The value of distributed energy resources to the grid: Introduction to the concepts of marginal cost of capacity and locational marginal value

Abstract

Distributed Energy Resources (DERs) are argued to be a significant benefit to the electric utility grid. While DERs generate significant benefits to their owners and as well as society, the compensation and operating structure of the distribution system of most utilities is such that DERs result in minimal benefits to the distribution system. As we show, the benefits correctly attributed to the distribution company (the wires company) are a function of what service (real, reactive power) the DER is able to provide, when and where, and at what level of certainty the DER is able to provide the service. We introduce the concepts of Marginal Cost of Capacity (MCC) and Locational Marginal Value (LMV) in the calculation of the value of DERs to the distribution system.