U.S. Electric Grid Moving Toward Distributed Energy Resources to Address New Realities

Published: February 16, 2022

By: Concentric Staff Writer

The electricity grid in the United States—and across the globe—has undergone significant changes to the way energy is delivered over the past decade. The model has transitioned from one based on central station power plants delivering electricity over a sprawling network of wires to a more decentralized model consisting of distributed energy resources (“DERs”) delivering power closer to where they are located.

According to the North American Electric Reliability Corp. (“NERC”), the organization responsible for enforcing reliability standards on the electric grid, a distributed energy resource is any resource on the distribution system that produces electricity and is not included in NERC’s definition of the bulk power system (“BPS”).1 The growing presence of DER means that these resources must be accurately represented in planning, operating, and stability models, and is becoming “an important consideration for BPS reliability,” NERC said.

According to NERC, types of DERs include any non-BPS generating unit at a single location on the distribution system owned by a utility of commercial entity; behind-the-meter generation; energy storage on the utility side or customer side of the meter; aggregated DER, a virtual resource formed by multiple distribution generation, behind-the-meter or energy storage devices; microgrids; cogeneration formed as a byproduct of energy production; and emergency stand-by or back-up generation facilities.

DERs got a huge boost when the Federal Energy Regulatory Commission issued its Rule No. 2222 in September 2020, which has the goal of allowing DERs to compete alongside traditional energy resources in wholesale energy markets. The order is designed to increase grid resiliency, lower costs for consumers by enhancing competition, and create more innovation within the electric industry, FERC said.

The rule requires regional transmission organizations and independent system operators to revise their tariffs to establish DERs as an official category of market participant, FERC said, defining DERs as systems with capacity between 1 kW and 10 MW. The tariffs also must address technical considerations such as locational requirements for DER aggregations; distribution factors and bidding parameters; information and data requirements; metering and telemetry requirements; and coordination among the regional grid operator, the DER aggregator, the distribution utility and the relevant retail regulatory authority.

According to a report from FERC’s Energy Advisory Committee, the rule creates many new complexities to seamless integration into wholesale markets alongside large power plants. For example, RTOs and ISOs do not have visibility into utility distribution systems, requiring additional levels of coordination with distribution utilities, transmission utilities, and DER aggregators. The rule also created new requirements related to technology, operations, market design, regulation, and planning, the committee said. The committee said the U.S. Department of Energy (“DOE”) must take action to help entities comply with Order No. 2222, which required RTOs and ISOs to make compliance filings by July 19, 2021.

The DOE said that DERs and microgrids are “two ways to ensure continuous electricity regardless of the weather or an unforeseen event.” The DOE defines microgrids as localized electric grids that can disconnect from the main grid and operate autonomously. Such systems produce and distribute energy on a small scale and often employ solar panels, batteries, and/or diesel generators. Such systems can strengthen resiliency of the main grid, serve to mitigate grid disturbances, and function as a grid resource for faster system response and recovery, according to the DOE.

“DER could fundamentally change the way the electric grid works. With DER, power is generated right where it is used and can be connected with other DER to optimize its use. Households and other electricity consumers are also part-time producers, selling excess generation to the grid and to each other,” DOE said.

Facilities that need continuous power to operate are good candidates for microgrids, including hospitals, military installations, college campuses, and community microgrids that are used to keep specific neighborhoods and smaller communities powered up during storms.

According to a report from Frost & Sullivan, the global microgrid market will increase from $8.9 billion in 2021 to $19.6 billion in 2030, and North America and Asia-Pacific will be the leading markets. Asia-Pacific will, in fact, outpace North America with a focus on remote microgrids. Europe’s development will focus more on pockets such as physical islands and rural areas in Eastern Europe that suffer from grid reliability issues. The major global applications will be industrial, commercial/campus, and rural/island grids, with North America focused on commercial and campus applications, and rural and island grids showing the biggest growth in the Asia-Pacific region.

Green Mountain Power (“GMP”), a utility that operates in Vermont where fierce winter storms can occur, said in an integrated resource plan filed with the state in December 2021 that the electricity grid is evolving away from one that operates with a one-way flow of energy. Instead, the utility is developing DER to deal with an influx of more intermittent solar generation.

“This distributed energy future requires an approach to integrated resource planning that is more nimble, flexible, and incorporates distribution planning down to the circuit level,” GMP told the state utility commission. The utility said it is creating a more distributed grid with resources like battery storage, electric vehicles, and smart appliances that reduce the need for large infrastructure and associated costs of development and maintenance. DERs are fast-acting and flexible and improve efficiency, according to the utility, who is using a new DER management system that communicates with distributed devices over a secure cloud infrastructure. GMP is developing pilot programs, many of them employing DER, to meet the state’s energy goals, it said. The utility is planning a microgrid in Rochester near Route 100 that would serve facilities such as water pumps and an emergency shelter for an elementary school, and another microgrid in the town of Stafford to serve emergency shelters at a school, gym, general store, and post office.

But new DERs also need vastly different energy management systems than a traditional energy grid. The Department of Energy has a sizable portfolio of microgrid activities around the country with two areas of focus. One is “planning and design,” which addresses system architecture, monitoring and analysis, and system design; and “operations and control,” which addresses steady-state control and coordination, transient-state control and protection, and operational optimization.

Since 2000, the Lawrence Berkeley National Laboratory has been developing the Distributed Energy Resources Customer Adoption Model (“DER-CAM”), which has the objective of minimizing the cost of operating on-site generation and combined heat and power systems.

“Using state-of-the-art optimization techniques, DER-CAM assesses distributed energy resources and loads in microgrids, finding the optimal combination of generation and storage equipment to minimize energy costs and/or CO2 emissions at a given site, while also considering strategies such as load-shifting and demand-response,” the DOE said. The model can also be used for dispatching DER on day-ahead to week-ahead schedules, based on load and weather forecasting. The goal is flexibility to optimize a microgrid over a wide range of parameters, ranging from net-zero energy requirements to financial incentives, and subsidies for specific technologies and local utility tariffs, the agency said.

But DERs are not necessarily clean energy resources. For instance, in the San Francisco Bay area, back-up generators (“BUGs”) grew by 34 percent between 2018 and 2021, but 90 percent of those systems were diesel-fired. In 2021, BUGs numbered 8,722, reflecting 4,840 MW of capacity, according to a report from policy firm M.Cubed. Combining the Bay Area Air Quality Management District with the South Coast Air Quality District in Southern California, the total capacity of diesel generators is equivalent to 15 percent of the California electricity grid. The substantial particulate emissions and other pollutants are often produced in lower-income and disadvantaged areas, with the diesel generators often utilized as back-up power for computer data centers.

The DER transition will require policy changes and innovation across the board to develop this technology at a reasonable cost while maintaining reliability and affordability of energy for consumers. While there are complicated operational, regulatory, and business considerations surrounding DER integration, there is little doubt that the grid of the future will be more decentralized, more technologically advanced, and decarbonized.

All views expressed by the contributors are solely the contributors’  current views and do not reflect the views of Concentric Energy Advisors, Inc., its affiliates, subsidiaries, or related companies. The contributors’ views are based upon information the contributors consider reliable at the time of publication. However, neither Concentric Energy Advisors, Inc., nor its affiliates, subsidiaries, and related companies warrant the information’s completeness or accuracy, and it should not be relied upon as such.

1 The federally approved definition of the bulk power system includes all the larger elements and facilities that are necessary for the reliable operation and planning of that interconnected bulk power system.

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