Designing and Unlocking Markets for Distributed Energy Resources

One of the most unique attributes of DERs is that they can affect all aspects of the electric grid’s infrastructure, including investments in the central, or bulk, electricity system, and in distribution grids.

The New York Public Service Commission proceeding on Reforming the Energy Vision (REV) raises fundamental questions about market design, distribution planning, resource acquisition, and the role of utilities. An explicit goal of the REV is to establish or unlock markets for distributed energy resources. In the context of the proceeding, distributed energy resources are broadly defined to include rooftop solar, customer owned generation, battery storage, energy efficiency, and demand response—namely, an extensive array of relatively small, geographically dispersed resources that connect directly to the distribution system rather than to the bulk transmission system.

There are two distinct features of distributed energy resources: they include a wide range of technologies with diverse operating characteristics and they can provide a wider range of value streams than traditional bulk system resources or distribution investments.

Distributed energy resources vary in terms of flexibility, load shapes, and operating characteristics. Not all distributed energy resources are flexible, for example. Some are tied to specific load shapes or production patterns and are not available for all hours. Other resources have limits on how long they can sustain production (or load reductions), how often they can be used, and how fast they can be delivered. These characteristics fundamentally affect the value of each type of distributed energy resource in each distribution area and also affect how they should be integrated into distribution planning and markets.

One of the most unique attributes of DERs is that they can affect all aspects of the electric grid’s infrastructure, including investments in the central, or bulk, electricity system, and in distribution grids. Centralized power plants, in contrast, do not reduce the need for distribution grid investments and distribution grid investments occur independently of generation investments.

Developing markets that allow distributed energy resources to compete, side-by-side with large-scale generators and traditional distribution grid equipment would, in theory, increase competition and improve efficiency. There are, however, several questions that must be addressed to determine how to cost-effectively integrate DERs into grid planning and operations, including:

• What value streams do DERs provide to the bulk and distribution grids?
• How, when, and where do DERs provide locational value? How do the characteristics of distributed energy resources and of local peaks affect distribution value?
• What experience is there with DER integration into distribution planning and operations? What has and has not been tested?
• How should markets be designed to unlock distribution value streams for DERs?
• What demonstrations need to take place to ensure distribution level markets will be cost-efficient and ensure reliability?

This paper focuses mainly on integration of distributed energy resources into distribution planning and distribution level markets. How to integrate distributed energy resources into existing wholesale markets for energy, system peaking capacity, and ancillary services is an important question, but it is not our main focus. The central question of this paper is how to create markets that allow distributed energy resources to compete in delivering cost-effective distribution load relief and how to structure markets to ensure competition, transparency, and grid reliability.