The growth of distributed energy resources (DERs) is decentralizing energy production and management. The century-old model of centralized electricity production, transmitted in one direction for many miles at high voltage is changing. Onsite generation, battery storage, demand response, electric vehicles and energy efficiency have all contributed to this reshaping of the electric utility landscape. Joint Action Agencies, Associations and even individual electric utilities need to address the reality of DER growth so that they can benefit from its advantages and reduce the potential for negative impacts to their organizations and customers.
While the penetration of DERs has been steadily increasing due to declining costs of these resources, their growth over the next decade is expected to be exponential. Here’s why. Material and installation costs are declining while efficiency of DERs is increasing due to technological advancements. Electric utility customers are demanding greener and cost-effective energy options as they electrify. And there is regulatory support encouraging the integration of DERs such as the Federal Energy Regulatory Commission’s (FERC) Order Number 2222. The primary objective of this mandate, better known as FERC 2222, is to better enable participation by DERs in electricity markets run by regional grid operators. FERC’s directive, coupled with State and Federal mandates and policies, along with corporate goals around decarbonization are all expected to contribute to a future of high DER penetration in various jurisdictions around the country.
The question Public Power entities should be asking is not if their jurisdictions will see a high DER penetration, but how they can enable higher DER penetration to their advantage? This requires a paradigm shift at the distribution grid, where presently the utility is only managing a passive network - buying power from the Bulk level and distributing it to consumers, to a more active network – with two-way power flows from prosumers (producers + consumers), enabling cost-effective deep electrification.
An answer to the question of how to enable higher DER penetration lies in creating the right incentives that would encourage more such resources to be connected. And this is where the Distribution System Operator (DSO) model enters the picture. While many variants of the model may exist, from a thirty-thousand-foot view, in a DSO model, either a Joint Action Agency, Association, or the distribution utility takes on the role of a market facilitator. That market facilitator manages a distribution-level electricity market, much in the same way an Independent System Operator (ISO) manages a bulk-level electricity market. But the model can be customized based on local regulations and requirements.
Essentially the DSO framework allows the right incentives to be created for compensating DERs such that their true value to both the local and bulk grid can be correctly captured. For example, if unprecedented load growth on a particular feeder or station within a utility’s territory is requiring the utility to consider costly infrastructure upgrades, can the utility instead procure generation or load reduction from local resources on that feeder or station to defer or avoid the infrastructure upgrade? While a one-off situation like this might be handled by the existing framework through setting up some form of a demand response program, as the need for these infrastructure upgrades increases, the requirement to optimize the resources on the distribution grid, i.e. DERs, would increase. That would be the role of the DSO. The DSO model can provide significant advantages for all stakeholders. The DSO model extracts maximum value from DERs, provides grid flexibility, and takes a customer-centric approach to power supply decisions.
DSO Advantages for Public Power
The DSO model provides definite advantages to public power. First, it provides improved asset utilization and diversifies the local energy portfolio. It gives individual utilities the opportunity to work with customers who have on-site generation in new and exciting ways. By acting now, Public Power can set the standards for DSOs, with Public Power providing innovation and leadership in this important area.
The success of implementing the DSO model will require overcoming an array of challenges. As with most disruptive advances, existing regulations and market barriers could hinder implementation. Infrastructure upgrades will be necessary. Organizational changes and access to adequate resources will be critical to success. And finally, the support of customers and other stakeholders will be keys in making this transition a reality.
Joint Action Agencies, Associations and local public power utilities should begin now to develop DER and DSO strategies. Begin now to ask these questions: What is the regulatory and policy framework in which we operate today? Based on past experience with NERC standards, it will take time to develop DSO standards. Are our members/customers ready for increased DER penetration? Who are the key stakeholders, partners, and collaborators in this transition? And finally, does our organization have a roadmap for transitioning to the DSO model?
Thought Leaders Weigh In
Recently, Hometown Connections Partners and Affiliates formed work groups to discuss the many aspects of the DER/DSO transition. The groups covered customer and employee engagement, smart grid technology requirements, operational flexibility and grid resiliency, cyber and physical security requirements, and DER grid integration.
Robbie Tugwell of Power Secure led the DER Integration discussions. His group debated the technical and operational challenges of integrating DER’s and explored possible solutions and best practices for effective integration. His group determined that a high level of transparency and clear communication pathways will be crucial in the successful integration of DERs into a DSO model. They stressed the need for flexibility of utility assets as well as clear decision matrices and protocols.
Loreto Sarracini of Acumen and his group explored the regulatory and economic implications of DER integration. This team expressed concern that the growth of DER may lead to a more complex regulatory environment. For example, the possibility of North American Electric Reliability Corporation (NERC) reliability standards being introduced for the distribution grid, which would likely lead to additional burden on utilities, especially smaller-sized utilities. While there might be many economic benefits of incorporating DERs, utilities will have to study the impact of adopting new technologies, hiring, training and retaining personnel as well as maintaining business continuity.
AMP’s Branndon Kelly led a discussion of the smart grid technology requirements for an effective DER/DSO implementation. They stressed the importance of grid automation in preparation for the DSO model. Joint Action Agencies (JAA), Associations and their members will need to assess their distribution networks both from a hardware and software perspective. Software for modeling day ahead demand and production such as that provided by Amperon, will be a key ingredient for success. In addition, Jillian Jurczyk of Utility Financial Solutions stressed that rate design must be addressed to ensure the correct financial incentives for DSO participants and utility customers.
The DSO model represents a significant shift in how the electric grid will be sequenced. Employees and customers alike will be affected. Brittany DeArmon of Brillion led a discussion on how utilities and JAA’s can engage, prepare and educate these stakeholders. Bob Welsh of LeverageHR pointed out that workforce and customer education increase the utility’s opportunity to participate successfully in the DER/DSO transition. Tools for informing and educating are currently available, and utilities should act now to begin to build trust through more frequent and more transparent communication.
While a higher number of smaller-sized resources spread out across the grid offer the advantages of decentralization, they will substantially increase the cyber and physical attack surface, i.e. there will be a larger number of assets that threat actors can disrupt, many of which might not be in direct control of the utility itself. Doug Westlund of Acumen said that no single cybersecurity system will address all the risks. However, utilities who follow the regulatory guidelines for cyber security and physical security, and who are committed to planning and implementing protocols will be less likely to fall victim to outside attacks.
Finally, Randy Parole from Stem, presided over a group that explored the strategies for enhancing grid operational flexibility and resilience through the use of DER’s. They looked at energy storage, flexible load management and grid modernization. This group suggested that the first step would be to look at the existing interconnection agreements to determine if they are future-proofed or need to be updated. From there, financial incentives for existing customers with on-site DERs should be developed.
Next Steps
What are the next steps for Public Power entities looking to prepare for the future of DERs and DSOs? Nimish Bhatnagar, Director of Energy Solutions at Acumen, suggests the first step is to conduct a DER readiness assessment. JAAs and their members should review the regulatory and policy landscape. They should review load, generation and DER forecasts and perform a technology assessment and gap analysis. This assessment should be performed now regardless of the organization’s current view of how and how soon the DER/DSO transition will transpire within their service territory.
Next, develop a DSO transition roadmap. Build a business case, enlist stakeholder engagement and assess internal capabilities. Again, have the roadmap and other due diligence completed in advance. Having clear and actionable steps in place ahead of the transition will help ensure that Public Power utilities are in the driver’s seat and able to chalk their own path before one is drawn out for them!
A complete presentation on the DER/DSO transition is available on the Hometown Connections YouTube Channel. Access it here: https://www.youtube.com/@4PublicPower
Hometown Connections would like to recognize the following Hometown Connections Affiliates and Partners for contributing to this review of DER/DSO: Acumen, AMEA, AMP, Amperon, Brillion, ElectriCities of NC, FMEA, KTI, LeverageHR, Marsh, MPUA, NMPP Energy, NCPA, Power Secure, SpryPoint, Stem, TEA, TMEPA and Utility Financial Solutions.
