Editor’s note: This story is part of the Utility Dive Outlook on 2021, a series on the trends that will shape the industry in 2021. For a look at the business trends affecting other industries, see the Dive Outlook on 2021.
Acceleration of the growth of distributed energy resources (DER) has power system analysts anticipating big changes on utility distribution systems in 2021 and throughout the 2020s.
Continued falling prices of DER, ambitious new state and federal policies, and customer demand in 2021 will drive growth, power industry representatives said. And while utility-scale renewables growth will still boom, DER, including rooftop solar, batteries and electric vehicles (EVs), can be central to protecting reliability, according to a new Southern California Edison (SCE) paper describing the evolution of tomorrow's grid.
SCE’s Reimagining the Grid "is to help establish where and why we should turn right or turn left in building a distribution system to address evolving needs," said SCE Vice President of Asset Management, Strategy & Engineering Paul J. Grigaux. Those turns "will be determined by the growth of distributed resources and we want to have the system technologies to see and manage their impacts."
"We're reaching a threshold where distributed energy resources add up to enough megawatts to matter," Brattle Group Principal Ryan Hledik added. "And the idea of managing them in an aggregated coordinated way is being taken more seriously now."
There is likely to be much more attention in 2021 on proposals like SCE's for a future distribution system that can use DER to provide grid services, other power system analysts agreed. That attention is now needed because the DER are increasingly showing up and will accelerate in the coming year, the analysts said.
Growth and trends
Concrete predictions about growth are difficult only because economies of scale are driving costs down and growth up faster than forecasts can be made, according to DER advocates.
Prices continue to steadily fall, the December 2020 Lawrence Berkeley National Laboratory distributed solar data update confirmed. From approximately $12/watt in 2000, prices had fallen in 2019 to between $2.30/watt and $3.80/watt, depending on system size and market.
Residential solar 2020 installations were forecast by the 2020 Q4 SEIA-Wood Mackenzie U.S. Solar Market Insight Report, released Dec. 15, to have "13% growth in 2021." And that was before the recent extension of solar’s federal tax credit, which will help drive even greater growth into the early 2020s.
The COVID-19 relief bill’s functional extension of the tax credit through 2025 and anticipated further clean energy support from the Biden administration and a Democrat-controlled congress are likely to accelerate distributed solar growth and cost declines, analysts agree.
The newest policies to compensate solar include incentives that will also drive distributed battery storage growth, according to Autumn Proudlove, senior policy program director for the North Carolina Clean Energy Technology Center (NCCETC) policy quarterlies on solar, grid modernization and electric vehicles (EVs).
"Increasing growth is the biggest thing expected for storage in 2021," Energy Storage Association (ESA) Vice President for Policy Jason Burwen agreed.
The U.S. energy storage market is set to grow from 1.2 GW in 2020 to nearly 7.5 GW in 2025, representing sixfold growth, according to December’s Q4 2020 ESA-Wood Mackenzie Energy Storage Monitor. The total market value is forecast to cross the "$1 billion annual threshold in 2020" and "be a $7.3 billion annual market in 2025," the report added.
"This year’s installations alone almost match cumulative U.S. battery storage, and 2021’s total capacity is forecast to reach over 3.5 GW," Burwen said. Residential storage represents about 20% of growth, he added.
The cost of battery storage has also declined "much faster than predicted, and will continue in 2021, though the curve may decline more gradually," he said.
FERC Order 2222, approved Sept. 17, requires wholesale market operators to develop rules and tariffs for DER, and is therefore expected to eventually bring aggregated distributed storage into wholesale markets, but the 2021 focus will be developing compliance filings, Burwen said. ESA will be working on that and "other ways to allow better utilization of behind-the-meter storage for grid services."
At the state level, key 2021 proposals will be Arizona’s value of DER tariff and Connecticut’s storage program design, Burwen said. "Progress will be state by state because some state regulators and lawmakers will lean forward on this and others will not, and progress is most often in response to regulatory pressure."
As the penetration of EVs grows, their load will eventually also be a major factor on the distribution system.
Though all car sales slowed sharply in 2020, Q3 2020 EV sales, led by California, were up nearly 60% from Q2 2020 and down only around 3% from Q3 2019, according to transportation electrification advocacy group Veloz.
But a "five-fold growth" will still take 2020’s 1.4 million EVs sold in the U.S. to 6.9 million units in 2025, according to a Nov. 19 report by global business research and consulting firm Frost and Sullivan.
Important transportation electrification policy priorities in 2021 will be returning to Obama-era tailpipe emissions standards and setting new financial and non-monetary incentives that drive growth, Boone added.
Federal action on EVs is likely to increase with Democrats controlling the White House and Congress. President-elect Biden, his Secretary of Transportation nominee Pete Buttigieg, and incoming Senate Majority Leader Chuck Schumer, D-N.Y., have described ambitions to expand transportation electrification.
But state mandates for EV procurement like those that drove renewables growth are the current emerging trend, NCCETC’s Proudlove said. At least 11 states are working on EV adoption policies that will add to growth, according to NCCETC’s Q3 2020 policy update, released in November.
This cumulative growth of solar, storage, EVs and other DER can lead to integration of new load in a way that supports the system and is a bigger part of system planning, Proudlove said. "It will be important to understand the effects on demand and load and on the need for distribution system modernization, and recent state utility commission proceedings about flexibility are likely to increase in 2021."
The new grid
Advancing a discussion about distribution system modernization will require alignment between utilities and DER advocates, Proudlove said.
The next phase of a debate that started with SCE’s 2018 rate case is leading to that kind of alignment, SCE’s Grigaux said. The California Public Utilities Commission "and other stakeholders see a new future evolving very quickly because of what's happening in the customer-driven marketplace in response to climate adaptation and technology costs and technology advances."
Greater reliance on variable wind and solar resources will require managing "challenges to safety, grid stability, asset condition, reliability and resilience," according to SCE’s recent white paper, the newest addition to its Pathway 2045 vision of how to meet California’s net zero emissions by 2045 mandate.
The direct impact of the growing "frequency and magnitude of climate-driven disruptions" will drive grid "evolution" by increasing customer demand for DER, the paper said.
Impacts of climate disruption and customer adoption of DER will vary by location and depend on things like urbanization, demographics and infrastructure, and "grid planning, design and operations will need to evolve," the paper continued.
The challenge of "inverter-based customer-owned technologies such as distributed solar and batteries is that their fluctuations can impact system voltage and frequency and threaten system stability," Grigaux said.
The utility needs visibility into "how the grid is operating at any node in the system to be able to respond to disturbances or outages," he said. "Today’s inverters and current technology limit that visibility," and the growth of system variability "will require a higher performing communications network."
There will be a new need for "more region-specific, ‘modular’ grid designs" and for strengthened "forward radar" to foresee customer adoption of technologies and the system issues they present, the paper said. Planning must take a "multiple scenario-driven, adaptive and more proactive approach using probabilistic analyses" to create "system flexibility" to address "future uncertainty."
A "reimagined" system must have the sensors, and communications and analytic technologies to provide "a targeted real-time response" to changing load, supply, and infrastructure conditions created by increasing amounts of DER, the paper added.
Building this "intelligent secure information and operations network" to manage DER and the poles and wires to support it "will require significant investment," Grigaux said. The paper is intended to make 2021 a year in which stakeholders’ "collective commitment to new technologies" grows and regulators and policymakers begin to understand the obstacles "to deploying the needed technologies."
SCE’s proposal is at the "cutting edge" of distribution system planning, Vote Solar Senior Director for Grid Integration Ed Smeloff said. "It builds on successes in New England and other states that allow customer resources to provide grid services, but I have not seen anything this advanced."
Preparing to "orchestrate DER flexibility is complex," Smart Electric Power Alliance Director of Research and Industry Strategy Brenda Chew added. "This is a design for a granular, forward-looking capability that can allow the situational awareness to anticipate changes in technology adoption and prepare to manage them."
Analysts say SCE’s vision can be put to use in two key ways.
Uses of the new grid
The distribution system envisioned by SCE can use today’s just emerging DER penetrations in 2021 for load flexibility, customer engagement, peak demand reductions and new infrastructure cost deferments, analysts said. And soon, SCE’s vision will enable DER as energy supply.
"Regulators have already approved utility expenditures for incentives to customers for use of their DER for grid services, and that trend should not slow in 2021," Brattle Group Principal Ryan Hledik said. "Those programs are now reducing costs to ratepayers for distribution system upgrades and allowing utilities to increase system flexibility by offering customers new products and services," he said.
Regulators are also likely to consider performance rewards to utilities in 2021 for load flexibility offerings, Hledik said. "Where regulators see the system benefits of load flexibility but their utilities remain reluctant to support DER, regulators may pressure utilities to do more this year."
That may include trials of a new concept that couples a fixed bill with residential customers' DER technologies in return for participating in load flexibility programs, he added.
The SCE paper describes what different distribution systems will need as DER evolve at different times across the country, said Newport Consulting Managing Partner and former SCE Vice President for Advanced Technologies Paul De Martini. He co-originated the use of the "walk-jog-run" concept to describe the emergence of DER and other new power system technologies.
Places like California are "in the jog phase with DER and by the end of this decade will be into run mode," De Martini said. "The bottlenecks to the future everybody wants will be the areas of high DER penetrations on the existing distribution system."
DER can be a valuable source of flexibility now, but there is a "false narrative" that DER can make it unnecessary to do "significant physical upgrades," he said. "The real value from distributed resources is the energy and capacity value on the supply side," but that will require better wires and poles along with new control technologies and better planning to realize that value.
Customer demand will make energy supplied by DER "much more than a marginal contribution," but using it "will require thinking about the distribution system in a different way," De Martini said. Paired with utility-owned or customer-owned storage, it can be "a firm resource that can be scheduled and used as supply, it can be shaped and compensated and lead into a new realm of DER value in which it is much more than a load modifier."
SCE’s paper articulates the need for investments in advanced information, operations, communications and control technologies in the near, mid and long terms, he said. There will also be a need for investment in physical infrastructure, and for planning that recognizes "how much DER will grow and preparation to unlock its potential."
"The progress of DER is unlikely to slow in 2021 or after because customers will continue to want them," De Martini said. "There is likely to be exponential growth as innovation makes these technologies more cost competitive and capable, and that means power system planners must be ready to use thinking like the ideas in SCE’s paper to enable these technologies."