The Answer is Location, Location, Location

Published: Mon 08 Sep 2014
A blog entry by Christine Hertzog

Contributed by:

Christine Hertzog
Managing Director
Smart Grid Library

Christine Hertzog's Blog

If this was a game of Jeopardy! you might think the question was about the value of real estate.  You’d be close, but the winning question is what is the basis for the value of distributed energy resources?

This is one of the most important questions that must be answered as more distributed energy resources (DER) are deployed.  The Smart Grid Dictionary defines DER as Grid-connected or standalone generation, energy storage, or negawatt assets that are deployed in the distribution grid.  DER assets can substitute for or supplement grid-supplied power.  According to the Solar Energy Industries Association, the USA is deploying a new solar project every 4 minutes, and as the downward trend of solar project pricing converges with the upward trend of more and cheaper solar financing options, the numbers of solar installations will continue to grow.  The rapid advances made in energy storage technologies will likely follow the same trajectories as prosumers vote with their wallets to gain some degree of energy independence.

Location is an extremely important factor for a potential asset owner or investor to consider in assessing the value of an investment in DER.  It is also an important factor for any entity that functions as a distribution grid operator.  In both cases, it is not the only factor.  That means that one DER asset at a specific latitude and longitude may have very different value to a user, an owner, and a utility.  The use(s) that asset can fulfill will be other important variables in investment decisions.

The state of New York, with its Reforming the Energy Vision initiative is the first to consider changes to the operations of regulated utilities and their business models to address the realities of multiple classes of generation ownership and new expectations for resiliency in grid operations.  The state of California just announced a new proceeding with the end goal of requiring its three regulated electric utilities to create distributed resource plans that leverage distributed generation assets – the death knell for the old business model structured on total reliance on centralized generation.

For example, a rural residential customer at the end of a line that is often disrupted by fallen trees would place very high value in an investment in grid-connected solar generation coupled with storage or some sort of backup generation powered by a fossil fuel.  Today, a utility treats that as a net metering arrangement.  However, if the utility’s grid service to that residence is disrupted, guess what happens to the grid-connected generation?  Complying with IEEE standard 1547*, it is de-energized too, robbing that home of a local renewable source of generation and forcing reliance on that backup generator, an action resulting in increased CO2 emissions.  There’s a very good safety reason for doing this, but it doesn’t make sense from a resiliency perspective. There are calls within the industry to revise this standard to accommodate opportunities for building resiliency into grids, and that would certainly go a long way to achieving the resiliency goals that many states are now developing.

Location will be an exceedingly important decision criteria in the future utility distributed resource planning processes.  In a new DER planning construct, encouraging self sufficiency through utility, third-party or prosumer-owned and operated assets might be an interesting play for a utility.  It would ensure a continued level of service and help in prioritization of restoration services.  It would also factor into resiliency plans, as would utility programs that offered the triple play of generation, storage, and EV described here.  Placement of generation and energy storage at local libraries could enable these buildings to perform as critical infrastructure in disaster situations for cooling, warming, or temporary shelter.  In other situations, utilities might develop DER plans that seek to avoid costly grid capacity upgrades through selective placement of cost-effective DER assets.

The bottom line is that the value of a location will sometimes have very different interpretations for different stakeholders.  The proceedings from New York and California will be interesting information sources to get a good sense of how the Smart Grid will evolve to accommodate and manage vastly more DER assets.