Navigant Research Blog

Tracking the Rise of Distributed Energy Resources

Alex Eller — December 21, 2015

While leaders from nearly 200 nations reached a historic agreement in Paris last week to limit greenhouse gas (GHG) emissions, market forces are already driving the growth of distributed energy resources (DER). This rapidly evolving technology landscape is forcing stakeholders throughout the industry to reconsider the structure of the grid itself in addition to the economics of generating, distributing, and consuming electricity.

Utilities and regulators have taken widely differing stances on the deployment of these resources. While some are beginning to embrace the DER trend by developing new products and services and demonstrating the necessary flexibility to evolve, others have been lobbying aggressively to limit or halt their spread. Although all DER represent a shift away from the traditional centralized grid, the potential of different technologies to disrupt the industry varies considerably. While the term disruption can be somewhat vague, in this sense it refers to developments that can alter the relationship between incumbent service providers and their customers or require significant new investments in grid infrastructure. Navigant Research’s recent report, Distributed Energy Resources Global Forecast, explores the growth and impact of DER worldwide.

New Players Emerging

The DER expected to be the most widely deployed over the coming decade are actually those that will cause the least amount of disruption to the industry; demand response (DR) and fossil-fueled generator sets are already widely deployed and have not resulted in significant change in the industry. Equipment to charge electric vehicles (EVs) is expected to be one of the fastest growing DER segments worldwide. This emerging technology is expected to add significant load on the grid and necessitate new business models by both utilities and third parties to effectively manage this new resource, including vehicle-to-grid capabilities. Some utilities have begun experimenting with innovative programs to own new infrastructure and benefit from the integration of EVs.

Disruption on the Horizon

The rapid growth of distributed solar PV is proving to be disruptive to the industry, generating contentious debates over proper compensation for system owners as well as causing a need for new technologies on the grid to help maintain stability. Along with solar PV, the most disruptive new DER technology in the coming decade may be distributed energy storage systems (DESSs). These systems can provide end users with the ability to consume most of the power they generate onsite, lower their bills, and have power available during an outage, among other benefits. Customers empowered with these technologies may have a radically different relationship with their local energy service provider. Several utilities have taken an active role in this growing industry by offering energy storage and solar PV solutions directly to their customers. Energy providers that fail to adapt to new technologies may find their customer base migrating to alternative solutions.

The growth of DER technologies will bring about the need for a greater level of coordination between stakeholders on the grid to enable a two-way flow of energy and services between customers, utilities, and potentially between customers themselves. Known as the Energy Cloud, this concept can lead to the development of new players within the industry, such as the role of a network orchestrator to ensure a balance of supply and demand on the increasingly distributed and complex network. While the future of DER in most areas may rely heavily on new regulatory frameworks, there is no doubt that the ground is shifting under the global industry and the need for new business models is only a matter of time.

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