DER Policy & Regulatory Landscape (U.S.)

Interconnection Standards (IEEE 1547)

Technical requirements for connecting DER to the distribution grid are governed by standards, primarily IEEE 1547. The key update, IEEE 1547-2018, introduced modern performance requirements (volt-VAR control, ride-through) effectively requiring smart inverters.

• States typically incorporate IEEE 1547 into their interconnection rules.
• There is a nationwide push to adopt the 2018 standard to harmonize practices (following leaders like Hawaii, California, Oregon).
• Clear, up-to-date standards are critical for safe, reliable operation with high DER penetration.
• Initiatives like IREC's model procedures and DOE's I2x aim to streamline interconnection.

Federal FERC Orders (Wholesale Market Access)

The Federal Energy Regulatory Commission (FERC) has issued pivotal orders to integrate DER into wholesale electricity markets (operated by RTOs/ISOs):

• FERC Order 841 (2018): Required RTOs/ISOs to remove barriers for energy storage (≥100 kW) participation in wholesale energy, capacity, and ancillary service markets, including behind-the-meter storage. Asserted FERC jurisdiction over wholesale market participation.
• FERC Order 2222 (2020): A landmark rule enabling aggregations of DER (potentially mixed types like solar, batteries, DR, EVs) to participate in wholesale markets.
  • Defined DER broadly (on distribution or behind meter).
  • Set a minimum aggregation size (typically ≥100 kW).
  • Disallowed broad state "opt-outs" (with limited exceptions), ensuring aggregator access to RTO markets.
  • Requires RTOs/ISOs (PJM, MISO, ISO-NE, NYISO, CAISO, SPP) to develop compliance plans (ongoing process).

These orders work together, signaling a shift to bidirectional wholesale markets where aggregated small resources can contribute alongside large generators, facilitating Virtual Power Plants (VPPs).

See also: FERC Order 2222 & DER Aggregation

Retail Compensation: Net Metering and Net Billing

At the retail level, compensation mechanisms heavily influence DER adoption, especially rooftop solar.

Net Energy Metering (NEM)

• Billing mechanism crediting DER owners for excess electricity exported to the grid, usually at the full retail rate (effectively "spinning the meter backward").
• Allows customers to offset grid purchases with exports on a net basis, providing significant bill savings.
• Mandatory NEM rules exist in ~34 states + DC/PR (as of 2025), though details vary.
• Has been crucial for residential/commercial solar growth but is contentious due to potential cost-shifts to non-solar customers.

Net Metering Reforms & Net Billing

• Some states are moving away from traditional NEM due to cost-shift concerns and high DER penetration.
• Net Billing: Exports credited at a rate lower than retail, often based on the utility's avoided cost or wholesale prices (e.g., California's NEM 3.0 significantly reduced export credits).
• These reforms aim to better reflect the grid value of exports but can reduce DER project economics and increase payback periods. They often encourage pairing solar with storage for self-consumption.
• States like Hawaii, Nevada, and New York have also transitioned away from traditional NEM.

Alternative Compensation Models

Regulators are implementing more granular compensation methods:

• Value-of-DER Tariffs (e.g., NY Value Stack): Credits based on multiple components: energy value (wholesale price), capacity value, environmental value, and location/time-specific grid benefits (Demand Reduction Value/Locational System Relief Value). Delivered as monetary bill credits, acting like a granular feed-in tariff. Minnesota (Value of Solar) and Illinois have similar concepts.
• Time-of-Use (TOU) Rates: Electricity rates vary by time of day/season (higher during peak, lower off-peak). Encourages shifting usage or using stored energy. Implicitly values DER output higher during peak times. California mandates TOU as default for many customers; uptake is growing elsewhere. Amplifies the value of smart controls and storage.
• Feed-in Tariffs (FIT): Less common; all DER output purchased at a set price (e.g., California's Re-MAT for small renewables).

Tax Incentives and Federal Policy

• Investment Tax Credit (ITC): A 30% federal tax credit for solar PV, extended by the Inflation Reduction Act (IRA) of 2022.
• Storage ITC: IRA made standalone energy storage eligible for the 30% ITC.
• Bonus Credits (IRA): 10-20% adders for projects in low-income areas, energy communities, or meeting domestic content requirements, boosting community solar and equity.
• Accelerated Depreciation (MACRS): Improves commercial project returns.
• EV Tax Credits: Up to $7,500 for qualifying EV purchases, driving adoption of mobile DER.
• Federal R&D (DOE programs like SETO) supports technology development.

State and Regional Regulatory Frameworks

States vary widely in their approach. Key examples:

• California (CAISO): Leads in deployment. Pioneer in NEM (now net billing), storage incentives (SGIP), EV integration. CPUC has DER Action Plan, integrated planning. CAISO allows DER aggregation (DERP model). Faces "duck curve" challenges, driving storage and TOU adoption.
• New York (NYISO) & REV: Reforming the Energy Vision (REV) initiative remakes utility models (Distributed System Platform). Utilities earn performance incentives for DER integration (e.g., ConEd BQDM). Adopted Value Stack compensation. NYISO was first RTO with Order 2222 DER aggregation model.
• Hawaii (Island Grids): Highest DER penetration. Ended NEM early (2015), uses tariffs like Self-Supply and Smart Export. Mandated advanced inverters early. Uses battery incentives (Battery Bonus) to manage peaks and integrate renewables towards 100% goal. Demonstrates regulatory agility.
• Texas (ERCOT): Competitive retail market, no state NEM mandate (except munis/co-ops). Market-driven DER growth (competitive solar compensation plans, VPPs). PUC exploring DER integration ("ERCOT 2.0") post-2021 event.
• Other Notables: MA/NJ (SMART program, storage incentives), AZ (avoided cost export rates), MN (Value of Solar). Many states streamlining interconnection. Some exploring transactive energy.

Regional Transmission Operator (RTO) Initiatives

• PJM: Developing DER participation model, utilizes DR in capacity market, pilot aggregation projects.
• ISO-NE: Aggregated residential batteries cleared capacity auctions (Sunrun), seasonal peak shaving programs.
• MISO: DER Roadmap focusing on utility coordination for Order 2222, aggregated DR programs.
• CAISO: Pre-2222 DER Provider model expanding, relies on Price Responsive Demand.

Safety and Cybersecurity Regulations

• NERC examining DER impacts on bulk system reliability.
• IEEE 1547/UL standards include safety requirements (anti-islanding, ride-through).
• Increasing focus on DER visibility for grid operators (data sharing rules).
• Cybersecurity standards emerging (e.g., CA Rule 21 secure comms modules) due to networked nature of DER. DOE highlights growing cyber/physical security concerns.