DER Investments Can Defer Transmission and Distribution Grid Investments

Distributed generation has grown rapidly since 2011 and distributed energy resources (DER) are continually added to the grid. Despite the rapid growth in DER deployments, there are still some that question the cost-effectiveness of distributed generation. Proponents of utility-scale renewable generation will note that, on a per-kilowatt-hour basis, utility-scale generation is often significantly less expensive. So, is new investment best spent solely on utility-scale renewable generation? Although an interesting argument, the answer is not either/or—they must coexist to realize their full potential.

DER provide many benefits—many of which are not strictly monetary. For this reason, some of the benefits of distributed generation can be difficult to quantify. But, for the purposes of this blog I want to focus on a benefit of distributed generation that is quantifiable—if adding distributed generation to the grid can defer investment in transmission and distribution (T&D) networks and lead to significant savings in the long term.

DER Investments Benefit the Grid

Distributed generators are located on the distribution grid—closer to load centers than utility-scale generation—so they have the potential to defer T&D grid investments. Because T&D costs make up a substantial share of electricity bills, reducing these costs can have broad benefits to overall cost savings. However, the extent to which DER investment defers T&D costs remains contested. A recent report from the US National Bureau of Economic Research seeks to settle this question by using data from over 2,000 substations in France to estimate the relationship between investments in various distributed generation technologies and hourly net injections to the distribution grid. For distributed generation investment to defer T&D investment, DER must produce sufficient electricity during peak hours to decrease the maximum grid capacity necessary to ensure reliability and adequate supply.

The report found that adding 1 MW of distributed solar PV capacity has no statistical impact on the highest percentiles of the annual distribution of hourly net injections to the distribution grid. Because the output from distributed solar PV was not coincident with local peak electricity demand, increasing distributed solar capacity did not significantly reduce the network capacity required to achieve a given level of reliability. The report also found a more promising result when they tested the effect of increases in renewable generation when paired with distribution-level storage. Without the addition of distributed storage, distributed generation investments are unlikely to defer necessary T&D investments. However, when paired with substantial investment in distributed storage, DER investment can defer future T&D investment.

Energy Storage Is Essential to Reliability

Bundling investments in distributed solar and wind with investments in battery storage has the potential to significantly increase the grid deferral benefits of those distributed generation investments. However, to achieve these deferral benefits, the grid requires a huge amount of investment in battery storage.

Distributed generation and distributed storage are complementary technologies; their ability to defer T&D investment when used in tandem is further proof of this complementary relationship. Using distributed energy storage to supply electricity during peak demand hours can reduce the highest percentiles of annual distribution hourly net injections to the distribution grid, allowing utilities to defer costly T&D grid investments.

There are benefits, both monetary and otherwise, provided by distributed generation and distributed storage. Considering how distributed generation investment can affect the need for grid infrastructure investment highlights the importance of combining these assets. Distributed generation and distributed storage are greater than the sum of their parts when deployed together. For a more in-depth look at distributed energy storage and solar PV, see Guidehouse Insights’ recent report, Market Data: Distributed Energy Storage and Solar PV.