By Ben Kellison, Director, Grid Edge Research, Wood Mackenzie

The mix of distributed energy resources (DERs) in the United States (US) is diversifying as it grows. The DER mix is evolving quickly away from non-residential load management, which made up two-thirds of all the country’s DER capacity in 2015 but will make up less than half by 2025. 

Wood Mackenzie’s DER outlook report finds that solar, electric vehicle infrastructure and residential load management potential now lead all other resources, accounting for more than 90 per cent of DER capacity installed between 2016-2025. The report also finds that total US DER capacity will climb to an astonishing 397 GW.

Cumulative DER investments in the US will eclipse $80.6 billion between 2020 and 2026. EV infrastructure, battery storage and grid-interactive water heaters sales growth will drive spending to a new peak in 2025.

Hundreds of gigawatts of DER capacity in the balance

The report illuminates another important trend. The presence of DERs on the grid at far greater volumes than the demand response needs for reliability forecast by the North American Electric Reliability Corporation underscores the untapped potential for DERs to shape load and integrate renewables onto the grid.

According to the NERC, which regularly assesses the balance between supply and demand to ensure reliability, the need for demand response in North America will remain flat at around 35 gigawatts through 2025.

However, NERC’s assessment of demand response needs is based on a traditional approach to resource planning.

The total capacity potential from residential load management, distributed solar, distributed storage, EV charging and distributed fossils will exceed the reliability requirement assessment by 362 gigawatts by 2025.

A new phase of grid planning is on the horizon in the U.S., though progress has been slow. In September 2019, the Federal Energy Regulatory Commission concluded that it is interested in further exploring the interconnection of distribution-connected DERs, including load management opportunities. FERC’s pending rulemaking on aggregated DERs will significantly impact how load management potential will be used to provide system flexibility, reliability and resiliency. In the meantime, these DERs will provide valuable services to customers by reducing load, demand peaks and exposure to dynamic rates, in addition to improving comfort and customer control. 

The DER market is not insulated from COVID-19 impacts

The COVID-19 pandemic and coming recession will have a very significant impact across DER markets in the United States, with annual DER capacity additions falling by 48 percent in 2020.

2020 will be the first year the market doesn’t grow year-over-year in more than a decade, according to our new analysis. The U.S. DER market will experience a recovery in 2021 but will not exceed its pre-outbreak high until 2024.

What could accelerate or hinder DER growth in the U.S. over the next five years?

Retail rates: If dynamic rate determinants become more common in the next five years, they will improve economics for storage, residential load management, private EV charging and fuel-based generation.

Consumer demand and macroeconomic conditions related to COVID-19: The likely onset of recession in 2020 is poised to have an impact upon every DER type. Lower economic activity and higher unemployment will decrease both consumer disposable income and business investment in the early 2020s.

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