The good, bad and ugly for understanding the value of DER

No doubt, distributed energy resources (DER) are here to stay. The shift from stationary power to distributed generation is forcing the energy industry to come up with new methods to measure the value of DER.

People generally refer to the “stacked” benefits of DER because there are multiple different benefits — to different entities — for distributed energy. However, not all stacked DER benefits are created equal. The DER benefits to the transmission system and wholesale markets are relatively straightforward to calculate. The DER distribution system benefits are also quantifiable even if distribution utilities do not have all the data. But some of the benefits that DER provides, such as resiliency, environmental and public benefits, and reduced renewable standard compliance costs are in the early stages of industry thought process.

DER Definition

Some DER definitions include traditional demand-side options such as demand response and energy efficiency, whereas others draw a distinction referring to distributed generation such as Behind-The-Meter (BTM) energy storage, rooftop Photovoltaic (PV), and fuel cells. In general, any resource on the distribution system that chooses to participate in the transmission system is a distributed energy resource. For example, a BTM energy storage can charge from the distribution connected PV solar array and, for the right incentive, discharge in the transmission connected wholesale market.

Value of DER

Value of DER (VDER) is a term prevalent in New York and now catching on in other state jurisdictions. NY Department of Public Safety (DPS) approved compensating DER at New York Independent System Operator (NYISO) wholesale day-ahead Locational Based Marginal Prices (LBMPs) (Case # 15-E-0751). LBMP is the same as Locational Marginal Price (LMP) at other grid operators, the marginal cost of serving the next megawatt (MW), including pricing out transmission congestion, and loss cost components.

The good

Wholesale markets and the role of the transmission system are well established in states with organized ISO. Due to years of market experience, pricing data is available at transmission nodes. This data is helpful to put a value on the benefits that DER provide to the transmission system and the ISO zones.

DER can participate in wholesale markets, much like a demand response resource[1]. Aggregators have experience bidding their demand-side resources for reliability and economical price signals. Hence, it is straightforward to calculate the DER benefits to the transmission system. These benefits include a reduction in energy, capacity, and ancillary prices, and transmission charges due to reduced energy transacted at the bulk electric system. Transmission congestion and transmission losses can be quantified as well due to the LMP data.

Non Wires Alternatives[2] (NWA) or more accurately Alternative Transmission Solutions[3] (ATS) are possible alternatives to transmission projects.

The bad

DER provide benefits to both transmission owners and distribution utilities. But due to the lack of a Distribution System Operator (DSO) type of entity that provides data transparency and price signals at the distribution node, there is no data (Distribution LMP) readily available to quantify the DER benefits at the distribution system level.

Distribution utilities have not traditionally collected data on distributed generation interconnection costs, and distribution capacity costs as it relates to the emerging technologies such as BTM energy storage, and the overall administrative costs of “grid modernization” programs. These emerging programs are new, and it takes at least 2-3 cycles of the Integrated Distribution Planning (IDP) process to fine-tune the data needed to show the value of DER to the distribution system.

States with retail electric providers have some data, but not all. Vertically integrated states are in the early stages of integrating resource and distribution planning holistically.

The ugly

If collecting data to show the DER benefits to the distribution system takes time, it is tougher to quantify all the external benefits that DER provide to the T&D grid at large. For example, the word resiliency has gathered a new meaning ever since hurricanes and wildfires have become a norm rather than an anomaly. Nowadays, increased awareness of social and environmental justice is leading to public health benefit discussions. By locating DER at the transmission or distribution node, there is also a Renewable Portfolio Standard (RPS) compliance cost-benefit. Utilities have renewable compliance costs based on energy sales, and reduction in sales due to energy efficiency and DER translates into reduced compliance costs. But this is tough to quantify.

In conclusion

Since DER penetration is only going to increase due to state mandates and goals, the utility industry should take a closer look at data gaps and fine-tune the distribution planning protocols. Not all data needs to be available; efforts to quantify the value of DER should start in earnest. There are serious public health concerns[4] if stationary power in the form of diesel generator peakers continues to operate. BTM storage can fill the capacity gap but needs a renewable energy source to charge the batteries. Hence distribution utilities need to figure out the methodologies for DER stacked benefits quickly.


  1. ^ demand response resource (
  2. ^ Non Wires Alternatives (
  3. ^ Alternative Transmission Solutions (
  4. ^ serious public health concerns (
  5. ^ Rao Konidena (
  6. ^ View all posts by Rao Konidena (

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