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The Importance of Distributed Energy Resources to Affordable Clean Power

July 1, 2024
Household energy use is transforming, placing utilities at the center of two important trends: decarbonization and customer affordability.

DERstribution is transforming the grid

Household energy use is transforming, placing utilities at the center of two important trends:  decarbonization and customer affordability. Individual purchases of smart home appliances, solar and storage systems, and electric vehicles (EV) are exponentially increasing the number of distributed energy resources (DER) that can generate, store, or flexibly draw energy from the grid. These DER are creating bidirectional networks at the grid edge – or DERstribution – that utilities can harness to help address grid flexibility and peak demand challenges.  

Deloitte’s report “Households transforming the grid: Distributed energy resources are key to affordable clean power” showed that the potential role for quickly deployable DER is likely even more important as permitting and interconnection queues for utility-scale resources lengthen.  These delays can compound cost and resource pressures that have intensified over the past year due to growing load, climate impacts, mission, and regulatory pushback. Utilities should understand residential DER trends over the next decade, and how grid planning, the regulatory compact, and data architecture may need to change to optimize the DERstribution system transforming the grid.

Households can help meet peak demand

Households  form the most distributed and versatile utility customer segment, with the greatest capacity and equity potential. Household power capacity from DER could surpass doubled total peak electricity demand in a 2035 decarbonized grid scenario: Deloitte analysis found that DER capacity grows from 46 GW to 1,561 GW, while peak demand doubles from 735 GW to 1,487 GW. And DER capacity would grow four- to thousand-fold, by more than 2 to 300 GW across states. 

Given that DER have different penetrations, capabilities, and load profiles, combinations of different types of DER could help better adapt to changing seasonal and intraday peak profiles. At one end of the spectrum are DER with low deployment but high capacity, such as EV storage harnessed via bidirectional vehicle-to-grid (V2G) charging technology. EV capacity potential alone could meet peak demand in 2035, but only if fledgling V2G achieves widespread adoption. On the other end are DER with high availability but limited capacity, such as thermostat-controlled HVAC systems. When aggregated, thermostats can deliver the same capacity reduction that a peaker plant would supply.  

Unlocking this potential requires advanced digital technologies to enable active management that could deliver cost savings to utilities and customers. DER management includes least-cost mechanisms such as time-of-use (TOU) rates and demand response for programmable thermostats that have been operating for decades with simple controls.

Regulators can align customer usage to goals

Performance-based regulation, grid data sharing, and opt-out time-of-use rates can help align regulators, utilities, developers, and customers to state targets across DERstribution planning. Each stakeholder has a key role:

  • States can set targets across the power, building, and transport sectors

  • Regulators can use performance-based regulation to align utilities with state targets and address the sales, business-as-usual, and capex biases in the cost-of-service regulatory model 

  • Utilities can analyze and share grid data to direct DER development 

  • Developers with hosting capacity analysis maps can propose non-wire solutions in areas of greatest value to  the grid 

  • Customer engagement enables household alignment to climate targets via opt-out TOU rates 

  • Equity could be advanced if building sector decarbonization targets were met starting with low- and moderate-income  customers, working to ensure that all energy insecure households in every state could benefit from retrofitted, energy efficient, and cost-saving homes by 2035. 

DER need a data-efficient architecture

Successful execution of integrated plans to achieve state targets should include a data-efficient architecture of technical, operational, and regulatory capabilities.

Regulatory capabilities involve securing the backing of regulators as well as funding resources. Rate, reliability, and carbon impact may be key to making the case for DER investments to regulators, as well as plans to capture the full value of technology use cases. Regulators will likely also want to see that utility plans include leveraging all new sources of investment, including a record $10.5 billion in Grid Resilience and Innovation Partnership (GRIP) funding for utility resilience and smart grid projects. 

Technical capabilities build on a digital foundation of data quality and security. Utility distribution capex has grown at twice the rate as total capex, increasing 40% since 2020 to a record $57 billion as the number of digital projects in the sector quadrupled. These projects enable operational decentralization that can help maximize DER value. The complexity of optimizing DERs from households with different usage, comfort, risk profiles, TOU rates and market participation is fueling a race for the best AI-powered algorithms. 

Operational capabilities include workforce development and stakeholder collaboration. GRIP awardees have committed to training that will equitably prepare the workforce for DERstribution projects. Only 3% of utility workers are currently employed in smart grid operations, but investments from GRIP funding alone could create 178,000 more of these jobs. In addition to workforce development, integrated grid planning may require improving communication between resource planning groups within the utility, and between the power and other industries such as automakers, and homebuilders.

Building the needed technical, operational, and regulatory capabilities will likely require breaking silos within the utility, deploying new technologies, and engaging more deeply with regulators, developers, and households. Aligned utilities could make real progress towards decarbonization goals through DERstribution by 2035.   

This article contains general information only and Deloitte is not, by means of this article, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This article is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor.

Deloitte shall not be responsible for any loss sustained by any person who relies on this article. 

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