DERs - A Threat or an Opportunity? (Part 1)

DERs - A Threat or an Opportunity? (Part 1)

The inevitable integration of distributed energy resources (DERs) is expected to become more pronounced over the next decade. According to a Navigant Research study, new DER capacity deployments will surpass new centralized generation installments by the end of 2018, and outpace new centralized generation deployments going forward.

While residential and commercial customers are embracing DERs, some utilities are exploring ways to come to grips with this new reality. Are DERs a threat or an opportunity? As with most disruptive business transformations, the answer depends to a great extent on each utility's adaptability to change.

DERs Are Disrupting Utilities' Traditional Business Model

Five years ago, an Edison Electric Institute report seriously discussed the possibility that DERs could put utilities out of business. Solar technology, in particular, was seen as the biggest threat to utilities. At that time, electricity consumption and rates were rising, while solar technology was becoming more affordable. Moreover, fueled by the "green" revolution, customers and regulators were demanding development and adoption of renewable energy. Governments subsidized rooftop solar installations and mandated that power utilities purchase excess electricity generated by customer-owned DERs.

Utilities' bottom lines were threatened. They make money from selling energy. They want to sell as much electricity as possible at a rate that allows them both to make a profit and maintain their part of the grid. When customers install their own solar or wind power systems, utilities experience a drop in demand. And it just so happens that solar power is strongest at mid-day, coinciding with the peak load times when utilities can charge the highest rates.

In addition to the financial risks, utilities have to address the technical and operational impact of DERs on the grid. As utility networks are designed to meet peak demand, which only lasts for a small portion of the day, they face a fundamental challenge. With the increasing adoption of solar energy, peak demand periods have become even shorter. On average, utility networks operate at 50-55% of peak capacity and at only 3% capacity for residential customers. Average residential demand continues to drop due to the use of DERs, while peak demand (during evening hours) stays the same. This well-known duck curve behavior, with volatile shifts in supply and demand, places stress on grid assets and can even result in power outages.

DERs introduce additional technical risks to the traditional grid, such as increased susceptibility to fluctuations and power quality. Consider, for example, the effect on energy demand levels when a large cloud rolls in on a sunny summer day in an area with high solar penetration. This type of sudden change, if not forecasted and planned for, constitutes a health risk for grid assets, such as transformers and feeders.

In addition, as thousands and even millions of residential customers connect their rooftop systems (including solar panels and inverters) to the grid, the task of ensuring the proper voltage levels, frequency and Volt/VAr has become more complex. The abundance of DERs on the network, and the bi-directional energy flows they create, may introduce power quality issues that can potentially compromise the quality of energy served to consumers and businesses.

In light of these multiple threats and challenges, it's hardly surprising that the vast majority of utilities have yet to deploy DER management systems as an integral part of their grid operations. In a 2017 survey of 200 utilities conducted by Siemens, only 18% have commercial/large scale DER projects in operation, while 70% of surveyed utilities are still in the planning, design and pilot stages.

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