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How LDCs Can Be Impacted by Distributed Energy

A trend we are seeing more and more in the electrical industry is the rise of distributed energy resources (DERs). This article will explore the integration of DERs and its various impacts on the cost of service as well as the general service offering for local distribution companies (LDCs) in Ontario.

What are DERs?

DERs refer to decentralized, small-scale power generation and storage technologies that are located close to the point of energy consumption (ie. in your home). These resources include rooftop solar panels, micro-turbines, combined heat and power (CHP) systems, energy storage systems (such as batteries), and demand response technologies. They offer opportunities for increased energy efficiency, lower costs to users, integration of renewable energy sources, and power supply flexibility.

Impacts to LDC Service
  1. Infrastructure Investments: The integration of DERs will require LDCs to make infrastructure investments to accommodate these varied sources. This can involve upgrades to the grid infrastructure, including smart meters, advanced monitoring systems, and control devices. These initial investments can increase the capital expenditure and overall cost of service for LDCs, although specific costs are likely to be passed down to the individual owning the DER.
  2. System Operation and Maintenance: The presence of DERs introduces additional complexity to grid operations, requiring LDCs to monitor and manage a more diverse and dispersed energy input framework. LDCs may need to invest in new technologies, software systems, and skilled personnel to effectively integrate and control DERs as they become more utilized. The ongoing operation and maintenance costs associated with managing these distributed resources can impact the LDC’s cost of service.
  3. Grid Stability and Reliability: DERs, particularly intermittent sources like solar and wind, can introduce fluctuations in energy supply and demand. LDCs need to ensure grid stability and reliability while accommodating these variations. This may involve implementing grid management techniques, such as voltage regulation, power quality monitoring, and load balancing, all at a cost to ratepayers.
  4. Revenue Considerations: Perhaps the biggest factor is whether DERs can impact the revenue collection for LDCs. Customers with DERs can generate their own electricity, reducing their reliance on grid-supplied power. As a result, energy sales from these customers may decrease, potentially impacting the LDC’s revenue streams. While LDCs can’t earn margin on pass through electricity sales from IESO, they do earn margin on the assets required to provide electricity. As long as a user is still hooked into the main grid, its likely to have minimal impact to the LDC other than some of the previously highlighted cost considerations. However, if battery storage and power generation on a local scale become reliable enough, a potential future may exist where users disconnect completely from the grid or petition the government to have reduced costs since they are not using the main grid.  LDCs may need to consider alternative revenue models or adjust tariff structures to recover costs and ensure financial sustainability in this scenario.
  5. Demand Management and Grid Planning: DERs offer opportunities for demand management and load shifting. LDCs can leverage DERs to balance energy supply and demand, optimize load profiles, and delay infrastructure upgrades. If proactive, LDCs can reduce the need for costly grid expansions and minimize system losses, which can potentially have a positive impact on the cost of service.

In general, DER deployment is small enough in scale, that serious impacts have not occurred. There are bigger considerations should larger scale deployment or further electrification of infrastructure continues and the impact to grids. How DERs factor in to this can be critical to the LDCs and offers an opportunity to incorporate these technologies into their systems and rethink billing models to maintain financial and system reliability.