Cleantech Market Intelligence
DER Developments Challenge Incumbent Grid Operating Models
Net metering has been a key driver for the deployment of solar PV distributed generation in the US. The simplicity of net metering—merely deducting the electricity generated during a year from the total electricity consumed, with no regard to the time when these two activities occurred—is easy for customers to understand. It simplifies the design process of installations, lowers the barriers to entry for distributed solar and wind, and has allowed the industry to develop.
But net metering creates an artificial barrier for the adoption of other flexibility-related distributed energy resources (DER) technologies like energy storage and demand response, as utilities are forced to provide balancing at no cost. Although net metering is still leading in the US, regulators in the main solar markets are tweaking it to pass some of the balancing costs to the end user. For example, California is moving toward time-of-use tariffs for all new distributed solar installations, opening the market to flexible technologies.
DER Deployments Increasing and Shifting
Navigant Research forecasts the deployment of all DER technologies in its Global DER Deployment Forecast Database report. We expect North America to install 31.5 GW of new DER capacity in 2017 and 98.1 GW in 2026. The technology mix for 2017 is led by distributed generation (DG), which accounts for 61.9% of the total DER capacity installed. However, by 2026, DG is expected to drive only 31.4% of new DER capacity additions, leaving a large market share to other technologies. These include flexibility, microgrids, energy efficiency, and (driven by the electrification of transport) EV charging, which is expected to lead DER new capacity in 2026 with a market share of 43.2%.
Despite the US leaving the Paris Agreement and its move away from the Clean Power Plan, DER capacity additions in the US are expected to be almost 8 times more than central generation deployments over the next decade. This includes central renewables like utility-scale solar and wind and significant amounts of natural gas power plants. Navigant Research forecasts the US will install 519 GW of DER capacity between 2017 and 2026, while the US Energy Information Administration’s International Outlook projects that the US will add just 66 GW of net new central generation capacity.
DER as Percentage of Annual Additional Capacity, US: 2017-2026
Source: Navigant Research
DER Developments Bringing Challenges and Improvements
DER developments are challenging incumbent grid operating models, requiring a more dynamic and flexible network with advanced communications and orchestration to ensure stability, efficiency, and equality among diverse resources. From a utility perspective, the overarching goal of DER deployments is to integrate these resources effectively to make the electricity grid more efficient, resilient, cost-effective, and sustainable. However, DER is usually deployed behind-the-meter, where customers are more concerned with securing cost-effective and reliable onsite power. This raises questions about who DER should be optimized for and the pace and scale of DER deployments.
Despite the disruption that DER is bringing, it is already possible to see the first sprouts of DER investments: a cleaner, cheaper, consumer-focused, and far more innovative power sector. For this reason, the transition to DER will not be easy for organizations used to the centralized energy model, but focusing on happy customers over electrons will help companies to thrive.