The importance of transparency in the distributed energy value stack

The term “value stack” refers to the combination of economic, reliability, and sustainability benefits that DERs provide. Unlike centralized power plants, which generate value primarily by selling electricity into wholesale markets, DERs deliver multiple benefits simultaneously.

One of the most immediate sources of value is energy cost savings. By generating electricity on-site with solar or by reducing consumption through efficiency, customers can reduce their reliance on utility-supplied power. This offsets retail consumption and reduces overall energy bills. Closely tied to this are demand charge reductions, particularly for commercial and industrial (C&I) customers who are often billed based on their peak demand. By lowering peak load through demand management and storage, businesses can avoid substantial charges.

Financial incentives and tax benefits further strengthen the economics of DERs. Federal tax credits, state renewable energy incentives, and accelerated depreciation can all reduce the effective cost of projects, making them more attractive to buyers. Beyond customer-level economics, DERs can also participate in grid services and wholesale markets. Batteries, flexible loads, and aggregated resources can provide valuable services such as frequency regulation, capacity, and ancillary support that help stabilize the grid. As battery storage technologies improve yielding faster charge times and longer durations, the market will increasingly accept batteries as reliable resources and value them accordingly.

Another essential layer of the value stack is resilience and reliability. For many buyers, especially those operating hospitals, data centers, or manufacturing plants, the ability to keep operations running during an outage can outweigh traditional financial considerations. Though difficult to quantify, the avoided cost of downtime can be significant. Finally, sustainability and ESG goals are increasingly part of corporate strategies. DERs contribute directly to decarbonization, help companies comply with regulatory mandates, and support brand reputation by demonstrating environmental leadership.

The precise makeup of the value stack varies widely depending on region, utility rate design, policy framework, and the specific load profile of each customer. A battery in one market may generate wholesale market revenues through frequency regulation, while in another, the very same battery might deliver greater value through demand response and enhanced resilience.

Rapid evolution

Over the past decade, DER economics shifted from simple payback calculations to complex, multi-dimensional revenue models. This evolution has been driven by a combination of regulatory shifts, expanded market opportunities, technological advances, and changing customer priorities.

From a regulatory perspective, many states are transitioning from net metering to net billing. Under net metering, exported solar energy was often compensated at the full retail rate, but under net billing, exported energy is valued at avoided cost or wholesale market rates. This shift reduces the economics of solar-only systems and elevates the importance of storage and demand management. Similarly, the introduction of dynamic tariffs such as time-of-use pricing and real-time pricing creates both risks and opportunities, rewarding those who can shift load or store and dispatch energy strategically.

Market participation has also expanded. FERC Order 2222 opened wholesale markets to aggregated DERs, allowing distributed resources to compete alongside centralized generation. This has paved the way for the rapid rise of VPPs, which pool together DERs from multiple sites to deliver system-level services. These market structures are still in development, but they signal a fundamental shift in how distributed resources are valued.

Technological advances have accelerated this evolution. Forecasting capabilities, AI-driven optimization, and cloud-based platforms make it possible to model DER performance with unprecedented precision. These tools enable simulations of different scenarios, quantify risks, and optimize dispatch strategies across multiple value streams simultaneously.

Finally, customer priorities are changing. For critical facilities, resilience and reliability have become top priorities, sometimes even surpassing economic savings. At the same time, sustainability is no longer a peripheral concern but central to corporate decision-making. Many companies are setting carbon reduction targets and using DERs as a strategy to achieve them. The result of all these forces is a DER value stack that is dynamic, region-specific, and increasingly sensitive to regulatory and market conditions.

Transparency

In today’s complex DER markets, sellers cannot rely on black-box sales pitches. Without transparency, three main risks emerge. First, mismatched expectations can occur when buyers overestimate savings or underestimate risks. This leads to disappointment, erodes trust, and can damage seller reputations. Second, investors may deploy capital into projects with inflated forecasts, resulting in inefficient allocation of resources and weakening overall confidence in the sector. Third, overstated claims about project returns could invite regulatory scrutiny, slowing down innovation and increasing compliance costs.

Transparency is the antidote to these risks. Robust tools and transparent methodologies allow sellers to show their work by making assumptions explicit and disclosing the models behind their projections. Transparency also enables sellers to highlight risks proactively, including tariff changes, performance degradation, or the expiration of incentives. Equally important, transparency provides buyers with a basis for comparability, making it easier to evaluate competing offers on equal terms. In a crowded and competitive market, transparency is no longer just good practice; it is a competitive advantage and the foundation for building long-term trust.

Buyers benefit

For commercial and institutional customers, understanding the DER value stack enables more informed and resilient decision-making. By demanding transparency, buyers can require detailed breakdowns of projected savings, revenues, and risks. This ensures that sellers cannot gloss over unfavorable assumptions and creates accountability in the sales process.

Buyers who take the time to stress-test assumptions gain further advantages. By evaluating what happens under different scenarios — such as changes to tariff structures, the reduction of incentives, or underperformance in wholesale markets — they can better understand the range of possible outcomes and reduce exposure to downside risks.

Moreover, a focus on the value stack allows buyers to think beyond simple payback metrics. DERs can provide substantial value through enhanced resilience, contributions to ESG goals, and participation in new markets that may open in the near future. By aligning DER investments with broader corporate priorities such as carbon neutrality, cost stability, and operational resilience, buyers ensure that energy projects serve both financial and strategic goals.

Finally, many buyers benefit from leveraging advanced analytical tools or advisors who can model projects rigorously. These tools provide clarity and help uncover value streams that might otherwise be overlooked. When buyers understand the value stack, negotiations shift from vague promises to data-driven clarity, leading to better outcomes and fewer surprises.

Continued evolution

The next decade promises even greater complexity and opportunity. Several developments are likely to define this period. First, the value of grid services is expected to increase as renewable penetration grows and flexibility becomes more important. DERs that can provide fast, dispatchable services will play a critical role in stabilizing the grid.

Second, VPPs will become more widely deployed and more deeply integrated into capacity planning and reliability markets. As market operators become more comfortable with aggregated resources, VPPs will transition from pilot projects to core components of the energy system.

Third, carbon valuation will become a significant factor. Whether through explicit carbon pricing mechanisms or implicit valuation via ESG reporting requirements, carbon attributes will be monetized and included in project valuations.

Fourth, electrification across sectors will create new opportunities. The adoption of electric vehicle fleets, the electrification of heating, and increased industrial electrification will introduce new sources of flexible demand that DERs can integrate with.

Finally, digitalization will advance, with AI-driven optimization becoming a standard tool for unlocking value streams that were previously too complex to access. Together, these trends make clear that the value stack is a moving target that will expand and diversify, requiring increasingly sophisticated analysis.

Flexibility, resilience, carbon reduction

The future sources of value will extend well beyond today’s bill savings. Flexibility markets will reward DERs that can deliver fast, dispatchable balancing services, helping grid operators manage variability from renewable generation. As climate and cyber risks continue to rise, resilience premiums will grow. For many businesses, the ability to maintain operations during an outage will become more valuable than simple energy savings.

Carbon credits and reporting value will also expand. As decarbonization goals become mandatory in more sectors, companies will increasingly monetize carbon reductions through voluntary or regulated markets. DERs that can demonstrate carbon benefits will be particularly attractive. In addition, DERs will contribute to community-scale value. Microgrids, peer-to-peer trading, and resilience hubs will provide shared benefits at the local level, further broadening the appeal of distributed energy solutions.

Finally, integrated load management will emerge as a frontier for value creation. By coordinating DERs with electric vehicles, smart buildings, and industrial processes, system operators and customers alike will unlock new efficiencies. These emerging layers of value reinforce the importance of robust modeling and transparent methodologies, as the risks of mispricing and overestimating benefits will only grow with increased complexity.

Support to navigate complexity

Navigating the DER landscape can be daunting, but new platforms and services are rising to meet the challenge. Advanced software tools such as that offered by Distributed Energy Clearinghouse® can now model complex tariffs, simulate wholesale market participation, and assess risks with increasing accuracy. The DECH platform features intuitive dashboards and scenario modeling, making it easier for decision-makers to interpret results.

Independent consultants continue to play a vital role by bringing expertise in energy economics, regulatory frameworks, and project finance. Buyers who lack internal expertise can rely on these advisors to ensure projects are evaluated rigorously. Industry associations and standards bodies are also contributing by publishing guidelines and methodologies that promote consistent valuation practices. Finally, collaborative marketplaces are emerging as trusted environments where buyers, sellers, and investors can transact with greater transparency and comparability.

For buyers, the key takeaway is to insist on open, transparent methodologies. For sellers, the imperative is to adopt tools and practices that foster comparability and trust. Together, these actions will strengthen the market and ensure that the full potential of DERs is realized.

Conclusion

The DER value stack has matured into a sophisticated, multi-dimensional framework that continues to evolve alongside the global energy transition. Transparency is now the critical ingredient that aligns buyers, sellers, and investors. Sellers who adopt robust, transparent tools will differentiate themselves in an increasingly competitive marketplace and build long-term customer relationships. Buyers who demand transparency will capture greater value and future-proof their organizations against uncertainty.

The future of the DER value stack is one of expansion, complexity, and opportunity. Those who embrace transparency today will be best positioned to capture tomorrow’s benefits.

Richard Zdunkewicz is CEO of Distributed Energy Clearinghouse®, a provider of next generation analytics for the distributed energy value stack and DER investments in all markets across the United States. Distributed Energy Clearinghouse® provides its products and services to project developers, consultants and end users.

Richard has more than 25 years of experience working in the Grid Edge environment on both the demand and supply side. Before founding Distributed Energy Clearinghouse® Richard was Vice President, Consulting for Wood Mackenzie, a global research and consultancy firm. Richard’s work experience also includes management roles at Acclaim Energy, Sempra Energy and Centrica.

The views and opinions expressed in this article are the author’s own, and do not necessarily reflect those held by pv magazine.

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