Distributed Energy Resources 101: Required Reading for a Modern Grid

Keeping up with the influx of new information on distributed energy resources (DERs) can be daunting.

DERs are physical and virtual assets that are deployed across the distribution grid, typically close to load, and usually behind the meter, which can be used individually or in aggregate to provide value to the grid, individual customers, or both. A particular industry interest seems to be centered on DERs — such as solar, storage, energy efficiency, and demand management — that can be aggregated to provide services to the electric grid.

The energy industry’s focus on DERs is a function of how important it’s become to understand the potential capabilities they have to offer. In 2015, U.S. electric utilities spent $103 billion in capital expenditures to maintain and upgrade the grid — and they now expect average annual spending of around $100 billion through 2018, even as growth in electricity demand slows.

These two trends combined could raise retail rates significantly for electricity customers, as much as 15 to 30 percent through 2030, according to one study. To modernize the grid for two-way energy flows and incorporate new, connected technologies, while maintaining minimal rate impacts, all available resources, including DERs, need to be put to best use.

But to reach this goal, we need to start with a common base of foundational knowledge on DERs — key articles and resources that are easily available to all stakeholders — which is the purpose behind this document.  Working together to compile this list was an initial collaborative effort for co-authors Advanced Energy Economy (AEE), Rocky Mountain Institute (RMI) and the Smart Electric Power Alliance (SEPA), three organizations with similar long-term visions of a clean energy future, but with different approaches and perspectives.

We started from a set of basic, common understandings about DERs: that they can provide positive net value to the grid, such as avoided infrastructure investments, improved resilience and increased integration of clean energy. However, integration of these resources will require a new planning paradigm. Finally, the solutions for the challenges ahead will be rooted in information sharing, partnerships and collaboration.

Our goal here is not to forecast the future of DERs, but to provide, in effect, a “DERs 101” syllabus that demonstrates the value of DERs and provides insights on:

  • How different DER technologies can provide energy, capacity, and ancillary services for both the distribution and bulk power systems.
  • How we can develop DER benefit-cost frameworks that offer a fuller, accurate accounting of the benefits and costs related to these services.
  • What valuation options exist for each type of DER benefit and cost.
  • What implications DERs may have for changes in planning, market design, operation and oversight.

The list below provides basic, overview resources, followed by a more detailed set of reports — presented in matrix form — to allow for a deeper exploration of the myriad capabilities and grid services DERs can furnish. Together, these resources will help build a better understanding of key DER issues and opportunities.

That said, many important topics are not covered here — mainly, rate reform and redesign. A wealth of resources now exist on these topics, including the National Association of Regulatory Utility Commissioners’ (NARUC)  Distributed Energy Resources Rate Design and Compensation manual.  Our initial focus here on foundational resources is aimed at providing a common understanding of the technical and economic value of DERs on the grid, before any discussion of potential options and mechanisms to realize that value.

We don’t have all the answers. In that regard, we ask your help to identify gaps and let us know what perspectives and insights we are missing. We want to advance the conversation as DERs grow in cost competitiveness, performance and market adoption, to find common ground and move toward a cleaner and more efficient grid together. Join the conversation at communications@sepapower.org.

DER Overview Resources

New York Public Service Commission Staff, Whitepaper on Benefit-Cost Analysis in REV, 2015

This report provides a framework for considering proposals for utility expenditures.  Specifically it looks at the evaluation of opportunities to avoid traditional utility distribution investments by calling upon the marketplace to supply DER alternatives. The whitepaper explains the need for the development of a benefit-cost analysis (BCA) framework, how the BCA framework will be employed by utilities, and proposed components of the BCA framework. It also provides suggested guidance on calculating the values of those components.

Smart Electric Power Alliance (SEPA), Beyond the Meter | Distributed Energy Resources Capabilities Guide, 2016

This guide describes how DERs can support a more flexible and efficient grid, and evaluates technologies based on their abilities to provide energy, capacity, and ancillary services for both the distribution and bulk power systems.  The report’s DER Capabilities Matrix illustrates the technical capabilities of various DER types (solar, solar and advanced inverter functionality, storage, interruptible load, direct load control, behavioral load shaping, and energy efficiency) and their potential to provide grid services.

Advanced Energy Economy Institute (AEEI) and Synapse Energy Economics, Inc., Benefit-Cost Analysis for Distributed Energy Resources: A Framework for Accounting for All Relevant Costs and Benefits, 2014

The paper provides a summary of the extensive universe of relevant DER cost and benefit impacts — on all customers, participants and society. Additionally, the paper presents an illustration of preferred valuation options for each type of DER benefit and cost. The paper presents the limitations of current cost-effectiveness methodologies and offers alternative frameworks as potential fixes to better capture a more inclusive set of DER benefits.

Rocky Mountain Institute, The Economics of Battery Energy Storage, 2015

This report addresses four key questions: (1) What services can batteries provide to the electricity grid?  (2) Where on the grid can batteries deliver each service?  (3) How much value can batteries generate when they are highly utilized and multiple services are stacked?  (4) What barriers—especially regulatory—currently prevent single energy-storage systems or aggregated fleets of systems from providing multiple, stacked services to the electricity grid, and what are the implications for major stakeholder groups?  Using a literature review, an energy-storage valuation framework and the results of a modeling exercise, this report is intended to help overcome the many cost, regulatory, business-model, and procedural barriers to making energy storage a meaningful component of the U.S. electricity future. While the paper is focused on one particular type of DER — batteries — many of the insights and recommendations can be generally applied to all DERs.

Analysis Group, The Value of “DER” to “D”: The Role of Distributed Energy Resources in Supporting Local Electric Distribution System Reliability, 2016

This paper focuses on two essential questions relating to DERs: How should utility regulators, distribution utilities and other stakeholders think about the value of DER to the distribution system (“the value of DER to D”)? And what are the implications for distribution system planning, DER procurement and DER compensation that result from those interactions between DERs and the local distribution system?  The report illustrates some of the issues and insights by examining developments and analyses underway at two electric distribution utilities – Consolidated Edison in New York City and Southern California Edison in California.

Lawrence Berkeley National Lab, Distribution Systems in a High Distributed Energy Resources Future: Planning, Market Design, Operation and Oversight, 2015

This report offers a practical framework to consider DER growth and address its impacts in a logical sequence, in order to guide distribution system evolution with clear lines of sight to overarching regulatory and public policy objectives.  Specifically, the report intends to address key questions on how best to define the value of the distribution network and related operational structure for a high-DER future in their jurisdictions, and how to structure the regulatory framework and rules to enable that future.

Specific Grid Services Resources

DERs offer an array of services to support the grid and maintain reliability. Below we outline the key categories of grid services and offer up additional readings to delve deeper into how DERs provide particular grid services. Please note beneath the table are definitions for each grid service.


Bulk System Services
Distribution Services
  Energy Capacity Flexibility Operating reserves Capacity Power quality
SEPA & Nexant, Beyond the Meter | Addressing the Locational Valuation Challenge for Distributed Energy Resources, 2016 X
Analysis Group, The Value of “DER” to “D”: The Role of Distributed Energy Resources in Supporting Local Electric Distribution System Reliability, 2016   X  
SEPA & EPRI, Rolling Out Smart Inverters, 2015 X
NREL, Advanced inverter functions to support high levels of distributed solar, 2014 X
NREL, Feeder Voltage Regulation with High-Penetration PV Using Advanced Inverters and a Distribution Management System, 2016   X X
LBNL, Final Report on Phase 2 Results: 2015 California Demand Response Potential Study, 2016 X X X X X
EPRI, Time and Locational Value of DER: Methods and Applications, 2016 X X X X X X
EPRI, Contributions of Supply and Demand Resources to Required Power System Reliability Services, 2015 X X X X
LBNL, Planning for a Distributed Disruption:Innovative Practices for Incorporating Distributed Solar into Utility Planning, 2016 X X X  
RMI, Economics of Battery Energy Storage, 2015 X X X X X  
LBNL, An Evaluation of Solar Valuation Methods Used in Utility Planning and Procurement Processes, 2012 X X
LBNL, Mass Market Demand Response and Variable Generation Integration Issues: A Scoping Study, 2011 X X X  
LBNL, Flexibility Inventory for Western Resource Planners, 2015 X

Grid Services Category Definitions

Category: Bulk system services

Energy. DERs provide energy value when they displace the need to produce energy from another resource. The energy value has two components: (1) Avoided energy production by central generation resources, and (2) avoided losses on the transmission and distribution system, due to DERs’ proximity to end-use loads.

System-level capacity. DERs provide system-level capacity value when they defer or avoid investment in generation and transmission assets. The system capacity value of DERs depends on the DERs’ utilization capability during system peak periods.

Flexibility. DERs provide flexibility value when they operate in a way that allows grid demand and supply levels to balance. This value is realized at multiple timescales, from very fast (e.g. frequency regulation on the order of seconds) to longer-term (e.g. load shaping on the order of hours).

Operating reserves. DERs provide operating reserve value when they can be used to increase supply or reduce demand on the grid in place of central generators that would otherwise be used in case of contingencies (e.g., forced outages). DERs can provide both fast-response reserves (e.g., spinning reserves) and slower-response reserves (e.g., supplemental reserves).

Distribution-level capacity. DERs provide distribution-level capacity value when they defer or avoid investment in distribution assets. The distribution capacity value of DERs depends on the DERs’ utilization capability during local peak periods.

Power quality. DERs provide power quality value to distribution systems by modulating their production and/or consumption of power; e.g,. providing reactive power to improve voltage profiles on distribution feeders. This capability can reduce energy losses and avoid voltage excursions on distribution feeders.