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2019 STRATEGIC DIRECTIONS:

Smart Utilities Report

Is the Energy Market Finally Ready For DER?

A few years from now, perhaps some would argue this is already the case, the next generation will look back in perplexity at a time when record companies and radio stations had one-way control over distributing music to the masses. A statistically significant portion of the population will have no recollection of a world that had little control over what music was being supplied, and no choice but to trust that the service they were receiving had their best interests and tastes in mind.

A few generations from now, we may be saying the exact same thing about another culturally significant commodity — energy.

Similar to the way that music services like Spotify and YouTube give artists a platform to share and monetize their product without the oversight of a record company, a DER marketplace can have the same impact on our electric grid. By offering an avenue for energy created and stored behind-the-meter to be supplied to consumers without the direct oversight of Transmission System Operators (TSOs), DER supports innovation and the propagation of cleaner, more efficiently allocated energy.

While record companies still exist, as will TSOs undoubtedly, demand for a more egalitarian market commensurate with the times is on the rise as we look to leverage available technology and better serve the customer.

Distribution System Operators Play Pivotal Role

It's no secret that common DER applications such as rooftop solar, on-site batteries and smart thermostats are rapidly gaining adoption across the country. As the desire to address climate change issues surges on, an evolved market that capitalizes on new ways to generate, store and monitor power is inevitable. 

No longer is energy being solely generated and distributed in a one-way direction. Energy, just like music, can no be generated from (nearly) anywhere and by (nearly) anyone. The question is, do utilities have the mechanisms in place to ensure the DER revolution will play them a favorable melody? And if not, what can they do to position themselves for success?

Enter the Distribution System Operator (DSO), a vital set of roles for operating, managing and when necessary, developing an energy distribution network that integrates DER and a marketplace for trading energy. States like California and New York are proactively implementing DSOs because, to put it bluntly, DER penetration is impacting business. And because regulators and customers demand lower costs and greater efficiencies, utilities are being pressured to use DER and need an entity to operate them and create an open and transparent marketplace for DER owners to participate.

Unlike a TSO or an Independent System Operator (ISO), a DSO is not necessarily a standalone organization. DSOs operate as a conglomerate of roles across a variety of organizations. These roles include Distributed Energy Resources Managers (DERMs), grid operators, market operators and short-term and long-term planers, all acting in harmony to address this new two-way player in the market.

Establishing a DSO creates a market for anyone owning DER to monetize their investment. Simply put, investors will be more motivated to generate, store and monitor their own power if there are mechanisms in place to sell what they don't use. The manifestation of a DER market will lead to increased penetration in a region or community by further incentivizing their use and opening opportunities for greater innovation.

The "why DSOs?" question is clear, but what about the "how?"

Many players in the distribution space are currently working to find the answer to this question. Black & Veatch recently partnered with a Southern California utility to guide them through the following six steps as they work to successfully implement a DSO:

  1. Figure out where your utility is currently situated, and when DER impact will be felt

  2. Determine which processes will be impacted by high-penetration DER

  3. Interview and educate key stakeholders about DSO

  4. Provide stakeholders with a detailed breakdown of the DSO options

  5. Ideate in a workshop to create a functional implementation and operation strategy

A DSO that is uniquely constructed to manage utility's DER situation gives that utility the tools necessary to increase DER adoption and diversify the way in which the market generates and delivers its power.

Customer programs DER

DER programs Lead to DER Profitability

Growing adoption and penetration has made DER an intriguing prospect for utilities. Although challenges exist, a viable DER marketplace offers untold opportunity. When DER first appeared, a variety of programs were implemented by utilities to leverage new technologies and better serve customers. According to results from the 2019 Strategic Directions: Smart Utilities Report survey, 30 percent of utilities currently provide five or more DER customer programs (demand response and/or distributed generation). A mere six percent said they offer no programs, while less than 16 percent only offer one. 

Customer programs that offer critical peak pricing and incentives for using energy efficient appliances and thermostats have long been the primary extent that utilities engage with DER and served as tools to shape behavior and shift load demand. A desire for higher reliability, better resiliency, and lower energy costs is driving DER integration into the system and utilities must figure out how to effectively operate a new two-way system in which investors of DER can profit off their purchases by selling power to willing buyers.

With the price of solar on a steady decline, localized artificial intelligence right around the corner, and if legislative mandates from California and New York are a sign of things to come, there's no denying that more DER investments are on the horizon and that animating the DER distribution market is the logical progression for the industry.

Establishing a DSO will create open and transparent market enablement for anyone that owns DER, a huge opportunities for innovation and an ability to monetize your investment. This is the next thing in our new world of energy, and once it happens, everything we knew about the energy market will be put on shuffle. 

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