Author: Ayan Kanhai Aman, Policy and Markets Lead, Electron
Grid operators worldwide face the same challenges – an explosion of distributed energy resources (DERs) and renewables, driving decentralisation and bi-directional power flows. Making use of flexibility through distribution system operation is key to managing these complexities, optimising grids, and integrating new technologies.
What is a DSO?
The distribution system operator (DSO) is a set of evolving functions, including day-to-day grid operations, integration of distributed energy resources (DERs), enabling market participation, engaging customers, and coordinating across system actors.
Each region or utility may follow a different path to develop those functions. What’s important is that the DSO model is responsive to local system needs – and that means operationalising flexibility.
Flexibility procurement is evolving, sitting long-term contracts alongside near real-time flexibility facilitated via dynamic market platforms. The key is doing both whilst keeping it simple to operate for utilities and easy to engage with for flex providers, avoiding over-engineering. This opens doors for wider participation and better optimisation.
Smart use of DERs through flexibility can defer infrastructure investment and improve resilience – yet, it’s more than that. Flexibility is a strategic lever. It allows operators to make smarter investment decisions, connect assets faster, and enable capital efficiency.
Read more about how the UK has embraced system operation.
The underlying case for system operation in the USA
There’s a perception that energy systems in the US and the UK are wildly different. The UK operates with unbundled ownership of the UK energy value chain – generation, transmission, distribution, etc are all owned separately. In the US, a single owner often owns and operates all aspects of the value chain.
Yet, ownership is not the comparison to make, in the context of our evolving energy system; it’s all about visibility. In the US, as was the case in the UK, visibility over DERs can be limited, with data siloed at different junctures.
This challenge will grow as more DERs connect. In the USA, there’s a clear, regulatory shift towards making better use of and integrating more DERs, as an abundant and cheap power source that can help ensure energy security and affordability.
For example, FERC 2222 encourages US Independent System Operators (ISOs) and Regional Transmission Organizations (RTOs) to develop plans to help DERs access wholesale energy markets.
This is where system operation and neutral flexibility marketplaces in the US could bring much the same benefit as in the UK.
Reduced complexity and more MWs
A system-operation approach can coordinate DERs via a flexibility marketplace. This creates more network visibility while reducing the complexity of managing multiple bilateral contracts.
Marketplace price signals can help grid operators understand the right price to secure a certain volume of flexible capacity at a certain time – helping test that there’s reliable volume available.
These signals also reflect more revenue opportunities for DER operators, incentivising them to deliver their flexible capacity to the network.
That growing flexible capacity means more MWs to call on to help balance the electricity network.
Visibility leading to value
The more effective use of flexible DERs also has direct cost benefits for grid operators too, boosting energy affordability.
Indeed, flexibility and system operation go hand in hand. They work together to ensure the cost of the energy transition doesn’t become unfeasible, as the number of DERs connecting continues to accelerate.
In the UK, we estimate that the cost savings of flexibility instead of grid buildout will reach around £607 million – approximately $747 million USD – across the six UK DSOs in the current price control period (RIIO-ED2, 2023-2028).
Yet, flexibility can never replace grid buildout; that will still need to happen. This leads to another way that operators see value: better capex decisions.
All this new visibility over DERs can help electric utilities make decisions on where best to invest in grid infrastructure upgrades while deploying flexibility markets to support elsewhere. In the UK, we estimate this value at around £310 million (approximately $418 million USD).
Similarly, the UK has uncovered a third value pot equally applicable in the US as more renewable integration is encouraged: smarter connections. DERs that accept flexible or non-firm connections can connect faster. This, again, boosts the MWs available to grid operators while they continue to invest in infrastructure.
Ensuring an affordable grid for consumers
In the US, there is pressure on utilities to prove they’re taking steps to deliver a fair price to their customers, through making better use of the DERs in their networks in particular.
A system operation approach supported by a coordinating flexibility market platform can enable the visibility required across the system to demonstrate how DERs are being leveraged to deliver an affordable grid.
This can help prove capital-spend efficiency and prove that progress has been made in using the abundant DERs available.
Want to learn more about a system operation approach? Speak to Electron.
