Distributed Energy Resources: The Unbundling of Energy

The energy industry’s description for “Distributed Energy Resources” (or “DER”) is simple: smaller, distributed power sources that can be aggregated to provide energy necessary to meet consumer demand. However, this description barely captures the monumental transition DER is enabling within the energy and industrial fields.

At a more a strategic level, the growth of DER represents the tectonic shift of energy assets and accompanying energy-related decision making moving closer to the consumer. The core products driving this migration of engagement come in two forms: physical assets and software-related applications. Based on recent technology and cost improvements, a foundationally different DER opportunity is unfolding over the coming years.

DER Version 1.0: Implementation was almost exclusively focused on placing physical assets, such as community and rooftop solar, and other distributed generation at distributed points throughout the grid. These solutions were primarily independent installations meant to temper a gap in grid demand, and had a limited intelligence layer with siloed payback calculations. 
 
DER Version 2.0: While the physical assets are achieving greater cost competitiveness, it is the integration of the intelligent software layer on top of these assets that is delivering insight to drive engagement and result in compounded financial return. Businesses that succeed in DER 2.0 will develop a competitive advantage not strictly from software excellence, but also from establishing a successful bridge with the physical asset layer

With DER 2.0, the energy industry is unknowingly following a playbook from Jim Barksdale, the founder of Netscape, who said: “there’s only two ways I know of to make money… bundling & unbundling”. Due to lack of modernization and a grid built for one-way communication and power flow, existing energy infrastructure has historically only allowed the largest of energy consumers to access complex and bulky energy savings tools. By moving to a distributed grid profile, the energy industry is unbundling both its physical infrastructure as well as the services offered to energy consumers. The unbundling is resulting in a significant software expansion as new applications are being developed to optimize for each technology and customer type throughout the entire energy stack. These applications are targeting over a $100BN opportunity, and include building energy software, energy management systems, load management and optimization, and microgrid and community energy optimization technologies.

Through DER 2.0 and the optimal combination of physical assets and software solutions, the energy consumer is finally being placed first in the energy ecosystem. And with energy intelligence and decision making capability moving to the customer, the applicable market for energy-related DER products expands significantly, making a more attackable market for aspiring entrepreneurs with scalable solutions. This is energy unbundled: the purchaser of energy products or services just moved from the a central “CTO” down to the node level throughout an organization, community, or household. These more decentralized customers are empowered to make a purchasing decision because the financial return and other valuable metrics are more easily presented and understood through software solutions.

Energize Ventures is optimistic on how Distributed Energy Resources will impact the grid and bring energy and energy software into a broader customer set from mass markets to large enterprise. As we move from a centralized to a decentralized, democratized, and distributed system, we believe that solutions can be created to provide better outcomes for the energy value chain. Against this backdrop, the market is ripe for significant value creation because new product offerings targeted to each customer type coupled with advancing underlying asset improvements and strong entrepreneurs can yield scalable and profitable companies.