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DER 2.0: eLab Accelerator Unlocks the Potential of Distributed Energy Resources

After more than a decade of steady growth, distributed energy resources (DERs)—including rooftop solar, battery storage, demand-response systems, smart appliances, and electric vehicles—stand today at an important inflection point with respect to their role in the electricity system.

This is reflected in half a dozen important shifts taking place in the industry today that, together, mark the advent of DER 2.0—a new and substantially different business environment for DER deployment and integration into the grid. Teams participating in Rocky Mountain Institute’s eLab Accelerator earlier this year reflected on these shifts, each of which is gaining in momentum and scale.

As RMI begins its selection process for eLab Accelerator 2018, we expect to see additional progress in advancing DER 2.0, which promises to move the electricity system toward a clean, resilient, affordable, and customer-oriented future.

Six Shifts Distinguish DER 2.0 from DER 1.0
  1. The role of utilities

In DER 1.0, most electric utilities were watching DER development warily while evaluating the potential implications for their own business models. In DER 2.0, many utilities are working in close collaboration with developers, communities, and policymakers to help make DER projects succeed and to create the greatest value for multiple stakeholders. While utility business models are not yet fully evolved to embrace DERs, growing numbers of utilities are undertaking experiments to find ways to deliver greater system value from DER deployment, ranging from smart inverters to targeted DER deployment to market integration of DER grid services.

The 10 utilities that participated in eLab Accelerator 2017 included some of the largest and most innovative utilities in the country—Duke Energy, Consolidated Edison, Exelon’s ComEd and Pepco, Avista, PG&E, and SMUD—representing more than 15 percent of U.S. electricity sales. In addition, two of the largest system operators in the country, the California Independent System Operator and PJM Interconnection, participated in Accelerator teams.

  1. The emergence of new DER developer business models and marketing approaches

In DER 1.0, the location, timing, and management of DERs was determined by DER developers’ business models and by first-generation DER technology—mostly rooftop solar. Solar developers’ early-stage business models responded to the incentives initially provided by utilities and regulators, delivering kilowatt-hours under net-metering agreements. In DER 2.0, DERs are beginning to be deployed in ways that are targeted to realize multiple grid benefits and to enhance resilience from a customer and/or grid perspective. This entails new types of incentives provided by utilities, including time-of-use tariffs that increase the value of storage, consideration of avoided system costs, and other signals of grid value.

For example, the “Demand Management in the Nation’s Capital” and the “Oakland Electric Reliability Project“ teams from eLab Accelerator 2017 are working on projects in which portfolios of DERs could defer or displace the need for distribution system investments. The “Charlotte Public Safety Campus Microgrid” and “Renewable Resilient Power for Portland” teams are using DERs to enhance resilience for essential services in cities, and the “Gridlab” team is creating tools to support such activities around the country.

  1. Reaching low- and middle-income customers

In DER 1.0, DER providers’ first-generation business models were adapted to serve the easiest-to-reach customers, especially middle- and upper-income homeowners. These models were typically leasing arrangements backed by third-party financing for customers with good credit. Third-party ownership accounted for 72 percent of residential solar systems installed in 2014, but since then has dropped significantly in favor of direct customer ownership.

DER 2.0 models are designed to reach a wider spectrum of customers, including low-income customers, with deals that are often multiparty arrangements like community-scale solar and that increasingly involve integration of other technologies, like solar-plus-storage technologies. The “Sun Shares” and the “North Franklin Community Energy Project” Accelerator teams are focused on designing approaches to increase clean energy access to underserved segments of the population and opening the door to community participation in these projects.

  1. Including electric-vehicle charging

Electric-vehicle charging, which was not considered to be a significant part of the distributed resource landscape for DER 1.0, is being recognized in DER 2.0 as a source of electricity demand that can be managed in time and space through innovative approaches to pricing and load control. The “Minnesota Evolution,” “Electrification of Municipal Vehicles in New York,” and “EVs & The Grid” teams are refining EV charging strategies to meet the requirements of their home service territories.

  1. Pricing beyond net energy metering

In DER 1.0, the solar industry staunchly defended net energy metering (NEM) as essential to the growth of the solar industry. In DER 2.0, the solar industry continues to support NEM in markets with low solar penetration, but the industry is moving to engage in dialogue about how to forge new pricing structures in higher-penetration markets that fully recognize the value of solar and provide incentives for solar development to take place in ways that create additional value to the grid. The “Scalable DER Pricing Mechanisms” team, which engaged representatives of leading solar industry players including Tesla, Sunrun, Vivint, Sunpower, VoteSolar, and the Solar Energy Industries Association, is at the forefront of these efforts.

  1. Meeting renewable energy goals with DERs

In DER 1.0, DERs played a relatively small role in meeting states’ first- and second-generation renewable energy standards and were a secondary consideration in states’ utility policymaking. When, in 2011, then-California gubernatorial candidate Jerry Brown announced a goal of integrating 12,000 megawatts (MW) of distributed generation into California’s grid by 2020, there was little to back up this ambition. As DER 2.0 emerges, DERs are beginning to play a significant role in meeting these targets for states and, increasingly, for cities with ambitious renewable goals. Surprisingly, relative to expectations just a few years back, the California Energy Commission estimates that California was more than 85 percent of the way to reaching that goal with projects that were either online or planned and expected to come online as of late 2016. The “Toward 100% Renewable Energy: Accelerating State Action” and “Illinois Energy Future” teams made big strides at Accelerator 2017 in aligning on effective strategies to replicate California’s efforts in other areas of the country.

Efforts to design the proper mechanisms to more deeply integrate DERs onto the grid and transform it toward a cleaner, more resilient, customer-focused orientation are well underway. As more industry stakeholders recognize the intrinsic value DERs provide in support of a well-functioning grid, we can expect this work to accelerate and an increasing number of customers to realize the financial, operational, and environmental benefits a DERs 2.0 world provides.

To help speed this transition, RMI is inviting applicants from projects at the leading edge of DER deployment and integration for its annual eLab Accelerator. Successful teams bring together a combination of vision, knowledge, diversity, and commitment to a project that can accelerate change in the electricity system. Application for Accelerator 2018, which can be found here, closes on January 19, 2018. Applications will be reviewed on a rolling basis; successful applicants will receive formal invitations to participate by February 2018.

Image courtesy of iStock.