The rapid growth in distributed energy resources (DERs) has delivered benefits for residential customers, businesses and utilities. This accelerating worldwide spread has also created a challenge that regulators recognize: how to determine the value of these resources for the grid, for customers and for the public as a whole and then how to measure benefits and costs from integrating them into grid operations. Advanced DERs have outpaced the abilities of traditional regulatory mechanisms.

This paper examines the potential uses, valuation studies and methodologies (and a bit of cost and benefit studies too) for certain advanced DERs. The authors suggest new valuation and benefit-cost approaches that may benefit regulators and market participants.

The growth in DERs reflects in part their appeal for customers and system operators. Customers can save money and help ensure they have energy when they want it by controlling some or all of their energy usage with DERs. The grid benefits can also be substantial, including savings on generation costs and demand-side peak management and reduction — but only if DERs are successfully integrated into grid operations and markets.

Advanced end-use technologies pose a particular challenge when it comes to valuation because any specific resource may be able to perform a number of traditional grid functions and thus provide different benefits that previously fit into separate well-understood silos. The functions depend on a DER’s specific capabilities and how those capabilities are deployed, integrated and operated. Many advanced DERs can actively increase or decrease demand, providing immediate support to the distribution grid. Some of these same DERs — including battery technologies, rooftop solar photovoltaic and combined heat and power — act as distributed generation behind the meter, so can actively increase or decrease customer demand. Electric batteries can function like energy efficiency, distributed generation, a load sink, or a distribution or transmission resource — in addition to providing significant customer value behind the meter — so how do we value all those operational modes and grid integration options?

Many existing valuation mechanisms have been developed in the context of one specific DER: energy efficiency. Regulators naturally are seeking to transfer their regulatory expertise with energy efficiency to new types of DERs that have different capabilities and value potential.

The approaches this report suggests are based on a survey of studies and marketplace DER procurement results that shine a light on how resource valuation or costs have been determined to date. For example, when studies have determined ranges of values for each application based on resource-specific capabilities and integration options, we present those.

This report provides a starting point for considering what, if anything, needs to change about traditional regulatory models in light of advanced energy technologies that are available now or will be soon for customers, utilities and regulators.