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Distributed Energy Resources and their Value

US department of Energy

What is DER?

The distribution network is typically the electricity network where consumers get their power from. The energy resources connected to this distribution network is called Distributed Energy Resources (DER). It seems simple to begin with, as the definition of distributed is well understood. But there are lot of intricacies associated even with the definition of DER.

The Energy Resource part is what makes it complicated. A Solar PV plant and a Lead Acid battery are both energy resources. If a battery is an energy resource does it follows that an electric vehicle is also an energy resource? Is it possible to widen the net and include wind, biomass, and thermal storage? What about energy efficiency? Can it be counted as an Energy resource? What about microgrids, energy management systems, and demand response?

The answer is yes to all of the above. Lawrence Berkeley National Laboratory (LBNL) was one of the first organizations to talk about DER. In the series papers under " Future of Electric Utility Regulation", LBNL introduced DER to encompass clean and renewable distributed energy systems, distributed storage, demand response, and energy efficiency. The California Public Utilities Code, The New York Public Service Commission and the Massachusetts Department of Public Utilities all understand DER in a similar way. Massachusetts takes it one step further and adds microgrids and energy management systems under the purview of DER.

Defining DER

As one would expect there is no one single definition for DER. One of the widely accepted definitions of DER coined by the Electric Power Research Institute (EPRI) is as follows:

“Distributed Energy Resources (DER) are electricity supply sources that fulfill the first criterion, and one of the second, third or fourth criteria:

1. Interconnected to the electric grid, in an approved manner, at or below IEEE medium voltage (69 kV).

2. Generate electricity using any primary fuel source.

3. Store energy and can supply electricity to the grid from that reservoir.

4. Involve load changes undertaken by end-use (retail) customers specifically in response to price or other inducements or arrangements.

The clean and green angle

Distributed Energy Resources (DER) was once understood differently? For example a review paper on DER and Microgrid from 2008[1] begins like this "DER comprises of several technologies, such as diesel engines, micro turbines, fuel cells, photovoltaic, small wind turbines, etc." As perspectives changed, narratives around definitions also changed. 

Fast forward to 2018 and DER is getting 'cleaner and greener'. The definition provided by (NARUC)" DER is a resource sited close to customers that can provide all or some of their immediate electric and power needs and can also be used by the system to either reduce demand (such as energy efficiency) or provide supply to satisfy the energy, capacity, or ancillary service needs of the distribution grid. The resources, if providing electricity or thermal energy, are small in scale, connected to the distribution system, and close to load. Examples of different types of DER include solar photo-voltaic (PV), wind, combined heat and power (CHP), energy storage, demand response (DR), electric vehicles (EVs), microgrids, and energy efficiency (EE)"

How is energy efficiency and demand response an energy resource?

One of the most common asked questions around DER is on the status of EE and DR. EE is capable of providing both energy and demand savings. EE can be used by a utility to displace generation from fossil fuel sources. Demand Response can be used as a resource by utilities and grid operators to balance supply and demand. Although traditionally viewed as a peak reduction resource, DR can be used to increase consumption when there is excess generation, or more regularly to avoid dispatching of more costly generation resources and enhance the efficiency of the grid. NARUC includes EE and DR as DER. However, IEEE 1547 standard for Interconnecting Distributed Resources with Electric Power Systems specifically omits DR and other “loads” as part of the DER definition. It focuses more on sources of generation tied to distribution systems.

Why is DER important?

The impact of disruptive technology is experienced by the 'grid. in both Nations. The traditional grid- with its centralized generation, transmission and distribution is being turned upside down for a new grid with prosumers and distributed storage. The penetration of DER is increasing every day. DER can affect the operation of generation, transmission and distribution utilities. On the other hand, DER can also potentially avoid or defer the construction of new infrastructure. DERs also offers benefits to consumers as potential savings in energy and demand charges.

DER is especially relevant for regulators in as it is the one umbrella-term which brings together all the resources which are closer to the consumers. DER encompasses Distributed Renewable Energy (DRE) generation from Solar, Wind, Biomass, etc. It also enables the regulators to view distributed storage, electric vehicles, and energy efficiency under one lens.

Is DER only in USA?

Canada: Let's start with Canada. The Independent Energy System Operator (IESO) understands DER as clean energy resources located within the distribution system. Thus Canadian definition allows solar panels, combined heat and power plants, electricity storage, small natural gas-fuelled generators, electric vehicles and controllable loads to constitute DER. Remember that controllable loads such as HVAC systems and electric water heaters are in fact DER.

Australia: Australia on the other hand seems not very keen on the "green and clean angle" from a distance. Australian Renewable Energy Agency (ARENA) states that DERs can include behind-the-meter renewable and non-renewable generation. However, the common examples sited for DERs emphasizes the 'clean aspect'. The examples for DER in Australia include rooftop solar PV units, natural gas turbines, microturbines, wind turbines, biomass generators, fuel cells, tri-generation units, battery storage, electric vehicles (EV) and EV chargers, inverters, other controlled loads (separately metered appliances like hot water systems) and demand response applications.

Europe: The European view of DER can be simplified as the trio of on-site-customer generation (e.g. solar photovoltaic systems), storage, and demand-response resources.Europe has also association of labs working together to develop quality criteria for the connection and operation of distributed energy resources (DER) to grid .

Value of Energy

You might agree with me if I am to say that an electric grid connection, provides a valuable service to a consumer by providing the required amount of energy, at the location, at the time when the consumer is in need of it. If I were to paraphrase it and said that energy has volumetric, time and locational value, I wonder if you would agree with me. Often, energy is a topic which is not understood in terms of value.

The volumetric value of energy is the value that is derived from the amount of energy that is provided. This will be easier to relate to as normally we pay the energy bill at the end of every month for the volume of electricity we consume in terms of kilo-Watt-hours (kWh). That is if I had consumed 500 kWh of power in the month of May 2019- the volumetric value component corresponds to 500. The volumetric value of Energy from any DER similarly corresponds to the value of the energy it produces.

Stretching the thought, the same example of an electricity bill can be used to explain the capacity value an of energy resource. Electricity bills also have some fixed charges associated with it. My electricity bill for May shows that I have to pay a 1000 rupees extra as demand charges for my 6 kW connection , besides the volumetric value of energy I had consumed in the month. I am paying this charges because my distribution company maintained a service of 6 kW capacity at my home. The capacity value of energy is the value derived in terms of the power that can be provided by resource, and is the basis on which energy capacity markets operate in some geographies. As far is DER is concerned the capacity value can be correlated to its ability to provide the required amount of power. An energy system has capacity value if the energy storage system is able to provide 6 kW when the demand is 6 kW,

Time value of energy is also relatively easy to understand. Energy is valuable if it is available at the time of need. Alternately, the value of energy is more when there is a demand for it. Just correlate it with the dynamic pricing scheme of the airlines or the ride-hail services. This is the guiding principle in designing time of use related energy charges, where in at peak times there is an additional charge for using energy and in the off-peak hours there is a rebate. Extending time value to DER, if peak Solar PV generation happens, when the load is also peak it is valuable in terms of time.

The Locational value of energy is the key to unlocking the benefits from Distributed Energy Resources (DER). It implies that it matters if the energy is generated/stored close to the point of consumption. Since electricity is distributed through wires, there are losses incurred from the generation to consumption, and closer the better as losses are less. Thus the energy from a Solar PV system installed on the rooftop is more valuable in terms of location than solar generation that happens far away , say Rajasthan.

Is it only locational value?

DER can also provide value in terms of other components as well. One example would be the environmental value that any clean energy generation can provide in terms of no emissions. Another value stream that distribution resources can open up is in the form of capacity value to a distribution network from avoided demand. It means that if a rooftop plant of adequate capacity is installed, it could eliminate the need for augmentation of a network to cater to an increase in load and thereby result in savings.

From a power system operations perspective the two most important value components will be- reliability and resiliency. Reliability is the ability to offer continued service is defined in terms of adequacy (enough generation to meet load) and security (ability to withstand disturbances). Resiliency is an augmentation of the concept of reliability , and views the grid as something more than currents and voltages. Resilience is an important metric that defines the ability to remain operational in in extreme weather/natural events. DER has a huge role to play in making grids that can be of service as our lives are vagaries of climate. For example when the floods happened in Kerala, and the power lines were down, Solar Rooftop plants were able to provide essential light and power.

How to determine value?

EPRI's Cost Benefit Framework for DER

One of the ways to realize value is through a cost benefit framework. Such a framework developed by the Electric Power Research Institute (EPRI) for determining the full value of DER as shown above. The distinguishing factor for value according to EPRI is that value guides planning and investment decision reflecting on the services to consumers or utility to grid. The boxes on the left describe the categories of impacts, which are in outputs of the distribution and bulk power system analysis. The second column specifies the measured impacts associated with each category. It includes costs and physical impacts that have to be monetized. The value identified in from the perspective of the grid are in terms of cost incurred or benefit from costs saved. From a societal perspective, also the possible benefits and costs are reflective of an all-inclusive approach.

How many ways are there to calculate value?

Value of resource (VOR) and value of service (VOS) are the two main methods of valuation. 

VOR: Here the costs of utility services and benefits from DER systems are separated first and valued separately. Both positive and negative factors of costs and benefits are considered to ensure neutrality. This method attempts to recognize potential benefits to the grid, other customers, and society.

But, it should be noted that the value of DER changes over time based on a variety of factors such as technology, location and concentration. This means if a new solar plant where to come up 100 m closer to the old plant, the value of energy generated from the old plant may change. Similarly value will change as penetration increases.

The following are the major value components considered when evaluating value of a resource

  • Avoided energy/fuel
  • Reduced Energy losses/line losses
  • Avoided capacity
  • Ancillary services
  • Avoided pollution
  • Avoided CO2 emission cost
  • Utility integration and interconnection costs
  • Reliability costs

VOS: Another valuation methodology VOS,focuses on services and not on technologies or any particular type of resources. In this method valuation is performed by identifying services that a DER can provide directly to a distribution utility. In this methodology, the distribution grid is treated as a network. Each resource connected to it provides value through additional services to support the network. A distribution utility would be able to identify and procure the specific services necessary to maintain grid reliability. Identification of additional services from DER provides additional value streams from DER investments. These additional benefits directly to the distribution grid, such as voltage support, ramping, or even black start from energy storage resource.

DER and Transactive Energy

Transactive Energy is a future-oriented valuation methodology which is a technical architecture and an economic dispatch system at the same time. Transactive Energy allows coordination of DER and enables them to be dispatched in response to price or other signals. Thus DER can participate in peer-to-peer or a market mechanism by identification of services and value streams available. In simple words, any DER owner could enter into a contract with another customer, or the utility for the product or service it is offering. This would allow DER to have wider benefits than simply to the utility or grid.

Final thoughts on value of grid

Yes, the grid services also has a value from the perspective of DER. The grid serves as a reliable source of power in the event of disruptions to DER. It is also apparent that having more devices connected to the grid inherently enhances the value of the grid and the devices connected to it. If nothing else, having less people connected to the grid would seem to decrease the value of the grid. 

One consequence of increasing penetration of DER is that it allows the consumers to operate as stand alone systems without any interconnection to the grid. That is the customer can choose between a grid connected system or an off-grid system. Therefore, there is a value from the grid not only because of electric service it provides, but also in its ability to integrating DER and enabling services that can be utilized by other customers connected to the grid.

Chandana Sasidharan's picture

Thank Chandana for the Post!

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Matt Chester's picture
Matt Chester on July 9, 2019

This is a great resource, covering from the basics of defining DERs and why they're important to actually calculating the value of the resources. 

One aspect I'd love to hear your thoughts on are the challenges moving forward. What's stopping the grid systems from a more rapid acceleration towards DERs?

Chandana Sasidharan's picture
Chandana Sasidharan on July 9, 2019

In my understanding, it is not correct to think that the challenges are the same everywhere as the barriers vary according to geography and maturity of the energy markets. The problems we experience in India, such as slow uptake of  slow adoption of smarter grid solutions, financial stability probems of distribution companies, the high upfront cost of the solutions, unavailability of anciliary services market, lack of distribution system operators might not be relevant in other geographies. On the other hand fundamental challenges on knowledge barrier on technology, costs and benefits are something we energy professionals can assist in.

Matt Chester's picture
Matt Chester on July 9, 2019

That's a fair point, and in fact that difference in geography I suppose could be a challenge in itself-- there's less of a pool of best use cases and lessons learned to grab from. Thanks for your response

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