Electricity in a decentralization-ascendant world

What is a DER?

A DER, or Distributed Energy Resource, is any asset, physical or virtual, deployed across the electricity grid that usually lives behind the meter (behind the meter means anything that occurs on the end user’s side of the electricity meter) and resides close to the ultimate endpoint of demand. A straightforward example of a DER is a residential solar panel: it’s a physical asset on someone’s private property that is connected up to the electric grid and can supply electricity to an end user. That end user could be the owner of the solar panel or it could be some other random customer on the grid that the utility supplies by paying the solar panel owner for his or her DER-generated electricity. Another slightly less intuitive example is a smart home thermostat. This example satisfies the behind the meter and near endpoint criteria, but it doesn’t really supply electricity in a traditional sense. Rather, the smart home thermostat is considered a DER because, as a grid-connected device, it can adjust the end user’s electricity demand by changing the home’s heating and cooling patterns, thereby smoothing the household’s demand curve and making it easier for the utility or retail energy provider to buy supply to satisfy aggregate demand. Other common examples of DERs include micro-turbines, car batteries, home battery storage, heat pumps, and connected appliances, and have been growing at a rapid pace (predicted to hit 387 GW by 2025 up from 264 GW in 2015) thanks to falling costs of the DERs themselves as well as federal, state and local policies that stimulate demand for the things.

Projected growth in DER capacity through 2025 growing at 4% CAGR driven by new EV infrastructure and residential solar installs.

Value Propositions of Decentralization

How does this all relate to decentralization? DERs shift the power to generate and supply electricity to the grid away from centralized, vertically-integrated utilities, energy generators and distributors and move that power into the hands of individuals and businesses. In the future, no longer will a single household be reliant on the staid, old-school utility to ensure daily delivery of electricity — rather, households can take responsibility for their own electricity into their own hands and literally go off the grid (or, at the very least, can reserve viable options for electricity during an outage or other grid catastrophe). This is, of course, a very utopian vision for a DER endgame that I don’t think we are likely to see. Rather, it’s much more likely that the grid will continue to exist more or less as-is with legacy energy suppliers still participating but with far greater DER integration that will materially impact both demand and supply sides of the electricity market.



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