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DER services, pricing key to customer adoption


U.S. public policy has taken a series of significant steps to enable customer self-sufficiency through adoption of energy efficiency, distributed clean generation, storage and responsive demand.  These policies are driven by two important goals for distributed energy resources: provide clean energy to meet growing customer needs and “dispatchable” resources to manage a more complex power system. How important are these? By 2020, nearly 30 percent of total U.S. resource capacity may come from customers’ generation and responsive demand. Keys to making these policies successful as we reach tipping points of customer adoption are getting the pricing right and creating new services for customer resources. 

These issues were identified in the Caltech Resnick Sustainability Institute’s Grid 2020 report released last fall and were among the topics of the second discussion of the series in February 2013.

Flexible resources will be essential to managing a power system comprised of increasingly variable resources and customers’ more dynamic net demand. “How can we utilize responsive distributed resources to become the dancing partner for variable generation?” asked Ali Ipakchi, vice president at OATI.  Significant benefits have been identified by the Federal Energy Regulatory Commission involving unlocking the value in “coordination” of demand-side resources to provide real-time supply-demand balancing services for the bulk power system. Additionally, there is a similar need for the distribution system with increasing rooftop solar systems.  The challenge resides in the ability to reliably extract the desired response from an aggregation of resources in real-time through a set of differentiated wholesale and distribution level services that efficiently signal economic value to customers and others.

Today, however, we have a confusing mix of efficient and inefficient pricing. For example, market mechanisms for distributed resources to provide ancillary services have been generally effective and very successful in terms of fostering participation. On the other hand, some retail rate designs and cross-subsidies have created incentives for certain customer generation that are not aligned to true economic value. In California, for example, customers without rooftop solar are subsidizing those with for the costs of the grid. This is leading the potential for “a clean energy divide among customers,” according to Larry Oliva, director, Southern California Edison. Furthermore this dynamic allows for the creation of a so-called utility death-spiral, with the grid costs being borne by a smaller and smaller pool of customers.

Additionally, reliable distribution system management is becoming a challenge with adoption of dynamic supply like rooftop solar and loads such as electric vehicle charging. Customers’ distributed resources are often not fully utilized, as it isn’t possible to monetize the potential benefits.  This is because few distribution services are available to provide. So, effective pricing is needed at distribution too.  As Caltech professor Adam Weirman highlighted, “We need to address the current pricing predicament.” This involves creating proper pricing signals for customer investment decisions and participation in “economic controls.” This also involves avoiding dangers from magnifying potential market power. To achieve US policy objectives, customers must be able to profit from the full economic value of their resources by creating new easy to access differentiated market and grid services. These services span traditional operational boundaries of transmission, distribution and customer premises. Such a transactive energy framework is supported by Caltech research and efforts by the DOE’s Gridwise Architecture Council. 

Paul De Martini is a Resnick Institute Visiting Scholar. He can be reached at Read Paul’s first article on the Grid 2020 series here

The Grid 2020 Discussion Series focuses on critical topics identified in the recent Resnick Sustainability Institute Report ”Grid 2020, Toward a Policy of Renewable and Distributed Energy Resources,” which highlights critical engineering, economic and policy issues that must be addressed to ensure a successful transition to a future grid with increased renewables and distributed energy resources. Download the report at:

The Resnick Institute is Caltech’s studio focused on the breakthroughs that will enable global sustainability. It marries bold creativity and deep scientific knowledge by encouraging original thinking and diversity of ideas.  The Resnick Institute works with some of the world’s top and emerging scientists and engineers– at the California Institute of Technology and beyond.   Learn more at



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Thank Paul for the Post!

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