Is now the time for DERs to scale? [re-published]

A decade ago, DERs were hot. The hype was that things like batteries, smart devices, and other distributed energy technologies would offset the need for expanding traditional grid infrastructure. But DERs never took off, at least not at the scale that many hoped for. They had high price tags and short track records compared to the existing substations, transmission lines, and generation options that utilities were familiar with. In short, the market didn’t need them yet. Fast forward 10 years, and things have changed. Load growth is increasing while major grid bottlenecks — like in transmission, interconnection, and supply chains — may be opening up a new opportunity. So is the time finally right for DERs? In this episode, Shayle talks to his colleague Andy Lubershane, partner and head of research at Energy Impact Partners. Last week, Andy published a blog post making the case that DERs were a good idea that was just too early, but the market is ready now. Original episode date: 9/18/2025. Shayle and Andy cover topics like: - What held DERs back a decade ago - Why now is different, including falling system costs and growing grid bottlenecks - The difference between demand response and virtual power plants - The potential hurdles to scale, like supply chain bottlenecks, foreign entity of concern regulations, and fire codes Resources: Latitude Media: Can distributed energy answer AI’s power problem? Open Circuit: The grid flexibility solutions staring us in the face Catalyst: Making DERs work for load growth Credits: Hosted by Shayle Kann. Produced and edited by Daniel Woldorff. Original music and engineering by Sean Marquand. Stephen Lacey is our executive editor. This episode of Catalyst is brought to you by ENGIE, the smarter energy supplier. ENGIE doesn't just provide the power to run your business — they supply the energy to move it forward, with reliable, flexible solutions built for what's next. Learn more at engieresources.com. Catalyst is brought to you by EnergyHub. Peak season puts every grid to the test — and the utilities that pass are the ones that built flexible capacity before they needed it. EnergyHub works with more than 170 utilities to coordinate 2.5 million devices and 3.4 gigawatts of dispatchable flexibility through a single platform designed to perform when it counts most. See what that looks like at EnergyHub.com. Catalyst is brought to you by Bloom Energy. Bloom Energy fuel cells deliver affordable, ultra-reliable onsite power for hospitals, utilities, and data centers – at speed and at scale. Learn more by visiting BloomEnergy.com.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Shayle Kann?

  Hey, this is Stephen Lacey, the executive editor at Latitude Media. I'm here with a quick word before we start. So this week's episode of Catalyst was originally published in fall of 2025. We are resurfacing it for you as a way to fill in summer schedules. And because this is a really good conversation, Shayle and his colleague, Andy Lubershane, make the case that now is a unique moment for distributed resources to scale. And they walk through all the forces that make this a particularly good time for DERs. And I'll just say, if you like this episode, I also want to flag our newest conference, Flex Summit. Flex Summit is happening in Austin, Texas, on October 14th and 15th, and it will feature

• 0:40Shayle Kann?

  many of the top voices across the industry who are scaling DERs and grid flexibility in this load growth era. The conference is designed for senior leaders and practitioners who are operating across grid planning, markets, technology, finance. And if that is you, and I know there's a lot of you out there, you should definitely come to Flex Summit. Head on over to latitudemedia.com/events or click the link in the show notes and you can see the full agenda and register for Flex Summit 2026. And of course, we always have a bonus for our listeners. You can use the code PODS10, P-O-D-S-10, PODS10 for a 10% discount. Now, on to the episode.

• 1:22Speaker 01

  Latitude Media, covering the new frontiers of the energy transition.

• 1:26Shayle Kann?

  I'm Shail Khan, and this is Catalyst.

• 1:31Speaker 02

  The power grid didn't need DERs that much in 2015. Now it desperately does, and every part of the system has major bottlenecks now.

• 1:43Shayle Kann?

  Coming up, this time might just be different for distributed energy resources.

• 1:56Speaker 01

  Demand flexibility is now an essential part of the data center speeded power playbook. But how do data centers actually curtail load? GridBeyond is the end-to-end solution for flexible energy management. GridBeyond's advanced DERMs and VPP platform is tailored to what data centers care about most: maximizing reliability, intelligently meeting curtailment obligations, reducing costs, and managing all your distributed resources in one place. Ready to transform your distributed energy management? Get started at gridbeyond.com. Catalyst is brought to you by Antenna Group, the communications and marketing partner behind the most influential companies in energy, climate, and infrastructure. For three decades, Antenna has helped ambitious companies stand out, build market leadership,

• 2:40Speaker 01

  and become category-defining brands. From breakthrough startups to global industry leaders, their team brings the expertise, relationships, and track record to accelerate your momentum. Learn more at antennagroup.com.

• 2:53Shayle Kann?

  The power plant for the modern grid isn't a building, it's a network. Energy Hub's DERMs platform connects batteries, EVs, thermostats, and commercial and industrial sites into virtual power plants that over 230 utilities dispatch as reliable grid capacity day in, day out. VPPs deploy in 60 to 100 days at 40% to 60% less cost than traditional infrastructure, and they perform like conventional generation from day one. Learn about the flexibility platform for the modern grid at energyhub.com. I'm Shayle Khan. I invest in early-stage companies at Energy Impact Partners. Welcome.

• 3:35Shayle Kann?

  Here's a headline from The Guardian in July 2014, quote, "Will the microgrid put major power companies out of business?" End quote. If you were around energy circles at that time, which I was, you'll remember lots of these headlines, as well as the general concept of the utility death spiral, which was a phrase that was thrown around a lot in those days. Long story short, surprise, surprise, it didn't happen. And I don't actually even think that is really worth talking about now, because it's definitely not happening these days. But the backdrop to that line of thinking was the concept that we were going to see this wave of distributed energy resources that would decentralize the grid. They'd provide flexibility and resilience. They'd give customers more autonomy over their own power supply. Did that part happen?

• 4:20Shayle Kann?

  Eh, a little bit. But honestly, at the macro level, not that much. So the industry has a lot of battle scars around this whole concept. But times change, and there is good reason to revisit some priors here, which is exactly what I've been thinking about lately as I evaluate a whole host of new startups in the DER space. And as so often happens, while I'm thinking about a thing, my partner and head of research at EIP where I work, Andy Lubershane, is writing about it. So he did. He published a great piece last week that's called "Finally, the Time Is Right for DERs." And let me just say, he and I are both pretty bullish that the time is indeed right now for reasons we will discuss.

• 5:02Shayle Kann?

  But we do have plenty of learnings from watching this market largely fail to deliver its full promise over the last decade or so. If you are working on something truly novel and suited to the moment in this space, get in touch with us. But in the meantime, let's get into it. Andy, welcome back as always.

• 5:17Speaker 02

  Excited to be back, as always.

• 5:20Shayle Kann?

  Okay, distributed energy resources. I don't want to spend a ton of time just like laying out all of the different types of distributed energy resources to start, but I thought you had kind of a useful categorization in this article that you put together. So start by categorizing, like how do you separate out the different types of DERs?

• 5:38Speaker 02

  So in this article, I have a whole taxonomy, but we don't want to get into the details. I think there's really, there's really two key categories of DERs. And they're the things, basically the things that are distributed capacity resources, which I can define in a second, and then the things that are not. And maybe it's easier to start with the things that are not, which is energy efficiency and solar are sort of the two primary categories of DER that don't really provide you dispatchable capacity if you're a grid operator. And I don't want to, I don't want to throw shade on energy efficiency and distributed solar, because I think those can both be extremely valuable resources, including for

• 6:22Speaker 02

  grid planners, not as much for grid operators, because they don't give you real, they don't give you enough real-time control, which is the real challenge here. But for grid planners, they can be extremely valuable. We should be considering them as a part of integrated resource plans for the power system. We should very much be counting on them, pushing the boundaries of them, et cetera. But the, the challenge is that what grid operators need increasingly today are resources where they give you a button, an on-off button, so that you can provide capacity to the grid when it's needed and ideally for however long it's needed.

• 7:04Speaker 02

  And the problem with energy efficiency and solar is that while you can, you know, you can take a typical profile that those resources give you on a planning basis, they don't give you an on-off button that operators can use in a real-time basis, which is really increasingly valuable.

• 7:22Shayle Kann?

  And then the other category, the things that are dispatchable capacity, which you should just run through a quick list of, they do give you the on-off button, but they do not generally give you the on-off button as long as you want it bit, right? That is, that is important to note.

• 7:36Speaker 02

  Of course, yeah. I mean, yeah, there, there's mostly no such thing as a perfect energy resource here. And I mean, the closest thing to a perfect resource from the perspective of a, a grid operator is, you know, a flexible distributed gen set of some sort that can turn on and off really quickly, can ramp up and ramp down very quickly. And ideally, if it's a natural gas gen set and tied into a gas distribution line or a gas transmission line, it really can, you know, operate just like any other power generation resource and give you an on-off button and, and turn on for, for as long as

• 8:17Speaker 02

  needed, particularly if it's a really efficient, low emissions, natural gas gen set. For example, you know, one of our portfolio companies at EIP, Enchanted Rock, has been deploying that type of resource for a long time now. And so, you know, it's not restricted by air permitting concerns, you know, that, that's the closest thing to a perfect resource from a grid operator's standpoint, because it's, it's just like a centralized generation asset. It just happens to be spread out there at the edge of the grid. So that's one category is distributed generation. But, you know, some of the, the newer categories that I think are interesting, that's, that's one category. There's kind of

• 9:00Speaker 02

  Three other, really two other primary categories of distributed capacity resource that do give you some degree of on off button. The first is flexible loads, basically some piece of equipment out there on a customer premise that is capable of being turned on or off and ramped up and down quickly in response to some kind of signal from a grid operator. And one sort of name for flexible loads, the name we have known them by for most of the history of DERs is demand response, which is just a setup in which a grid operator

• 9:41Speaker 02

  or utility comes to an agreement with a customer to operate those flexible loads in response to some kind of signal. These demand response programs have taken a variety of forms for many years, sometimes bidding in to energy markets in the wholesale supply side of the market, sometimes as utility resources. But in general, the idea is this is customer stuff that's turning on and off. The challenge there is that typically customers don't want you to be turning on and off their stuff all the time or for very long periods of time. So there are limits on what you can do with flexible loads as a grid operator.

• 10:23Speaker 02

  And then the third category is is energy storage, batteries in particular, which are sort of an in between. They're great from a customer standpoint because to a certain extent, if a customer has a battery on their on their property, they don't necessarily care what that battery is doing most of the time. Depending on whether the customer is trying to use that battery in some way, like to do self consumption of solar, which they can sometimes earn a lot more or value their solar more highly by doing, or if they're trying to reserve some of the capacity in that battery for backup power.

• 11:06Speaker 02

  But even in that case, there's still some portion of the energy stored in a battery system that a customer is probably fine with a grid operator using on a regular basis and they and they won't even know the difference. And so, storage is a duration limited resource. You can't, you know, you can't dispatch a battery forever because it has a limited amount of energy in it, but it can be used very frequently throughout the year.

• 11:31Shayle Kann?

  Okay, so good categorization of all the different kinds of DERs. You and I were both around a decade ago, decade plus ago, when there was a lot of hype around DERs. At that point, I don't know, it was mostly about, it was about thermostats, it was maybe a little bit about batteries, kind of early days of batteries. It was about EV chargers, maybe managed charging, stuff like that. It was different technologies, but the hype was very exciting. People talked about decentralizing the electricity system and things like that. And long story short, that's not what happened at this point. So what, how would you diagnose? Why didn't it take off?

• 12:14Speaker 02

  I think there were really two reasons why DER mania, DER enthusiasm, which I participated in. So again, I'm not trying to, trying to insult anyone out there. I think there is two primary reasons why it was too early in the early to mid 2010s, which is when all of that conversation about the utility death spiral and the New York reforming the energy vision proceeding and all these other extremely optimistic DER forecasts and plans were coming out, were too early.

• 12:57Speaker 02

  The first is primarily that the the power system just didn't need DERs very much. And, you know, I wrote about this in the article, but one experience for me stands out. When I first started at Energy Impact Partners as an employee, this is back in 2017, we gathered together this group of folks from the utility sector, from our LPs, many of whom were utility engineers working on distribution system problems and people that were specifically tasked with considering distributed energy resources. And I was super eager and excited to talk to this group at the time about all of the

• 13:39Speaker 02

  myriad ways that they were considering using distributed energy resources to reduce costs for customers and to solve problems on the grid. And, you know, I sort of set out by asking them, like, where are you, where are you all finding the non wires alternatives on your systems? Because if you were a DER fan at that point, non wires alternatives was this, this very exciting concept where utilities could use things like load flexibility or distributed batteries as an alternative to building out new substation capacity, upgrading, making significant distribution system upgrades that were otherwise very costly.

• 14:19Speaker 02

  So I asked the group, you know, where are you finding all these non wires alternatives? And I got this extremely disappointing answer, which was basically, we're not finding them. Like, maybe one or two here and there, but they're outliers. And for the most part, you know, we're trying, we're looking around for where we might be able to use these alternative resources instead of upgrading the grid in a business's usual capacity and we're just not finding them. And I really came to believe that these people were operating very much in good faith. Like, they were looking and they just were not finding them. And that's in part just because, as we know, at a macro level, you know, the past 15, 20

• 15:01Speaker 02

  years in the power system, we just haven't seen till very recently, much load growth. So there just weren't that many places on the grid where there was tremendous amount of pressure to upgrade things quickly. It wasn't all that expensive to make the upgrades that were needed in most cases where they were needed. And so, one reason we just didn't see that much interest in DERs is because we didn't need them for a long time. And by the way, that's not just true on the, at the, at the level of the transmission and distribution system, that was true in the generation world as well, where, you know, for quite a long time, generation capacity markets, supply side capacity markets had plenty of supply.

• 15:44Speaker 02

  There just wasn't an incremental need for new capacity in most places. And so, why build DERs when, when you don't need them?

• 15:52Shayle Kann?

  Yeah, I think it was like a, if it ain't broke, don't fix it kind of situation, actually, which is like, there was nothing broke. I think it was, you know, actually, maybe the other way to put it is there's this trope in, in venture capital, you want to be selling painkillers, not vitamins, right?

• 16:08Speaker 02

  Yeah.

• 16:09Shayle Kann?

  And I think the early days of distributed energy resources, they were a vitamin. It was like, hey, isn't this cool? Couldn't you leverage a bunch of these distributed resources instead of building a new substation? But actually, like, you could build a new substation, we could build it fast enough on the timeline that was needed. And so, it was, it was a vitamin, hey, neat, maybe, maybe this would be a better way. It wasn't a painkiller at that time.

• 16:34Speaker 02

  That's a great metaphor. And actually, to take that metaphor a little bit further, they were vitamins that were not fully FDA approved, in the sense that.

• 16:43Shayle Kann?

  Like, over the counter, yeah.

• 16:45Speaker 02

  Yeah, exactly. Like, something I saw in an Instagram ad. I don't have Instagram anymore, by the way, but, but theoretically, one might see it in an Instagram ad. Yeah, and, and that gets back to this partial challenge for DERs even today, for most classes of DER, which we were just talking about, which is, although there are a number of these DERs which really can qualify as distributed capacity resources, they don't offer exactly the same kind of capacity as utility planners from the generation system to transmission to distribution are used to. So if you, if you need capacity on a particular feeder, distribution feeder out at the edge

• 17:29Speaker 02

  of the grid, and you see load growing quickly there and you're a utility planner, you can upgrade the substation and the transformer and all the other equipment and maybe even the conductor going, going, you know, into that neighborhood. And you know that solves your problem because it gives you capacity, increased capacity all the time, and you've, you've designed sort of perfectly for the capacity you need. If you add a bunch of storage, you get a dispatchable resource with a limited amount of energy to work with. And so you have to be pretty darn sure, you have to really sharpen your pencil and know that. I need capacity for four hours a day or six hours a day at a maximum during,

• 18:14Speaker 02

  you know, these days per year. And I'm never going to have to dispatch the battery and recharge and not have enough time to recharge the battery and then have to dispatch it again right immediately afterwards. So yeah, it's kind of a, it's a vitamin you don't know very well. And unless you really need that vitamin, unless you're kind of like desperation is one of the reasons people try new things. And I think we were not, the system was not desperate enough back then.

• 18:42Shayle Kann?

  Right. And then the second point that you make in the article is the other relevant one, which is like, not only was there not a ton of desperation in the market at the time, but actually, a lot of those resources that you might use were also just expensive. I mean, this is particularly, I think that, you know, of the category of things that we've been talking about, batteries are the one where it's most different today from 10 years ago. But like, it was also just an expensive resource.

• 19:08Speaker 02

  It was. And, and some of these resources still are expensive. And I think what the DER optimists or maximalists at, at the time got wrong was, what we got right was that the cost of a lot of the hardware to enable distributed energy resources would, would fall precipitously. Everyone, I think, listening to this podcast is probably familiar with that story for lithium ion battery cells and battery packs driven down by the EV industry. Everyone's familiar with that story in the last decade with solar photovoltaics, solar

• 19:48Speaker 02

  panels. And it's also true, by the way, of all kinds of other distributed energy resources that were enabled by, you know, the so-called internet of things, right? Like, the cost of setting up a device, making it connected and capable of, of reaching via the internet became a lot lower. And there was lots of experimentation with different types of smart home and smart building devices during that period. So we got that right. What, what we didn't get right was that the soft costs of deploying DERs would not fall. And that's largely the cost of customer acquisition. It's like getting people, getting customers,

• 20:31Speaker 02

  whether they're homeowners or businesses, to sign up to put something on their property or to sign up for a load flexibility program. That was pretty stubborn. That still is pretty stubborn, unfortunately. And then also the installation costs. And, you know, when you're shrinking down a large scale battery system and putting it into a box that has to be interconnected into a homeowner's, a homeowner's circuit breaker, and you put all the safety switches in place, and you get a, you know, skilled labor out onsite to make that happen. It adds a lot of cost. And, and so even during this period, as, you

• 21:14Speaker 02

  know, battery prices plummeted, we didn't really see the same thing happen with, like, the cost of a fully installed residential battery system. And in fact, there's some evidence now, just in the past few years, that that's finally starting to budge. But it really, it really has been like a past, you know, two to three years phenomenon where we've started to see, especially for batteries, the cost of, of, of systems start to really come down a bit.

• 21:48Speaker 01

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• 22:30Speaker 01

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• 23:14Speaker 03

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• 23:57Shayle Kann?

  Okay, so this is getting to the, I guess, the crux of the thing we want to speculate a little bit about here, which is, I think people are smart enough to hear the two things that we said were holding the market back, which is that the market didn't really need these resources and that the resources were expensive. And they can extrapolate to today when the market definitely needs this. And prices, at least for some things, batteries especially, are significantly lower. And so the thesis of your piece, I think, is maybe the time is right now. And actually, this was a real thing, but it was 10 years too early, or whatever it was. Is that, am I framing like, sort of how you think about it right?

• 24:38Speaker 02

  I think that, yeah, that's exactly right. I'm, I'm pretty darn confident that the time is now. Of, of the two big blockers from 10 years ago, I think we've, like, one of them is completely flipped on its head, which is the power grid didn't need DERs that much in 2015. Now it desperately does. And, you know, you and I have talked about all of the reasons for that on this podcast before. There's this electricity gauntlet metaphor that we've been using at EIP for the past few years to describe the state of the market. We, we don't have to be labor here, but like, every part of the system has major bottlenecks now. So if I convened that group of, that same group of utility

• 25:22Speaker 02

  engineers from 2017, if I convened them again today and said, like, are you seeing places, hotspots on your network where there's load growth that's going to be very difficult to meet and extremely expensive to build out, you know, and upgrade a distribution feeder? Like, I, I have zero doubt that the answer would be very different today. So that, that's changed a lot. I think it's still more of an open question, whether and how much we can really move the cost of deploying various classes of DERs down. That's the piece that, like I said, we're, we're starting to see budge in certain, in some ways, but it has

• 26:06Speaker 02

  been more stubborn over the years. And so, you know, the hope at this point is that there is a positive cycle of reinforcement in that the need for DERs will drive more programmatic deployment of DERs by various types of grid operators, which will start to reach economies of scale and drive down the cost. And, and I am encouraged that we're starting to see some significant use of DERs as capacity resources start to scale, which, you know, gets us to this, this other third, three-letter acronym of virtual power plant or VPP, where, like, there are real VPPs now, hundreds of megawatts in scale that are

• 26:51Speaker 02

  being dispatched to actually make a difference on the grid in some places. And so, I think, I think, and I hope that we see economies of scale starting to create a positive feedback loop for DER deployment.

• 27:06Shayle Kann?

  Just to play devil's advocate for a minute. Well, first, let me say where I'm not going to play devil's advocate, which is actually, I think I'm, I don't care about the costs as much. Because this, whether or not the costs come down significantly from here, it's all about comparative cost. And the cost of the comparison is going up, right? So if it's, if you're just thinking about this as capacity, well, the cost of capacity has clearly gone up. Procuring any other type of capacity is more expensive than it was before. We've talked before on this podcast about the cost of natural gas turbines, which has been rising. But, you know, the cost of retail electricity, which is what a lot of these resources get compared against from a customer perspective, is going up.

• 27:48Shayle Kann?

  So I actually don't worry that much about the cost. It matters, of course, but that, to me, is not the, the bigger question here. The bigger question for me, actually, is your first thing about like, well, it's proven that the market needs it. And so, and so it's going to happen. And where, where so many different Technologies and categories have hit a brick wall in electricity historically is where people assume that just because a thing is better or even needed, it will happen. But instead, everything moves too slowly and is driven by these, you know, esoteric state level regulations and utility programs that take forever to be introduced and they're

• 28:31Shayle Kann?

  introduced, but that they're too small or they have rules that are hard to meet or whatever. So, I mean, you just said the thing that like is the counterpoint in my mind, which is we have actual VPPs being dispatched now in the hundreds of megawatts, hundreds of megawatts. That is, that's great. I'm very excited about that. It is so little compared to the scale of the problem that we're talking about here, right? And so the question is, are we betting that those hundreds of megawatts, we've hit an inflection point and that now we're gonna, the curve is gonna bend upward and hundreds of megawatts turns into gigawatts and tens of gigawatts in the next few years, you know, two, three years? Is that a thing that can happen, given the market construct?

• 29:16Speaker 02

  To your point, one of, one of my weaknesses is that I have an economics training and I, and I do tend to think like an economist, which means I tend to assume people make rational decisions and systems. Economic systems make rational decisions and so it's, it's a good point that like, there's a lot of friction in, in between where we are today and having really meaningful gigawatts of DER, distributed capacity resources, deployed out there. And to a certain extent, my optimism today is, is more of a bet that the need is so

• 30:01Speaker 02

  great that the economic fundamentals will, in this case, finally, finally win out and be able to overcome those frictions. And we're starting to see, you know, again, more, this is sort of another data point of the need, but I think it, it also speaks to the increasing comfort of system operators using these resources. So, one of the things that actually prompted me to, to write this, this article was seeing a post from Dana Guernsey, and apologies Dana, if I'm not pronouncing your last name correctly, but she's the CEO of Voltus, which is a big demand response aggregator. And she posted this chart on LinkedIn, which, which really caught my attention.

• 30:46Speaker 02

  We passed it around, a bunch of us at EIP, and it's basically showing how many times per year Voltus's demand response resources are actually dispatched by grid operators. So, not, not the resources they have signed up to, to turn down when someone calls on them, but the number of times they actually do. And that in the last two years has been kind of escalating off the charts. I mean, it seems to be going exponential in 2025. And, you know, again, you could take that as just a signal, oh, oh crap, like grid operators really truly need these resources now. And it is a signal of that. And so if you're, if you're finally actually using these resources, you're probably, like,

• 31:31Speaker 02

  you're probably gonna wanna go find more of them. But I also think it speaks to the comfort that grid operators are, are having with DERs as an actual solution to their, their problems because it's not theoretical anymore. And so, you know, I, I, I'm not gonna say I'm confident that we're getting to, you know, every utility has a gigawatt DER program, but could every utility, every major utility in the country within five years have a several hundred megawatt DER program, instead of it just being a few that have a several hundred megawatt DER program? And in a few places where, where you're, you know, have a little bit more maturity

• 32:13Speaker 02

  in the market and more need, you could, you could scale the gigawatt plus, like, that seems reasonable to me. So it's not, I don't think this is gonna replace all the gas, all the gas power plants that, that we are building right now. This doesn't, you know, stave off the need for all, all the other types of resources that, that we're considering for addressing the gauntlet, but I think it makes a dent and it makes a meaningful dent, hopefully, for the next five years.

• 32:43Shayle Kann?

  For what it's worth, I actually do agree with you, but I, but I think it's important for us always to, to look the challenges of rapid evolution of the electricity market in the face because it does happen, but it's pretty rare that it happens like rapidly. Because again, like something needs to happen in, again, in regulated markets, right? Like it's different, things in ERCOT are just gonna happen, but in regulated markets, something needs to happen and then proliferate pretty quickly through lots of other territories, jurisdictions and so on. So, you know, it is, that is a challenge, but as it starts to be, there is some tipping point that one can imagine we hit.

• 33:28Speaker 02

  I think that's right. Yeah, and it, it's gonna happen at different paces for different types of resources. So while, you know, we've talked a bunch about batteries and, and I am, like, my long-term view on batteries is about as bullish as it gets, as, you know, in, in homes and businesses and vehicles and all kinds of other things. In the, in the near term, like in, in a three to five year timeframe, I'm probably more optimistic about really expanding demand response. So, demand response across the country has kind of been flat to even declining slightly over the past decade, which is sad.

• 34:12Speaker 02

  And it really shouldn't be that way. Like there's, there's definitely more latent demand response potential out there. You know, it's, it's around 20, 25 gigawatts now. Could we double that? Like that seems completely doable from commercial.

• 34:28Shayle Kann?

  Can you draw the distinction?

• 34:29Speaker 02

  Yeah.

• 34:30Shayle Kann?

  Between, I'm not sure people always understand, like what is the distinction between just expanding demand response versus this concept of a virtual power plant?

• 34:35Speaker 02

  Yeah, I mean, it's partially because many people, myself included, just casually use demand response as a, as a stand-in for commercial, like larger scale facility, facilities, offering up flexible load. You know, in, in, in practice, you can have a virtual power plant, which is just an aggregation of resources that, that provides, you know, push button control of some kind to, to the grid operator. The, you know, commercial and industrial facilities that have agreed to a demand response program can be a part of a virtual power plant.

• 35:18Speaker 02

  Usually though, the connotation, this is all, this is all connotations, right? Because there's no strict definitions here, but the connotation of VPP I find tends to be smaller, like aggregations of more smaller resources and oftentimes including newer stuff like batteries, basically. But, you know, a, a big demand response program kind of, it is a virtual power plant of sorts. And I think partly the reason the demand response had a connotation as being sort of separate is because historically those resources have, have really not been called on very much. I mean, if you, if you're a grid operator and you have a, a button that says demand

• 36:02Speaker 02

  response, but when you use this, you're probably gonna frustrate some customers. And yes, they signed up, but they signed up to be called on only 10 times a year for up to eight hours at a time or something along those lines, you're gonna be pretty hesitant about pushing that button. And I think what, what really makes the demand response market grow is enrolling customers with, with more automation, a little bit more sophistication around how resources are dispatched so that they can, with less impact on, on customers, actually be dispatched more often. So, you know, in one of our portfolio companies at EIP is a company called Grid Beyond, that's

• 36:44Speaker 02

  really sort of mastered doing that kind of next level of demand response with industrial consumers, where they really like look at a, a facility holistically and think, how can we ring the most, the most megawatts out of that facility with the least impact on operations? And I think that's, there's, there's, there's definitely more of that to be done. Call it a, you know, VPP, call it demand response, but there's more of that resource out there.

• 37:12Shayle Kann?

  Okay, so I'm gonna wrap up by asking you to describe two scenarios for me. Five years from now, first scenario, it goes right and this DERs finally take off and start to reach the promise land. And they, they solve a meaningful portion of the, of the gauntlet problem. What does that look like? Like how does, how do we get there?

• 37:38Speaker 02

  To your point, I think we need to start soon because these things take time. And they don't take time because of DER deployment, by the way. That can happen very quickly. That's one of the advantages of many classes of distributed energy resources, whether it's a natural gas gen set, or whether it's a residential battery. You can go out there and put a bunch of them out there very rapidly, and that can scale up to hundreds of megawatts very quickly, particularly compared to the bottlenecks in large scale resources we're seeing today. But it's the programmatic side of things. Like, whatever entity is running the procurement or the program, let's start with the utilities, right, who sit in the middle of all of this. They need

• 38:23Speaker 02

  to start ramping up their programs today if we want to have, you know, meaningful, the kind of meaningful resources deployed within five years that you're talking about. So I think what we would need to see is lots of utilities saying, you know, "Look, we need capacity today. It really, truly isn't all of the above strategy today. And we are going to set up a crack team to go figure out how we get distributed energy resource capacity most efficiently. And we're going to set a goal. And it's going to be, you know, a reasonable goal, but we're going to include that in our plan, in our integrated resource plan." So this is not some little program sitting aside that regulator

• 39:06Speaker 02

  has told us we have to do. This is something we're actually counting on to provide capacity when and where we need it. And I think we're, I, in my world, am starting to see signs of movement towards that, although these things do take time. But if you start doing that today, I can imagine a world where, within two to three years, there's a bunch of those programs standing up. And like I said, once you have the signal, the DERs can be deployed very quickly. That's the bull case.

• 39:37Shayle Kann?

  Okay, so now on the flip side, right, that's the bull case. On the flip side, then, describe to me the bear case. What happens to lead this to just be another kind of like floundering effort to really scale up DERs? And I guess have it be something other than just-

• 39:51Speaker 02

  The opposite of what I just said.

• 39:53Shayle Kann?

  It's the opposite of that, yeah. Like, what goes wrong here?

• 39:57Speaker 02

  Yeah, I mean, in addition to that, there's a bunch of kind of, there's a bunch of pretty, pretty kind of glaring risks. If we're talking about batteries, then supply chain is a pretty big risk, and FIOC restrictions on qualifying-

• 40:14Shayle Kann?

  Fire code.

• 40:15Speaker 02

  For the ITC. What's that? Fire code, potentially?

• 40:18Shayle Kann?

  Fire code.

• 40:18Speaker 02

  So far, that's not been a problem for residential batteries. It has been in larger commercial buildings, in dense cities in some cases. I'm less worried about that. But batteries just not falling in price, like batteries continuing to be really expensive is the real challenge. Batteries do need to get cheaper. Not the cells, right? Those have gotten really cheap, but the full systems need to get cheaper if they're going to be really cost-effective resources. That probably means some portion of the battery, like the cells, at least for a while longer, is coming from China. I guess the other one is like, this is somewhat related to programmatic approaches to deploy them not being, not

• 40:58Speaker 02

  moving fast enough, but continued hesitancy on using resources that do have some limitations, right? Because utility planners, they are inherently always going to prefer a 100% solution. That's how we've built the grid in the past. And nobody gets fired for putting in place a 100% solution that is going to work every day for all of the hours of the day, all the time. If you're going to put in a solution that's not 100%, that has some capacity utilization limitations, like a battery, our most load flexibility, and

• 41:40Speaker 02

  even some gen sets, because for the most part, you're not going to run a natural gas gen set indefinitely, truly, for, you know, the entire year. You need to really plan for it much more carefully, because you need to make sure that, you know, if you have a four-hour battery or six-hour battery, you really have enough juice to get through the peaks when you need them. So in addition, like, utilities really need to plan for these resources very carefully, and accept that they are not going to get a, they're going to get 100% solution for their actual problem, not for all problems that could potentially arise. And that's tough. Like, that's legitimately, I understand fully

• 42:25Speaker 02

  why, why that's not their go-to, and why that requires a mental shift. And they're not, historically have not been incentivized to do it.

• 42:34Shayle Kann?

  All right, Andy, fun as always. Sure, we'll do it again as soon as you intuit what is already on my mind and write another article. It'll happen two weeks from now or something.

• 42:44Speaker 02

  Always a great time, and it's fun to be podding with another longtime DER believer.

• 42:55Shayle Kann?

  Andy Lubershane is a partner at DIP with me and our head of research. This show is a production of Latitude Media. You can head over to latitudemedia.com for links to today's topics. Latitude is supported by Prelude Ventures. This episode was produced by Daniel Waldorf. Mixing and theme song by Sean Marquand. Stephen Lacey is our executive editor. I'm Shayle Khan, and this is Catalyst.