renewable energy adoption.7
- Reduced Transmission Losses: Placing generation closer to consumption points minimizes the amount of electricity lost during transmission and distribution, improving overall system efficiency.
- Peak Demand Management: DERs, especially battery storage and energy efficiency measures, can be dispatched during periods of high electricity demand, reducing the need for utilities to activate expensive "peaker plants."
- Wholesale Market Participation: With appropriate regulatory frameworks, aggregations of DERs can participate in wholesale markets, offering services like capacity, energy, and ancillary services, thereby increasing competition and potentially lowering prices.
- Community Energy Projects: DERs enable local communities to develop their own microgrids or community solar projects, fostering local energy independence and investment. For example, a German startup developed a floating power plant designed as a decentralized system to generate hydropower without large dams.6
Limitations and Criticisms
While offering numerous benefits, the widespread integration of distributed energy resources also presents several challenges and criticisms. One primary concern is maintaining grid stability and power quality, as the variable output from sources like solar and wind can lead to fluctuations in voltage and frequency.5 The traditional grid infrastructure was designed for unidirectional power flow from central generation to consumers, and integrating bidirectional flows from DERs requires significant upgrades and advanced management systems.
Another limitation is the complexity of coordination and communication among numerous, geographically dispersed DERs. A lack of standardization in policies and regulations across different jurisdictions can create uncertainty for DER developers and hinder their integration.4 Additionally, the upfront investment capital for installing certain DERs, such as solar panels and battery storage, can be substantial for individual consumers, despite long-term savings or revenue opportunities. The International Energy Agency (IEA) highlights that rapid uptake of distributed energy resources can challenge electricity grids that are unprepared, as many grids were designed for a 20th-century model with minimal DERs.3,2 Utilities also face challenges in achieving real-time network management at low voltages with increasing DER penetration, which can affect reliability standards.1
Distributed Energy Resources vs. Centralized Power Generation
Distributed energy resources (DERs) fundamentally differ from centralized power generation in scale, location, and operational characteristics.
| Feature | Distributed Energy Resources | Centralized Power Generation |
|---|---|---|
| Scale | Small to medium-scale (e.g., kilowatts to tens of megawatts) | Large-scale (e.g., hundreds of megawatts to gigawatts) |
| Location | Near points of electricity consumption (e.g., rooftops, local facilities) | Far from consumption centers (e.g., rural areas, industrial zones) |
| Power Flow | Often bidirectional (can inject power into the grid) | Predominantly unidirectional (power flows from plant to grid) |
| Ownership | Diverse, can include individuals, businesses, communities, utilities | Typically large utilities or independent power producers |
| Primary Goal | Enhance local resilience, reduce bills, provide grid services | Provide bulk power generation for regional needs |
| Transmission | Minimal long-distance transmission needs | Relies heavily on extensive transmission infrastructure |
The confusion between the two often arises when discussing the overall grid system. While DERs represent a significant shift towards decentralization, they are not intended to entirely replace centralized generation. Instead, they are seen as complementary, integrating with the existing bulk power system to create a more flexible, resilient, and efficient grid.
FAQs
What types of technologies are considered distributed energy resources?
Distributed energy resources include a wide range of technologies such as rooftop solar panels, wind turbines, battery storage systems, combined heat and power (CHP) units, fuel cells, and demand response programs that adjust electricity consumption. Electric vehicles and smart thermostats can also function as DERs when integrated with the grid.
How do distributed energy resources impact electricity bills?
For consumers who own distributed energy resources like solar panels or battery storage, electricity bills can be reduced by generating their own power and decreasing reliance on the utility. In some regions, excess power generated by DERs can be sold back to the grid, potentially creating a credit or additional income.
What is the difference between a DER and a microgrid?
A distributed energy resource is a single unit of generation or load management. A microgrid, on the other hand, is a localized group of interconnected loads and distributed energy resources that can operate connected to the traditional grid or disconnect and operate autonomously during grid disturbances, providing enhanced resilience to a specific area.