How Distributed Energy Resources (DERs) Help Solve Power System Challenges

While energy systems around the world are facing significant challenges from the impact of extreme weather to system strain during peak periods, Distributed Energy Resources (DERs) are emerging as a scalable, clean energy investment strategy that offers environmental, economic, and system-level benefits.

DER refers to any resource connected at the electricity distribution network level (e.g., community solar, water heaters, electric vehicles) that can provide various benefits such as emission reductions, cost savings, increased flexibility & resilience. DER impacts and benefits can also vary depending the perspective of the stakeholder. For example, a system operator may focus on grid stability and peak load reduction, while consumers or policymakers may prioritize affordability, energy access, or decarbonization. The infographic linked with this article assumes the perspective of the system operator, highlighting grid-level value.

This infographic was developed in collaboration with the Regulatory Assistance Project (RAP) for the Pooled Fund for International Energy (PIE) and the Integrate to Zero project to assist energy sector stakeholders on how specific measures to enable DER investment. The discussion below expands on the content in the infographic to show how DER offers a powerful, cost-effective tool to meet these challenges while accelerating the clean energy transition.

Key Grid Challenges That DERs Can Address

DER integration can help address a wide range of power system pain points from frequent power outages to a high dependence on centralized infrastructure. Additional pain points are listed below:

1. Supply shortage during peak electricity periods
2. Long waiting times for new power projects
3. Expensive procurement of conventional plants with low utilization to cover peak demand
4. Curtailment in moments of high renewable energy (RE) output
5. Impact of extreme weather events on grid infrastructure leading to outages
6. Low connectivity and high reliance on fossil fuels on islands and in rural areas
7. Stress on the grid due to large numbers of electric vehicles (EVs) charging during peak hours
8. Mismatch between customer demand and supply of renewable energy

Distributed Energy Resource Use Cases & Global Examples

Fortunately, there are a number of cost-effective solutions that leverage DER technology and capabilities to overcome these common grid challenges. For example,

1. Using DER capabilities to manage peak electricity demand is a proven way to reduce grid stress and improve reliability (e.g. demand response, net billing tariffs, and smart product standards). In Oregon, utilities are achieving this by requiring electric water heaters to be grid-integrated, allowing them to shift load away from high-demand periods through demand response.
2. Streamlining licensing rules and promoting the use of DER that can increase supply and reduce demand (e.g., net billing tariffs) can accelerate DER adoption and expand local energy supply. South Africa provides a recent example with its removal of licensing requirements for new power projects and rooftop solar net billing tariffs available in many municipalities.
3. Enable more investment in renewable energy while managing demand. Encouraging demand response enables power systems to better manage peak periods while supporting greater investment in renewable energy. Thailand is piloting demand response initiatives aimed at increasing flexibility and creating a more clean energy friendly grid.
4. Update market access rules and align demand-side flexibility with renewable energy supply through dynamic tariffs. This can help reduce curtailment and improve system efficiency. In the UK, incentives for smart thermostats allow consumers to adjust heating and cooling patterns in response to system needs, helping manage peak demand at the household level.
5. Incentivizing DER in high-impact locations can improve grid resiliency and reduce vulnerability to outages. New York is doing this by supporting microgrids and cogeneration at critical infrastructure sites through grants and technical assistance programs.
6. Integrating DER into long-term grid planning and cost-benefit analysis is essential for low-density and isolated regions. Western Australia developed a DER Roadmap to guide this process, enabling strategic deployment that reduces the need for costly grid expansion.
7. Using EV-specific tariffs to encourage smart charging can significantly reduce peak electricity demand. Norway and the UK have adopted dynamic time-of-use pricing aligned with renewable generation, helping EV owners charge when electricity is clean and plentiful.
8. Incentivize DER with tariffs that provide flexibility to balance out existing supply and demand needs, to avoid a mismatch and enable storage solutions. Australia has piloted neighborhood battery storage (i.e. both pole-mounted and ground-based batteries) to improve reliability and expand solar hosting capacity on the grid.

Policy Interventions That Enable Scalable DER Deployment

Effective implementation of DER solutions requires support from various energy sector stakeholders such as government agencies, regulators, utilities, systems operators, and even customers. Various enabling DER interventions exist and need to be implemented by these energy sector stakeholders in order to incentivize DER solutions that align with system pain points. Examples of these DER interventions are listed below:

• Time-of-use (TOU) Tariffs and DER Net Billing Tariffs (refers to electricity rates that incentivize flexibility and help align demand with supply)
• Grid Planning that accounts for DER and a modernized grid code
• Removal of licensing barriers to develop new DER projects
• Smart charging tariffs for electric vehicles
• DER product standards to ensure technology quality and compatibility with grid for rapid deployment
• Demand response programs and demand shifting through smart controls
• Virtual power plants that aggregate DERs and manage them software to operate like a single power plant

DERs are a scalable and flexible tool for utilities, regulators, customers, and governments which allows them to reduce costs and address power system pain points. Every power system is different, but fortunately the DER toolkit is adaptable.

Looking to integrate DERs into your clean energy strategy? Blue Horizon ECS helps governments, utilities, and investors scale DER deployment through tailored market strategies, policy reform, and climate finance advisory. Contact us to discuss more on this topic of DER integration and to understand how we can help!