Distributed Energy Resources Provide Multiple Benefits

by Bob Shively, Enerdynamics President and Lead Facilitator

The "supply side" and the "load side" historically have been completely opposite parts of the electric grid. But now distributed energy resources (DERs), defined as electricity supply resources that are either behind a meter (on a customer's premises) or directly connected to a utility system at distribution voltage, are changing that assumption. We are seeing a dramatic rise in prosumers (sometimes producers, sometimes consumers) who own both supply and load devices within a single facility. Resources controlled by these prosumers — demand side management (DSM), distributed generation (DG), and distributed storage (DS)  — are growing rapidly in many regions.


To understand how these resources will affect consumers, distribution grids, transmission grids, and other stakeholders, it is important to understand the multiple ways that DERs will be utilized by looking at distributed generation examples:

  1. Behind-the-meter use (currently available)
    Many owners install DERs simply to provide load control, generation, or storage behind the meter. In this case, the DERs simply act as a means for the owner to control electric costs by controlling the loads that the utility meter sees. This may simply be a reduction in overall usage provided by energy efficiency or generation such as rooftop solar. For customers on demand charge rates, it may be a means of reducing billable peak demand by using demand response (DR), generation, or storage to trim peaks. And for customers on time-of-use billing, it may be a means to shift usage from on-peak to cheaper time periods through use of demand response or storage and/or a means of reducing supply bought during on-peak periods by generating during that time period.    

    Additional behind-the-meter uses include increased reliability by providing backup supply and improved power quality. Between the two uses – cost reduction and improved service – behind-the-meter use is the largest category of DER utilization in today’s market.
  2. Sale of services to the distribution operator (some currently available, more in the future)
    Since DERs are connected at the distribution level rather than the traditional transmission interconnection for centralized generation, DERs are uniquely suited to provide services to the entity operating the distribution system. The most common example in today’s world is selling energy to a load-serving utility, thus reducing the amount of energy the utility must generate and/or buy on the wholesale market. This is common with combined heat and power (CHP) systems and with rooftop solar. 

    Another evolving service is provision of non-wires alternatives (NWA). These NWA services are provided when utilities pay owners of DERs to make the devices available as grid resources, thus reducing the need for the utility to invest in grid facilities. An example is the Brooklyn Queens Demand Management program that allowed ConEd to avoid building a $1 billion substation. Only some utilities are currently implementing NWA projects, but such projects will likely be more common in the future. Utilities also may find additional grid services that they will buy from owners of DERs including voltage support, frequency support, and resilience.
  3. Services in the wholesale market (some currently available, more in the future)
    Many DERs have potential to provide capacity, energy, and ancillary services in wholesale markets. FERC has issued decisions requiring organized wholesale markets to allow participation of DR and storage resources[1]. There is an additional ongoing proceeding that may require wholesale markets to allow participation of all types of aggregated DERs. To date, some Independent System Operators (ISOs) have seen significant participation in some markets by DR, while rules for participation by storage are just now being implemented. While current DER participation in wholesale markets is still somewhat limited, this area likely will grow in the future.
  4. Transactive services in a distribution market (available in the future)
    Many in the industry believe that the future holds a new type of marketplace, one in which prosumers and consumers are allowed to buy and sell services directly from and to each other without intervention by a central authority like a utility or an ISO. In this case DER owners may work on their own or with third-party service providers to create services that can be sold directly to consumers. While this is not going to happen overnight, we are already seeing pilot experiments such as the Brooklyn Microgrid that allows neighbors to sell solar power among themselves.

Multiple use applications
As penetrations of DERs grow and markets for DERs mature, we will likely see prosumers who wish to use their DERs for more than one use. This is called 'multiple use application' and means that services from the same DER are provided in two or more of the above categories. Clearly the world of energy markets is going to become more complex as potentially millions of devices attempt to provide value through multiple applications.

Source: NIST Smart Grid Framework 4.0

Many new opportunities will arise for service providers to assist DER owners including system design, financing, contracting, scheduling, operational optimization, and data management. These services will allow consumers and grids to benefit from advantages of distributed generation. Whether these services will be provided by utilities, third-party services providers, technology vendors, or some combination of many parties will be one of the key energy market developments in the next decade.


[1] See FERC Order 745 on demand response and Order 841 on storage.