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From rapid solar market growth in California to innovative smart grid pilot projects in the Pacific Northwest, myriad signs are pointing to the fact that distributed resources—rooftop photovoltaic (PV), electric vehicles, demand response and even storage—are not only here to stay but are increasingly likely to catalyze a transformation in grid operations, planning, and design; customer engagement; and information flow.

Last year, the number of net-metered solar PV projects installed in the U.S. was 46 percent higher than 2011, and solar broadly accounted for nearly half of new generation capacity in the first quarter of 2013. Much of this growth can be attributed to the advent of solar financing models that, for example, allow customers to put solar on their roof for zero dollars down and instant bill savings—projects built through solar leasing arrangements grew from 10 percent in 2009–10 to 70–90 percent of new installs in 2012 in states such as Arizona, Colorado and California.

But the distributed resource story is not just about solar. Consider battery energy storage, once widely believed to be too expensive with little likelihood of change, which is rapidly becoming a viable option for customers. SMA—the world’s biggest supplier of inverters—will begin offering residential battery systems later this year, SolarCity plans to launch a combined PV and storage product in 2015, and NRG Residential Solar has similarly hinted at a solar-plus-battery option coming soon.

Such indicators are not hiccups. Declining technology costs, new business models and increasing grid intelligence are making distributed resources ever more financially attractive. Concerns about climate change, grid resilience and local economic development are further driving the transition. This transition is so significant for the grid because of distributed resources’ unique characteristics compared to the centralized resources around which the grid was designed.

• Siting: Smaller, more modular energy resources can be installed by disparate actors outside of the purview of centrally coordinated resource planning.

• Operations: Energy resources on the distribution network operate outside of centrally controlled dispatching mechanisms that manage the real-time balance of generation and demand. To the extent that they are powered by variable sources such as solar and wind, their output fluctuates.

• Ownership: Distributed resources can be financed, installed, and owned by the customer or a third party.


Distributed resources are thus increasingly changing how the grid functions and is managed. Three implications especially stand out.

1.) Visibility and transparency

Successfully managing the grid and minimizing costs with increasing shares of distributed resources requires grid operators and planners to have better visibility into the distribution system and increased transparency around customer needs and capabilities behind the meter. In the centrally resourced and operated electricity system of the past, dispatching power plants against an aggregate, varying, but inflexible customer demand worked well. But as technology expands the options available to customers, distributed resources can change demand profiles in unexpected ways, potentially increasing operational costs in response, or creating new sources of value like operational flexibility and ancillary services. Unless grid operators 1.) know what customer resources can provide and 2.) provide transparent signals about the value of those resources, there is significant risk of overbuild.


2.) Integrated planning

Optimizing investment decisions between centralized and distributed resources requires a better integration of distributed resource potential and distribution system investment options into integrated resource planning.  This is beginning to happen already.  FERC Order 1000 requires transmission providers to give comparable consideration to non-transmission alternatives such as energy efficiency, demand response, and other forms of distributed resources.  In Hawaii, rocketing levels of distributed solar PV applications have led the Hawaiian Electric Company (HECO) to integrate its interconnection and distribution planning processes in a proactive approach that will optimize distribution investments given likely V deployment.  Increasingly, these and other integrated distribution planning approaches will be required to allow competition from distributed resources.

3.) A more granular grid

Grid intelligence coupled with growing shares of distributed resources may drive a transition to an increasingly granular grid where distributed coordination provides the system-level operability that today requires top-down control. These concepts are being tested around the world today. In the Netherlands, a pilot program called PowerMatchingCity is using smart grid technology to create a peer-based transactive energy grid that uses a five-minute market platform to balance supply and demand in distributed clusters with the help of intelligent “agents” that manage the energy devices owned by customers. Here in the U.S., the Pacific Northwest Smart Grid Demonstration Project is developing a two-way communication system that uses signals to distribute decision-making throughout the electric grid. When coupled with microgrids that can fractally break apart from the macrogrid and seamlessly reconnect, grid operations could become truly decentralized. A report from Navigant indicates that microgrids, while currently a niche application, are expected to grow in market size from $10 billion in 2013 to $40 billion by the end of the decade.

Ultimately, these changes will drive the need for more sophisticated coordination between greater and greater numbers of actors and resources. Further, as customers transition from consumers to prosumers, utilities must develop new approaches to customer engagement and, in fact, new types of customer relationships that are more interactive and driven by value-based transactions. All in all, utilities must become increasingly nimble, transparent, and service-focused to thrive in a more distributed future.

Lena Hansen is a principal with the Rocky Mountain Institute’s electricity practice.  The Rocky Mountain Institute is an independent, entrepreneurial, nonprofit, 501( c ) (3) think-and-do tank co-founded in 1982 by Amory Lovins.


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