Distributed energy is poised to take center stage in 2022, but policymakers and regulators must step up
The share of grid resources that will be centralized versus distributed represents a key uncertainty of the energy transition. The cost of utility-scale solar per Wattdc will be 33% the cost of rooftop solar in 2026, making a deceptively clear case for centralization. Transmission capacity and site restrictions, however, will continue to limit the deployment of centralized resources. The power centralized resources deliver will in turn be limited by transmission and distribution congestion, as well as losses incurred along the way, which amount to roughly 5% of generation.
Distributed energy resources (DERs), on the other hand, exist proximal to loads, requiring investment at the edge of the distribution system but otherwise avoiding power congestion and losses. They can also double as resilience solutions, offering backup power if the grid goes down and contributing to microgrids across large facilities or communities. DERs include demand-side resources, which constitute half of the energy equation and will become critical in ensuring that supply and demand remain in balance. Perhaps most importantly, DERs offer the opportunity to democratize the grid, inviting massive residential and commercial capital into grid modernization to supplement that of large utilities and power producers.
In its second annual U.S. DER Outlook, Wood Mackenzie’s Grid Edge Research team analyzed DER development and operation over the decade-long window from 2017 to 2026. Among the high-level takeaways of the study, 78 GW of DER capacity was installed from 2017 through 2021, which is less than half of the 175 GW that will be installed from 2022 through 2026. 175 GW is close to the installed capacity of PJM, by far the largest North American power market — a mind-blowing number. Solar’s share of the distributed energy market will drop from 84% in 2020 to 49% in 2026, mostly at the expense of charging infrastructure for electrical vehicles (EVs), whose market share will grow to 21% that year.
The demand-side component of DER capacity in the forecast is flexible demand potential: the flexible capacity (in kW) that residential and commercial resources could provide were they to be offered into power markets. Installed flexible demand capacity today is an order of magnitude greater than wholesale demand response capacity, indicating a significant opportunity to bring customer loads under management and monetize them.
The largest growth drivers of the DER market lie in the hands of government. The extension to the solar investment tax credit (ITC), new standalone storage ITC, and direct payment provisions in the imperiled Build Back Better Act are essential both to prevent a solar demand cliff from developing in 2024 and to reduce the tax equity bottleneck for smaller solar and storage projects…..