John Vellone
Newsletter Editor, IBA Power Law Committee
National Lead, Energy, Resources, and Renewables, Borden Ladner Gervais, Toronto
jvellone@blg.com

Distributed energy resources (DERs)

Global interest in distributed energy resources (DERs) is growing rapidly as countries seek innovative and cost-effective solutions to meet net-zero targets and enhance energy security.

This edition of the IBA Power Law Committee newsletter covers the global opportunities and challenges facing DERs, focusing on the legal issues posed and how they have been resolved. Drawing on insights from Japan, Nigeria, the United States, Chile, Portugal, Switzerland, Turkey and Mexico, the articles explore diverse global perspectives on DERs. While approaches vary across regions, a common theme emerges: regulatory bodies must support the unique features of DERs while fostering innovation, ensuring grid stability, and offering price signals that compensate proponents fairly.

In Japan, Kunihiro Yokoi (Committee Vice-Chair) explores significant regional grid constraints the country faces, which hinder the implementation of DERs. However, a central command post has been established to improve interconnections and the government has incentivised battery storage to address intermittency. A clear legislative framework encourages investment, while local consultation requirements and zoning systems aim to align developer and community goals. Japan emphasises the role of aggregators to maximise DER use, reflecting the country’s focus on efficient and balanced energy deployment.

Meanwhile, Nigeria, where the energy system is dominated by natural gas, is seeing a surge in interest in solar DERs driven by rising energy prices and insufficient grid access for over 40 per cent of the population. Ozioma Agu and Kolajo Onasoga outline the Nigerian government’s support for solar DERs through feed-in tariffs and tax incentives. The Rural Electrification Agency promotes energy access in remote areas. Furthermore, a recent US$750m World Bank loan has targeted solar mini-grids in underserved regions. However, frequent regulatory changes and complicated land acquisition processes continue to present legal obstacles for developers.

The United States faces the challenge of adapting a grid built for fossil fuels to integrate its growing DER infrastructure, which is essential as demand for electricity grows with vehicle electrification and increased cooling and heating needs. David Beckstead (Diversity and Inclusion Officer) details how transmission planning and permitting reform are vital focuses. The ‘duck curve’ problem – where solar power supply dips in the afternoon – illustrates the need for battery storage, although the high cost of storage is a barrier for many proponents. Federal regulators are working to streamline grid interconnections, but clear pricing signals for DER contributions remain elusive.

In Turkey, the need for transmission infrastructure often complicates the deployment of DERs, deviating from the core principles of distributed generation. Dr Mehmet Feridun İzgi discusses the legal complexities around land acquisition for facilities and transmission lines posing significant barriers. Public authorities are involved in expropriation processes, further complicating project development. This contrasts with the global trend of using DERs to reduce network investments and system losses.

Miguel Pelayo Serna shares Chile’s remarkable success with DERs under its PMGD and PMG classifications, which allow small-scale producers to sell power at stabilised or marginal prices. However, recent regulatory changes have introduced unpredictability, slowing DER growth. Technical challenges like transmission congestion compound the issue. Despite this, new regulations encouraging battery storage may revitalise the sector, offering more stable economic incentives for DER developers.

In Switzerland, Mathieu Simona and Maurice Sila share details of a new legal structure established in 2024: the local electricity community (LEC). This structure is aimed at increasing citizen participation in renewable power production. This legislature supports individuals and entities collaborating to produce and consume renewable DERs. LECs enjoy reduced grid usage tariffs, set prices, and create rules for billing and remunerating members. However, despite its many favourable conditions, profitability concerns threaten its success.

Mexico’s abundant solar resources make it ideal for DERs, but the legal and regulatory frameworks have historically favoured large producers. Distributed generation, capped at 0.5 MW, is exempt from several regulatory requirements, but Ariel Garfio and Alejandro Beas note that there is growing pressure to raise this threshold. Nearshoring is accelerating demand for DERs as companies seek greener energy solutions, but Mexico’s grid infrastructure risks lagging demand, and legal reforms are needed to stabilise the regulatory environment.

Portugal’s decentralised approach to DERs offers several models, but this complexity has slowed project timelines due to lengthy licensing processes. Financial support for DERs, particularly for smaller self-consumption projects, is limited, but new pilot legislation aims to reduce regulatory burdens. Nuno Marques Antunes (Special Projects Officer) describes the significant grid investments planned to meet energy transition goals. However, much work must be done to streamline legal processes and improve project financing options.

In light of these opportunities and challenges, the recent IBA Annual Conference held in September 2024 in Mexico City explored, ‘What are the most effective policy and regulatory patterns to facilitate a swift energy transition?’ with a panel featuring speakers from the United States, Italy, Poland, Chile, and Canada. Panellist Sarah Fitts (Council Member, SEERIL) highlighted the lack of visibility into DER performance in the US, and the associated challenges in providing fair compensation to DER proponents without access to reliable information.