Distributed energy resources for net zero: An asset or a hassle to the electricity grid?

There can be no doubt that the recent unprecedented heat waves, flooding and tornadoes that hit the Northern Hemisphere were largely driven by climate change. Climate impacts like these were a major point of discussion at recent G20 meetings, prompting the release of the Energy and Climate Ministerial’s Communiqué on July 23. The communiqué emphasised the importance of distributed energy resources (DERs) for addressing both climate and energy security challenges. In addition to their decarbonisation and climate change mitigation benefits, DERs can help shield against the impacts of extreme weather events.

However, many electric utilities still struggle to understand how DERs fit into the wider energy landscape. What are they and how can they be used to improve grid reliability and save on energy costs? Are they worth the trouble?

DERs can generate or store energy, or manage its consumption depending on type. The term ‘DER’ covers a wide range of technologies that are located close to customers, such as energy efficiency and demand response solutions, solar photovoltaic (PV) assemblies and batteries. DERs are sometimes more narrowly defined as ‘behind-the-meter’ resources. Behind-the-meter solutions can be something of a black box, providing little transparency to grid operators or utilities.

While energy efficiency and demand response solutions are not new, rooftop solar, and electric vehicles (EVs) have been driving recent growth of DERs in some countries. The IEA estimates that 179 GW of distributed solar were added globally from 2017 to 2020. China and the United States contributed to almost half of new installed capacity. EV stock has tripled since 2017 to surpass 11 million in 2020. Almost 80% of the cars are on Chinese and European roads. These trends are expected to continue in more countries in the coming years.

DERs support decarbonisation in many ways, especially by supporting fuel switching. Distributed solar can replace fossil fuel generators. EVs enable the switch at scale from oil for transport to electricity. As the scale of clean renewable electricity supply grows, EVs and other electrification solutions can extend its use to new sectors. In the IEA’s Net Zero Scenario, global EV sales grow by a factor of 18 from 3 million to 56 million. Additionally, some 600 million heat pumps will provide clean heating by 2030, while solar PV will more than quadruple to reach 633 GW by the end of this decade.

Most grids are decades old and built for outdated 20th-century power systems, where electricity was produced by large, centralised generators connected to transmission grids and flowed to consumers in only one direction. Power demand was stable and price-inelastic. The primary risks for grid operators were large generator and network failures. There was limited incentive to understand consumer demand patterns, so power lines were only reinforced enough to accommodate peak load.

Since the advent of DERs, the power landscape has been transforming. A growing share of electricity is produced by weather-dependent and variable renewables, requiring increased flexibility to ensure consistent supply to meet demand. For example, after the sun sets, flexibility solutions like battery storage enable solar power to meet evening demand. Distributed generators present another challenge to utilities in the form of bi-directional flow of power. When power flows from consumer-owned solar to the grid, it can overflow power line capacity, resulting in more frequent grid congestion.

Electrification of end-use devices can place additional burden on grids. Many consumers follow similar daily routines, like coming home from office jobs around the same time in the evening. When vast numbers of commuters plug in their electric vehicles to charge and turn on their electric heat pumps, power demand can spike and overwhelm the grid. A cost-benefit analysis on EV deployment in New York revealed that EV charging could require around USD 2.3 billion more in grid upgrade and generation costs across the state from 2017 to 2030, unless peak demand is smoothed and distributed across off-peak hours.

All of these emerging challenges should motivate grid operators to proactively manage networks and behind-the-meter resources. However, many operators lack visibility and control over individual DERs. Power consumption is becoming increasingly variable, especially as consumers respond to dynamic price signals and shift their consumption to times when power is less expensive. Rooftop solar PVs and other variable renewables can add additional complexity to predicting consumption patterns. For example, grid operators struggle to plan for periods when clouds block the sun and PVs are unable to meet demand.

Many of the challenges presented by DERs stem from the fact that they are largely invisible and cannot be controlled by grid operators, which means it is difficult to integrate them into the overall operation of the grid. Digitalisation can help address this challenge. Smart digital solutions enable DER owners to monitor and manage their resources in real-time. This can help grid operators more closely monitor and influence DER operations, boosting the value of DERs to the grid as a whole. Digitalisation is especially powerful as it can be scaled to any aggregated level, from individual devices to buildings, communities, or even a larger region.

Grid-connected electric resistance water heaters enable better management of electrified heating. They can quickly modulate power load, shift daily energy consumption to match solar generation, and reduce peak demand in an emergency without any noticeable disruption to consumers. Smart heat pump water heaters are less responsive, but can help manage daily energy demand and produce 2.5 to 3 times more energy than they consume.

Advanced inverters can help mitigate grid issues caused by rooftop solar generation. When equipped with advanced inverters, solar installations can adjust their power generation rate to reduce grid congestion and can remain online through minor grid disturbances. When a substantial number of solar installations simultaneously disconnects from the grid too early, there can be severe consequences. Such a series of events contributed to Europe’s largest ever blackout, which was experienced by more than 15 million households across the continent in 2006.

Needless to say, batteries, including those in EVs, are versatile resources. Batteries deliver up to 13 co-benefits to customers and the grid. Home battery pairing enables consumer to make the most of the low-cost clean energy provided by rooftop solar. These capabilities make battery storage indispensable to burgeoning virtual power plant (VPP) projects.

Grid-interactive efficient buildings that integrate a range of DERs can optimise building energy ‘prosumption’ and can be valuable assets to the grid. A recent study estimated that around 9,000 public buildings in the US could generate up to USD 70 million per year in value for grid users if they were upgraded to be grid-interactive.

VPPs can aggregate DERs scattered across large regions and provide every grid service. Advanced optimisation algorithms, such as artificial intelligence, enable VPPs to deliver value to DER owners while maintaining grid reliability and meeting customer preference. The world’s largest VPP project under development in Australia comprises 50,000 solar and battery systems.

Even when equipped with digital technologies, DERs can still create challenges for grid operators. Unless DER owners are incentivised or mandated, they have little reason to consider the impact of their devices on the grid as a whole. Compensation and regulation can encourage DER owners to locate and operate their devices in better alignment with grid status in real-time, providing diverse benefits.

Compensation can help align the interests of DER owners with the needs of the grid, improving both grid reliability and DER economics. Electricity tariff design can ensure fair remuneration for the value created by DERs, which can be time- and location-dependent. Regulators can facilitate the aggregation of small-sized DERs and their participation in the wholesale electricity market. Incentive schemes can also encourage utilities to procure DERs to replace costly grid upgrades.

Regulation can introduce minimum requirements to help maintain grid reliability. Data collection rules can improve oversight of DERs without incurring onerous cost burdens to their owners. Regulation also helps limit the impacts of crises when energy exports into the grid need to be curtailed, for example. Two different sets of rules typically govern power generators and consumers. Tailored grid interconnection rules can help facilitate the use of highly controllable batteries for both generation and consumption.

Furthermore, grid operators need digital management systems to implement compensation schemes and enforce rules. Advanced metering infrastructure has been one of the first such solutions to be deployed at scale. Distributed energy resources management systems (DERMS) can be used to register and manage DERs effectively. Addressing data privacy and cybersecurity also is crucial. Without interoperability, consumer devices, aggregators and grid operators cannot efficiently communicate together.

It is important to emphasise that the complexities of the new energy ecosystem should not compromise the sustainable growth of DERs, which are a main driver of the net-zero energy transitions. Besides, it is indispensable to proactively engage consumers, who are at the centre of the energy system transformation, to leave no one behind. The ongoing evolution of DER technology, regulation and business models will continue to present new solutions and challenges. As this field evolves, the IEA continues to work with countries around the world to help identify the best, most innovative solutions to these diverse challenges through our work on the Digital Demand-Driven Electricity Networks (3DEN) Initiative.