America’s Power Plan: The Crucial Role of Distributed Resources

""The time is now to make our electricity system cleaner, more efficient, more reliable, and cheaper. Distributed resources are a critical piece of that electricity future, but existing market structures, business models, and regulations do not yet ensure a consistently level playing field for distributed resources to compete with other options. The newly released America’s Power Plan, a collaboration of more than 100 of the nation’s top energy experts, tackles many important questions and lays out a plan for our country to move rapidly towards the brighter energy future that we envision. RMI has contributed a chapter on the role of distributed energy resources to the project.

America’s power sector has been largely unchanged for many decades, yet faces the potential for drastic transformation in the years to come as a result of technological innovations and a changing mindset among consumers towards energy consumption.

RMI focused special attention on the “distribution edge”—the interface of the electricity grid and the consumer—because of the potential for transformative changes at this level of the electricity system. This is where technological innovation is most rapidly occurring, and where evolving consumer preferences are most immediately seen. It is also the space that is most free to change and advance even in the face of the many regulatory and legislative constraints that govern our nation’s electricity system.

Ensuring that distributed resources are adequately developed to support a high-renewables future will require special attention from regulators and policymakers on a number of fronts. Our full plan lays out detailed recommendations along eight key parameters:

1. Measure costs and benefits

Consistent and comprehensive methods for measuring the full range of costs and benefits of different resources will create transparency for all stakeholders and provide a foundation for designing effective incentives, pricing structures, and markets. The “hidden value” of distributed resources can include avoided line losses, reduced financial risk, deferred or avoided generation and delivery capacity, environmental benefits, and economic development. Properly measuring these costs and benefits is a critical step to enabling the efficient and economic deployment of distributed resources.

2. Analyze centralized vs. distributed resource portfolios

In the past, there has been surprisingly little research available to evaluate the tradeoffs between different portfolios of centralized and distributed renewable resources. New studies at national, regional, and local levels can help shed light on how to optimize the mix of centralized and distributed renewables. Yet most of these studies fail to assess the implications of different portfolios for the security and resilience of the grid in the face of natural disasters, physical or cyber attack, solar storms, or other threats. Ensuring that centralized and distributed renewable resources compete on a level playing field will be one of the most important challenges facing policymakers, regulators, and electric utility planners in the decades ahead.

3. Integrate distributed resources into resource planning

Resource planning processes provide a view to the future that can help reveal tradeoffs between centralized and distributed investments and reduce costs on the path to a high-renewable future. Integrating distributed energy resources into resource planning is critical to assessing how best to utilize such resources as demand response and storage, as well as revealing opportunities to reduce transmission and distribution costs.

4. Create new electric utility business models

Today’s antiquated electric utility business models will become increasingly obsolete in an 80 percent renewable future. New utility business models can be devised that ensure the stability and health of the grid and incentivize integration of distributed resources. Various alternatives emerging in the U.S. and around the world include new pricing and incentive approaches, opportunities to explore new value creation (such as financing through on-bill repayment), and reducing disincentives and rewarding performance.

5. Adapt wholesale markets to better integrate distributed resources

Wholesale markets need to be adapted to allow distributed resources to compete fully and fairly. With evolved market rules, all kinds of distributed resources and aggregations thereof can compete to provide a wide range of energy and ancillary services in competitive markets. Several Regional Transmission Organizations and Independent System Operators have already begun incorporating distributed resources into their markets. The changes to the rules in these markets—including allowing smaller resources to compete and enabling aggregation—can serve as a blueprint for encouraging more development of distributed resources while staying technology neutral.

6. Improve the integration of microgrids with the macrogrid

Microgrids and virtual power plants can help us move toward a renewable electricity future by integrating distributed renewable resources locally while providing greater capabilities to manage resources in response to varying grid conditions. Microgrids can also protect customers from outages, and support the security and resilience of the larger system. Yet regulatory and technical standards are not yet fully adapted to tap the value of microgrids. State regulators can improve integration by creating clear definitions of what qualifies as a microgrid, clarifying interconnection procedures for microgrids and enhancing the opportunities for microgrids to provide energy, capacity, and ancillary services to the grid.

7. Reduce costs by streamlining permitting and interconnection

In Germany, the “soft costs” of solar PV—which include customer acquisition; installation labor; and permitting, inspection, and interconnection—are 73 percent lower than in the United States. Regulators and policymakers can help reduce the soft costs in the U.S. by streamlining permitting and interconnection procedures. Current best practices include over-the-counter, same-day permit review; clear webpages focused on the solar permitting process; simplifying requirements for site plans; self inspection by certified PV installers; and combining all required inspections into one onsite visit.

8. Encourage smart EV charging

Smart charging of electric vehicles can help to support the integration of high levels of variable renewable generation into the grid and provide efficiency and environmental benefits in the transportation sector.

RMI envisions a clean, resilient, distributed, and affordable energy future. Our ambitions are bold, and for that we make no apologies. We recognize that transforming the electricity system is a tall challenge, and doing it right requires detailed and thoughtful analysis, and the engagement of multiple stakeholders. Our contributions to America’s Power Plan provide the detailed analysis and recommendations that regulators and policymakers need in order to move our nation forward in the direction we must go.

America’s Power Plan is a collaborative effort of many organizations, curated by the Energy Foundation in partnership with Energy Innovation.

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