DER Challenges & Risks

Despite many advantages, DER integration involves challenges and risks related to technology, regulation, markets, utility models, and equity. Recognizing these is essential for developing mitigation strategies.

Intermittency and Reliability Challenges

  • Variable DER (solar, wind) are not fully dispatchable, impacting firm capacity value. Forecasting helps but is imperfect.
  • Sudden output changes (e.g., cloud cover) require fast-ramping backup (storage, DR, gas).
  • Diverse DER characteristics complicate operations; require tailored solutions.
  • Potential for misoperation (e.g., inverter tripping during dips) or non-performance (DR opt-outs) needs management.
  • Resource Adequacy: Growing concern as conventional plants retire; requires confidence in aggregated DER performance (often mitigated by derating capacity values and performance requirements).

Grid Integration Costs and Complexity

  • While DER can defer some upgrades, they can necessitate others (smart relays, storage buffers, reconductoring) to handle bidirectional flows.
  • Interconnection Bottlenecks: Slow/costly study processes and uncertain upgrade costs can delay projects (DOE notes delays, lack of transparency, outdated standards).
  • Operational Complexity: Coordinating thousands/millions of DER requires advanced systems (DERMS) and automation.
  • Cybersecurity Risks: Increased attack surface with networked devices. Coordinated attacks could destabilize grid segments. Requires robust standards, secure platforms, redundancy.
  • Market Coordination Complexity: Ensuring alignment between retail (utility) and wholesale (ISO) domains to avoid conflicting signals or double compensation (ongoing refinement post-Order 2222).

Regulatory Uncertainty

  • Evolving policy landscape creates risk for investors/consumers.
  • Changes to compensation (e.g., CA NEM 3.0 reducing credits) can drastically alter project economics. Periodic tariff reviews add uncertainty.
  • FERC order implementation timelines and interpretations vary by RTO, delaying market access.
  • Patchwork of state rules increases complexity and costs for national players.
  • Potential for policy reversals due to political changes.
  • Need for stable, long-term policy signals to reduce risk.

Utility Business Model Resistance

  • Incumbent utilities may resist DER due to perceived lost revenue or threats to traditional business models (earning on infrastructure).
  • Manifests in policy battles (NEM debates, push for higher fixed/demand charges), slow processes, or restrictive interconnection rules.
  • Utility culture may distrust DER data or relying on external resources.
  • However, resistance is lessening as regulators create incentives for utilities to integrate DER (PBR, NWAs).
  • Risk remains that utility influence could throttle DER growth in some regions. Requires demonstrating DER benefits and fair cost-sharing.

Market and Financial Risks

  • Financing Risk: Reliance on potentially expiring tax credits; nascent market revenues. Higher risk premiums for novel business models.
  • Performance Risk: Aggregated fleets not delivering expected output due to device failures or customer behavior.
  • Counterparty Risk: Aggregator bankruptcy, etc.
  • Market Saturation Risk: Prices for services like frequency regulation can drop if supply (e.g., too many batteries) exceeds demand, undercutting revenues. Highlights need for robust value stacking.
  • Requires careful vetting of business plans and sensitivity analysis.

Equity and Accessibility

  • Historical skew of DER adoption towards wealthier homeowners raises concerns about benefits bypassing disadvantaged communities.
  • Potential Energy Equity Gap: If costs are shifted, non-participants (often lower-income) could face rising rates while others benefit from DER savings/resilience.
  • Requires inclusive program design (community solar LMI carve-outs, subsidized options, on-bill financing), outreach, and fair cost allocation mechanisms.
  • Need to ensure equitable geographic distribution of DER benefits (e.g., resilience hubs in vulnerable areas) and access to related workforce opportunities (Justice40 initiative).

In sum, while DERs offer immense promise, stakeholders must navigate technical, regulatory, market, and equity challenges. A risk-managed approach involving complementary assets, collaborative utility engagement, proactive policy advocacy, and focus on equitable access is crucial for a successful transition.