Utilities are increasingly required to incorporate distributed energy resources (DERs), such as rooftop solar, battery energy storage, bidirectional EV chargers and more, in their planning. The Smart Electric Power Alliance’s (SEPA) white paper Decoding DERMS: Options for the future of DER management looks at the advantages that distributed energy resource management systems (DERMS) bring to utilities.
Demand for electricity is rising in the U.S., attributed to the growing number of data centers coming online. According to the report “US data center pipeline” from Wood Mackenzie, data centers developed since 2023 exceeded 92 GW of capacity at the end of 2024. With this rapid growth comes increased need for a flexible, strong and resilient grid, which can be enabled by DERMS, according to the paper, noting that DERs “adapt readily to shifting electricity demand on a more localized basis than centralized power.”
While DERs help shore up the grid, it has also become increasingly complex as well as decentralized. Management tools are now critical to “help utilities and market operators manage this complexity, better integrate DERs, improve system reliability and flexibility, and reduce system costs,” according to the paper.
DERMS are defined as:
A collection of multiple software systems interacting with utility operational and information technology (OT and IT) systems and business processes to enable a new paradigm for grid operations, allowing customer-sited resources to provide multiple grid benefits more quickly, flexibly, and affordably than traditional infrastructure investments.
There are two primary types of DERMS:
- Edge DERMS: A system that manages large numbers of behind-the-meter (BTM) DERs of multiple types (e.g., batteries, thermostats, EVs, etc.) from multiple DER manufacturers.
- Grid DERMS: A system that is tightly interconnected with a utility’s distribution OT systems and focuses on managing larger front-of-meter DERs and aggregations of BTM DERs, often through integration with an Edge DERMS.
The paper outlines key utility responsibilities including the development of long-term resource planning an it outlines business models for DER management and compensation.
Business models include utility-led, aggregator-driven, hybrid, and dynamic pricing models, all of which have advantages and disadvantages for maximizing the benefits of DERs across generation, transmission, and distribution, the paper reports. But the paper calls out the implementation of virtual power plants (VPPs) as “the next state in effective DER management.”
VPPs are defined by the Department of Energy as aggregations of DERs that can balance electricity demand and supply and provide utility-grade grid services at scale. The paper focuses on VPPs, noting that they are the next stage in effective DER management. Examples can be seen, the paper notes, as “leading utilities” implement new technologies or replace legacy system and find that DERMS “provide the best path to success.”
In conclusion, the paper points out that utilities do not act in isolation and that “regulatory evolution” is needed, with the suggestion that regulators incentivize DERMS investments, develop constructive participation frameworks, and establish incentive mechanisms that treat DERs as equals with conventional generation, transmission and distribution investments.
Key takeaways
• Investing in DERMS allows utilities to build and operate VPPs for peak load management and through multiple DER device types.
• DERMS enable a new approach to utility operations providing enhanced visibility and decision-making, providing multiple benefits beyond peak load management.
• There are multiple participation models for effectively managing DERs, each offering different advantages for capturing value from grid services.
• Utilities should consider an outcome-based procurement strategy and an incremental implementation approach for DERMS.
• Regulatory evolution is needed to ensure efficient investments.
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