This is part two of our six-part DERMS series. If you missed the previous part, it can be found here:

Part 2: Benefits of DERMS for the entire power value chain

For this discussion, ABB defines DERMS as any system related to managing any form of distributed energy resources (DER, as defined in part 1 of this series) to ensure safe and reliable public utility electricity network operations. In this context, the distribution system operator (DSO) is viewed as the central operator of a DERMS with other players linked to this, e.g., retail customers, larger demand customers, aggregators, VPP/microgrid operators, generators, market traders, the transmission system operator (TSO), etc.

Market segments that benefit from DERMS deployment

There are five market segments that benefit from DERMS deployment in different ways:

Below, we take a closer look at the role DERMS can play a part in each segment.

Upstream participants

Examples of upstream participants, i.e., generation companies (GenCos) and independent power producers (IPPs) that manage their own assets either in separation or as a distributed portfolio. In general, GenCos and IPPs see limited application of DERMS in their operations and rely mainly on already existing software.

Grid operators

Grid operators (TSO and DSO) can be either network operators, responsible only for the infrastructure and energy delivery, or vertically-integrated utilities, owning and managing infrastructure as well as selling energy to end customers. With the displacement of conventional transmission-connected power plants with renewable energy source (RES)-based distributed generation (DG), TSOs will look increasingly to the DSO and distribution customers for support services. DERMS will play a key part in enabling these services to the TSO and potentially provide an additional revenue to DSOs and participating customers.

It is anticipated that future revenues for DSOs will no longer be concentrated in just the physical asset base of core grid infrastructure (e.g., wires, poles and substations). DERMS will enable additional revenue opportunities in operating markets for DER flexibility. For TSOs, DERMS can facilitate or provide support services for real and reactive power, fast frequency control, and potential new TSO markets for black start and inertia support. DERMS can also provide DG customer access to wholesale markets.

The potential changing business model will compel DSOs to introduce more sophisticated software solutions potentially supported by DERMS. Examples include:

• Volt-VAr optimization (VVO) applications
• Optimal power flow (OPF) applications
• Advanced distribution planning software
• Upgraded power flow models that extend to the grid edge
• Power quality monitoring and analysis applications
• Grid visualization platforms
• Market trading and bidding platforms
• Advanced DER modeling and analysis software

Machine learning and artificial intelligence applied to historical data will improve the forecasting of DER availability and network operational margins on an intra-day, daily, weekly or longer-term basis. This may also see a move to cloud platforms for such data storage and intelligent analytics.

The increase in behind-the-meter DG and distributed energy storage systems for community energy schemes and domestic prosumers can lead to decreasing use of system revenues for DSOs. This could result in the development of new, sustainable business models to maintain reliable supplies. The current approach in continental Europe to charge the costs of grid reinforcement by increasing per-kWh use of system fees is likely to be unsustainable, as it will encourage more customers to install DER, creating even more pressure on the grid operator.

In parallel, new players are entering and developing the new energy ecosystem with innovative solutions in areas such as:

• Distributed storage
• B2B energy management
• Electric vehicle charging stations
• Smart infrastructure (platforms to optimize decentralized power flows, smart distribution and transmission grids)
• Solar photovoltaic
• Community energy
• Virtual power plants
• Heating and combined heat and power (CHP)

The DSOs need to recognize the behaviors of these new grid edge energy ecosystems and utilize their demand/export flexibility where necessary to optimize the distribution network performance. A DERMS system can be a major asset in helping to manage the impact of these ecosystems and other DERs on the DSO network. In particular, a centralized control room DERMS with advanced network modeling and AI-assisted analytics for performance forecasting may be beneficial to the DSO.

Aggregators

Aggregators operate at the grid edge, acting as VPPs that can be distinguished in supply-side, demand-side or mixed. Supply-side VPPs operate a portfolio of third-party assets (often with various vendors) and/or storage capacity for reserve and load curve optimization. Demand-side companies aggregate flexibility on the demand side for peak load management. Demand/supply-side aggregators manage a mixed portfolio of third-party assets on both the demand and supply side. Many new internet-enabled domestic products that can be remotely controlled have appeared on the market, opening up new customer and aggregator opportunities.

Aggregators have a broad portfolio of services, of which peak demand is currently the most common. First-generation aggregators and energy service companies (ESCOs) manage peak demand reduction with the goal of reducing overall load or peak demand. This market is mature in Europe for industrial power consumers. The utilized processes are continuous, independent of time, outdoor temperature, etc. Second-generation aggregators and ESCOs rely on more complex optimization such as smoothing the load curve while maintaining overall demand or adjusting demand to fit RES power output patterns. This constitutes a developing market across North America, Europe and Australia mainly for households and commercial power consumers. Unlike before, the utilized processes are now discontinuous and therefore depend on time, outdoor temperature, etc.

Downstream participants

Downstream participants include retailers and energy service companies (ESCOs). Retailers are end-customer suppliers of energy with close to none owning infrastructure. ESCOs constitute a broad portfolio of companies that provide grid edge services like energy optimization, operation and maintenance of DER, etc. Retailers and ESCOs are typically looking into specific market functions such as responding to price signals, transaction settlements and total demand optimization, to name a few.

Energy exchange markets

Energy exchange markets are where energy producers sell energy and retailers buy it. They are local or regional systems that manage transactions and price setting either in centralized or direct, peer-to-peer models. The main markets within an energy exchange for electricity are the spot market, for short-term trading (e.g., day ahead and intra-day trading), and the forward market, where the physical delivery takes place at a future date.

DER management is sometimes required by DSOs and TSOs to provide future economically-efficient utility services to customers by avoiding expensive network upgrades. In such cases, new markets for DER flexibility (e.g., DG curtailment or demand-side response) may be introduced.

The transition from transmission-connected large synchronous power stations to smaller-scale distribution network-connected and typically non-synchronous intermittent-output power plants has created new ancillary services markets to maintain stable electricity systems. These ancillary service markets are typically operated by the TSO for voltage and frequency control-related services. In the future, the need for black start and inertia support services may also be required as the electricity production transition continues in many countries. Delivering these TSO ancillary services will require DER management and potentially new trading and transaction service arrangements operated by the TSO or the DSO or third parties.

In part three of our six-part DERMS series, we will cover how regulations can influence DERMS adoption.