The amount of distributed energy resources (DERs) that will come online in the United States in the next four years will be close to the installed capacity of PJM, the largest North American power market—“a mind-blowing number,” according to the U.S. DER outlook from industry research firm Wood Mackenzie.
Wood Mackenzie’s 2020 DER outlook found that solar, electric vehicle (EV) infrastructure and residential load management potential lead other resources and will account for more than 90% of DER capacity installed between 2016 and 2025.
The pandemic has slowed the DER train a bit, but it’s now ramping back up with gusto, Wood Mackenzie’s global head of grid edge Ben Hertz-Shargel wrote in UtilityDive. While 78 gigawatts (GW) of DER capacity was installed from 2017–2021, it was less than half of the 175 GW that’s slated to be installed from 2022 through 2026—close to the capacity of PJM. Solar will continue to be the dominant DER in the market, though charging infrastructure for EVs will grow significantly.
“The demand-side component of DER capacity in the forecast is flexible demand potential: the flexible capacity (in kilowatts) that residential and commercial resources could provide were they to be offered into power markets,” Hertz-Shargel wrote.
Government actions are the key. On the federal level, the DER market stands to benefit from the extension of the solar investment tax credit (ITC), a new stand-alone storage ITC and direct payments—provisions currently in the stalled Build Back Better Act, but that could be transferred to revamped or stand-alone legislation. State and local climate-related actions will also help, such as California’s Self-Generation Incentive Program and the Solar Massachusetts Renewable Target.
Extreme weather is one reason for the increased demand for more commercial and residential DER. Future increases in natural gas prices will also spur DER investments. The consumer price index of utility natural gas rose 3.8 times faster than that of electricity from December 2020 to December 2021.
“Prolonged energy scarcity could cut both ways, however,” Hertz-Shargel wrote. “Risks to DER growth include interest rate hikes, already signaled by the Federal Reserve, which would increase the cost of investing in energy technology. Another risk is the availability of DER supply, limited by raw material and downstream supply chains as well as manufacturing processes unable to keep up with customer demand. These challenges plagued the solar, storage and EV markets in 2021 and will likely persist.”
It is “critical” for the DER sector to transition from emergency capacity to economic participation, which could be boosted by the Federal Energy Regulatory Commission’s Order No. 2222 that allows DERs to aggregate so they can participate in the regional wholesale markets. Economic participation will likely vary across the regional transmission organizations, and by type, with the commercial DER sector likely benefitting more than residential because it cannot “provide the granular metering and telemetry required.”
“As device-level metering data will unlikely be accepted by RTOs [regional transmission organizations], and submeters too expensive for homeowners, participating DERs will settle at the retail meter, resulting in exposure to performance risk from other home loads not under management,” according to Hertz-Shargel.
Wood Mackenzie is closely watching developments in the DER market as RTOs submit tariff filings per FERC Order No. 2222, “as they will have lasting effects on the residential and commercial DER markets,” he wrote.
For now, uncertainty over the near-term share of the energy market between centralized and decentralized resources remains uncertain, though the case is very strong for DER increasing its share.
“DERs include demand-side resources, which constitute half of the energy equation and will become critical in ensuring that supply and demand remain in balance. Perhaps most importantly, DERs offer the opportunity to democratize the grid, inviting massive residential and commercial capital into grid modernization to supplement that of large utilities and power producers,” Hertz-Shargel wrote.