The rise of distributed energy resources (DERs) presents a challenge and opportunity for utilities and regulators alike. DERs are introducing a new layer of complexity to utility operations, transforming the existing vertical network to a combined mesh (distributed) network, while at the same time promising to inject new life into the traditional utility business model. Utilities, however, are hesitant to make any significant investment in interconnection and system operational improvements, IT and data management systems to support DERs, until regulators address risks of utilities associated with uncertainty. Risks include cost recovery of existing investments, ground rules that define the role and responsibilities of utilities and third parties, and compensation for utilities for the added risk to system operations from the distributed business model.
Driven by policy directives over which utilities have little control, DERs will remain both a threat and opportunity until regulators agree on a new paradigm. Many regulatory bodies are suggesting precluding utilities from participating in the DER market yet utilities in some cases are the most likely entity to ensure achievement of DER goals, having risk tolerance, longer-term business focus, and responsibility for maintaining the electric grid.
Many regulatory jurisdictions are advocating for widespread DER deployment, and some 48 states are pursuing some form of regulatory reform. Yet DER economics are not positive in all cases. Therefore, neither customers, market issues, nor resiliency and reliability concerns justify their deployment. Add to this the potential economic and social disruption that plagued the telecommunications industry transitioning from landline to mobile services and we have a national disaster.
Electricity is a different commodity and service than telecommunications, and utilities are "providers of last resort," something that is not likely to go away. The challenge is to ensure utility companies and electric grids are able to perform this function efficiently and effectively while allowing DER to be interconnected and bundled as a reliable source of electricity, regardless of DER ownership. DERs will not necessarily be less costly than central station power plants in all cases, but they will likely provide greater system, environmental and social benefits.
States like California and New York are taking different approaches to DER and utility reform. California for example has excess capacity (Duck Curve) to the point that state electrification is now being sought and encouraged through, for example, electric vehicle adoption. Creating excess solar capacity mid-day was not the original intent of promoting DERs, and has resulted in some other market challenges and costs. New York and other states are moving more slowly and deliberately to try and "get it right."
Alternatively, some utilities have low-cost power and their regulators see more risk than benefit in promoting DERs. Regulators are trying to find a way to provide customers greater choice with DERs, and provide improved system, environmental and social benefits while not breaking the regulatory compact that they are entrusted.
Click here to read this article as it originally appeared on Public Utilities Fortnightly.