Editor’s note: This is the executive summary from a report by Samir Succar of ICF International
The impact of distributed generation on market operations and system reliability becomes increasingly dire as penetration levels increase in those regions where capacity market mechanisms provide the primary vehicle maintaining resource adequacy. The variability of the resource and its location on the low-voltage grid undermine efficient market operation at high penetrations by effectively decoupling price formation from supply/demand fundamentals. While regions such as California at the forefront of variable resource integration can provide useful lessons, the provision of flexibility by way of state procurement mandates is untenable in the context of organized markets that rely on capacity market constructs for resource procurement. Although such solutions might work well in other regions, they would only further compromise the integrity of price formation in markets such as PJM and New England. Indeed, if one central aim of the organized markets is to shift the risk of efficient investments to investors and away from consumers, the integrity of the capacity market construct must remain a necessary prerequisite for the future design of the system.
The future of the utility industry has become a central focus for many as the sector grapples with several existential threats. Among the chief threats looming on the horizon is the large projected growth in distributed energy resources (DERs) and its potential to compound the impacts of the anemic growth in net load observed in many regions today. But this growth in DERs is relatively recent. While the resource base has certainly grown significantly for specific resources in particular regions such as the solar photovoltaic (PV) generation in California or the demand response in PJM, on a national basis these resources still occupy a relatively small fraction of the overall mix. Nevertheless, the conditions for growth for this class of resource are approaching a tipping point toward widespread viability in many more markets and there is growing enthusiasm around the potential for growth of DERs in the years and decades to come. Note, for example, the growth rate for solar in particular in the forecast presented in the accompanying chart.
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