Distributed Energy Resources

The advent of distributed energy resources (DER) and the integration of information technologies with the power grid are creating new challenges and opportunities for the electric power industry. DER technologies include energy efficiency, demand response distributed generation (DG), microgrids, energy storage and electric vehicles. These demand-side technologies – often on the customer side of the meter – are growing in popularity as technology costs decline, reliability and performance improves, and consumers opt for greater flexibility and control over their energy generation and use and its cost.

Cost-effective advancements in technologies such as solar, natural gas turbines and reciprocating engines, and energy storage are setting the stage for microgrid opportunities, and paving the way for emerging distributed generation (DG) technologies such as fuel cells, microturbines, and flow batteries. If properly integrated, DER technologies like these, coupled with innovative pricing structures, can provide operational benefits for AEP and the power grid, and financial benefits for the customer.

For instance, accurate pricing signals can be designed to fairly compensate customers with private local generation to optimize production at peak-demand times that provide the greatest benefit. In much the same way, these accurate pricing signals could further support development of energy storage resources to help meet peak demands. In the end, revision of the current pricing construct could provide a more sustainable pricing structure for all customers who rely on the services provided by the power grid.

Local Generation

Local generation – technologies that generate electricity at or near where it will be used, such as private solar and combined heat and power – is growing in popularity as costs come down, government subsidies continue to be extended, reliability and performance improve and consumers opt for greater flexibility and control over their energy use and cost. Local generation is creating new challenges and opportunities for the energy industry.

Large industrial and commercial customers have been the early adopters of local generation, where energy managers want more control over their systems, lower costs and increased reliability of the power that drives their business and keeps them competitive. The economics of local generation, particularly private solar, continue to improve, increasing their saturation rate.

AEP's solar generation growth

Examples of local generation systems in use by residential, commercial and industrial customers

Residential SectorCommercial & Industrial Sector
Solar photovoltaic panels Combined heat and power systems
Small wind turbines Solar photovoltaic panels
Natural gas fuel cells Wind
Emergency back-up generators Natural gas or biogas fuel cells
Reciprocating internal combustion engines, including back-up generators

Local Generation and Grid Reliability

Local generation can have positive and adverse effects on the reliability of the electric grid. Despite the growth of emerging local generation technologies, customers will continue to depend on the grid; therefore integration of local generation must be done in a way that maintains the reliable service that we all depend upon daily.

Distributed resources may provide energy security, resiliency and a way to reduce emissions. But it also means that more of the grid’s energy and capacity is spread across more sources. As local generation penetration grows, the need to modernize the grid infrastructure to integrate these resources in a safe and efficient manner is heightened.

Nearly all customers, including those who have installed local generation, continue to rely upon the grid for fundamental services. Capacity (the obligation to provide energy and demand whenever it is needed) is a fundamental service provided to all customers connected to the grid. This includes times when local generation sources are not producing energy, such as when a cloudy day prevents private solar customers from producing sufficient energy to meet all of their needs, or when their system is not operational. Conversely, they also need the grid when their system produces more energy than they need.

The grid also provides voltage control, frequency support and other ancillary services that are essential to reliability and all the devices we connect to. Without these fundamental services, all customers – DG and non-DG – would not be able to operate any of the electrical equipment in their homes or businesses.

There have been some bold predictions made regarding the electric utility industry’s quick demise resulting from the growth of local generation and other distributed resources. While it is true that the future will likely require power companies to build less central generation than we have in the past, we will continue to rely upon 24/7 capacity as a cost-effective and reliable source to maintain the reliability of the grid.

We have already taken steps to prepare the grid and we are making further investments in our transmission and distribution systems to accommodate a multitude of resources that will need to be connected to our system. Our gridSMART® initiative is one example of how we have laid the foundation for a modern grid. Now, we are focused on building out the infrastructure and engaging with regulators and policymakers to review the rules to enable this bold new future.