The Holistic, Integrated, and Flexible Approach to Distributed Energy and the Digitalization of our Electric Grid

I participated on a panel last week that discussed, among other things, how we can effectively manage and optimize Distributed Energy Resources (DER) from a technology and solutions perspective. While technology and solutions are important, I believe we need a more holistic, integrated, and flexible approach to DER which incorporates technology, new business models, and policy; and provides the framework for evaluation from a physical, economic, and information/data lenses.

As we enter the 21st century, we recognize that our energy system will become more and more distributed and customer-centric. Our utilities will evolve from being an energy provider to becoming an energy integrator to eventually becoming an energy orchestrator/full energy services provider. This evolution will be a journey and there is no one-size-fits-all when it comes to where they start or end the journey, as each utility has different regulatory environment, territories, business drivers and priorities. For some, the focus is first resiliency, while for others, it is customer choice or greenhouse gas emissions reductions. Wherever they start or end their journeys, however, it is important for them to be able to evolve while still providing safe, reliable, clean, and affordable energy to their customers.

In the face of this evolution, how should the different industry stakeholders – utilities, ISOs, regulators, policy makers, customers (both residential and Commercials & Industrials), and technology/solutions providers approach this phenomenon successfully? What should be done – from a technology, business model, and policy perspective – to ensure success? What can be done to streamline and speed up the adoption of DERs while still ensuring a safe, reliable and affordable energy system for all?

Before I delve deeper on the holistic framework, let’s get on the same page in terms of the definition of DER. There are many definitions out there, and for the purpose of this article, I view DER as any resource that produces electricity or reduces electricity consumption, and can be connected to the electrical grid, either “behind-the-meter” in the customer’s premise, or “in-front-of-the-meter” on the utility’s distribution system. As such, a DER can include, but not limited to, energy efficiency, demand response, microgrids, solar panels, energy storage, and electric vehicles.

Integrated Approach – Aligning Physics with Economics

One of the important aspects of the holistic, integrated and flexible approach to DER is integrated planning, as in looking at DER planning both from the transmission and distribution perspectives and how it may affect the two. From a physical perspective, the needs and requirements of integrating DERs on the transmission grids are different from those on the distribution grids. For example, in responding to aggregated demand response signals from the transmission grids, the distribution circuits need to ensure that their responses do not trigger dangerous voltage spikes that may de-stabilize the circuits. Similarly, when transmission operator responds to peak demand by calling on DERs, the distribution grids need to ensure that that power comes from a location that will not cause problems for the substations. As such, integrated planning allows us to model physical consequences of DER participations on the grid to be more coordinated and planned. It allows industry participants to have the tools and information needed on the locations of DERs and how they will most likely behave.

In addition to addressing the physical aspects of DER participations in the systems, we also need to align the economic and financial incentives. This will allow distributed resources to respond to economic signals from the transmission grids while optimizing their distribution grids benefits. Rewarding industry participants, which include utilities, customers and DER providers, for outcomes that maximize these values would optimize DER participations on the grids. For instance, we can align utilities’ financial incentives through performance-based regulations that link shareholders’ return to outcomes such as reliability, affordability, customer choice, convenience, and environmental impacts. Economic value of DERs can also be evaluated based on deferred investments in infrastructures due to DER participations on the grids.

Integrated Approach – Including DERs in Resource Planning

By integrating DERs into distribution planning, we take the holistic approach to meeting distribution needs while also enabling customer choice and unlocking the benefits of distributed energy. In the long run, this approach reduces overall system costs while providing customers with more choice, convenience and resiliency. Traditionally, distribution planning focuses on forecasting load growth, identifying infrastructure needs to meet this forecasted load growth, and planning for the solutions to be deployed to meet the needs. With DER penetration increasing, this traditional framework needs to be updated to proactively include DERs in the planning and to leverage its benefits. Instead of just forecasting load growth, integrated planning needs to also forecast DER growth. Instead of only focusing on what infrastructure is needed to meet this forecasted growth, integrated planning needs to leverage DER capabilities to provide grid services such as peak shifting, peaking capacity, ramping, voltage management, and power quality, which eventually improve grid resiliency and lower overall systems costs.

Additionally, integrated planning should also consider DER as a preferred resource. When I used to work at a regulated utility in California a few years back, the California energy agencies established a preferred resource “loading order” – energy efficiency, demand response, renewables, and distributed energy generation – to help develop and operate California’s electricity system in the best, long-term interest of consumers. This preferred loading order prioritizes energy efficiency and renewables ahead of fossil-fuel based generations, when it is in the long-term best interest for the consumers using the “least-cost, best-fit” framework. Similarly, we can employ a preferred resource “loading order” to prioritize distributed energy solutions that serve the long-term best interest of consumers for a cleaner, more sustainable, and more resilient energy system, while ensuring cost-effectiveness and reliability.

As the industry continues to embark on this journey, we should embrace this holistic, integrated and flexible approach to DER, where we would build a rich ecosystem that improves reliability and resiliency, empowers and engages customers, and provides a cleaner and more sustainable electric system.

Photo Credit: Ian Muttoo via Flickr