Regulations and policies to enhance the energy transition Are we ready for the challenge?

Distributed energy resource

Distributed generation (DG) is defined, in general terms, as the generation installation at the distribution level. It is not a new concept. In several countries, the rules that allow small-scale generation for self-consumption, or that allow energy credits to be earned, are already decades old. Our region is not the exception, for example, Panama established the rules for self-consumption in 2008, and one by one, the countries joined with regulations that allow, or even encourage DG. In countries such as Mexico, Brazil and Chile this has led to an exponential growth in facilities.

Regulations and policies to enhance the energy transition Are we ready for the challenge?

However, in addition to GD, there is something that is changing. With the exponential development of information and communication technologies, the way in which DG can be operated is going from being a simple “fit-and-forget”(That is, to connect it and forget it) to be an active element of the network, which can be managed in real time, and coordinated with other elements of the network to optimize the entire system. We are moving from a passive distribution system, to an active management system, and eventually to a true smart grid.

Distributed generation and other elements that can be connected in a distributed way, such as storage and electric vehicles, become distributed energy resources (or DER for its acronym in English). The concept of a “resource” is key here, as it explains that DERs are elements that have “value” for the electricity system, and that connected and optimally coordinated provide “services” to the system.

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These services may include, for example, frequency management support, reactive power provision, peak generation support (either direct, or through storage), or active demand management (direct, or through storage). The range of services is expanding more and more, as technology and innovation advance.

The Revolution of Distributed Energy Resources (DER)

This is not just a technological revolution, it is an economic and social revolution. The consumer, usually a passive actor, now has the possibility of becoming an active agent, can generate his energy, can market it, or, eventually, separate from the grid.

The consumer who was previously used to simply receiving the electricity bill (at the end of the month), today has at his disposal the possibility of choosing his energy source (renewable, for example), or knowing his consumption in real time. Electric vehicle owners potentially become sellers of electricity, supporting system reliability in the event of a blackout. Technologies like blockchain They also open the possibility of energy trading directly between consumers.

The evolution of distributed energy resources does not in any way propose to dispense with the electricity grid. On the contrary, the electricity grid becomes an enabling element of this new revolution. Without it, and without the possibility that all users and DER can connect to it, it will not be possible to obtain all the benefits that new technologies offer us. For this, the development of policies and regulations focused on the user, and non-discriminatory (that is, allowing all technologies to connect) will be key.

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Regulations and policies to enable the energy transition

In the same way, it will be necessary to evaluate the current tariff regimes (often based on sector models developed in the 90s), in order to guarantee cost recovery and the sustainability of all actors in the chain. Policies and regulations are required to enable the full potential of REDs.

There is another element that is also essential: planning. Most of the countries have a centralized planning process, where generation and transmission investment needs are estimated based on a projection of demand for the next few years or decades. The demand projection should consider the portion that could now be supplied by GD.

On the other hand, it is clear that DERs cannot be planned (in the sense of having a centralized decision on which, where, when and how they should be installed), DERs will be installed by thousands of uncoordinated users. However, there are optimization and planning techniques that allow you to identify where, what type and when to install DER to maximize the benefits for the system, and minimize the costs for the users. Why is this information useful? An optimal integration of DER in the system means lower costs for all users, and by definition, saving the economic resources of society (usually scarce).

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These “DER planning” techniques can signal regulators and other actors so that they can create appropriate incentives. For example, tariff schemes that encourage the installation of electric vehicle chargers in areas of the network that have surpluses of distributed generation, or the installation of DG systems that have a profile that matches the demand at peak hours and allows to reduce investments of distribution or transmission (air conditioning and solar energy, for example).

Innovation and regulations, key to maximize the resources of the energy transition

The fourth industrial revolution is generating profound changes in society (positive and negative). Added to that, we have the imperative need to decarbonize our energy matrices in order to reduce climate change. Technological innovation is undoubtedly part of the solution, but it will require policies, rules and regulations that help maximize its benefits, without leaving actors out of the process. Until a few years ago, the regulation of the electricity sector was the one that fostered technological innovation. Now, it is technological innovation that is taking the lead. Are we ready for the challenge?

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