Catalyst with Shayle Kann - Is now the time for DERs to scale?

Episode Date: September 18, 2025

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. 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.  Catalyst is brought to you by Anza, a solar and energy storage development and procurement platform helping clients make optimal decisions, saving significant time, money, and reducing risk. Subscribers instantly access pricing, product, and supplier data. Learn more at ⁠go.anzarenewables.com/latitude⁠.  Catalyst is supported by EnergyHub. EnergyHub helps utilities build next-generation virtual power plants that unlock reliable flexibility at every level of the grid. See how EnergyHub helps unlock the power of flexibility at scale, and deliver more value through cross-DER dispatch with their leading Edge DERMS platform by visiting ⁠energyhub.com⁠. Catalyst is brought to you by Antenna Group, the public relations and strategic marketing agency of choice for climate and energy leaders. If you're a startup, investor, or global corporation that's looking to tell your climate story, demonstrate your impact, or accelerate your growth, Antenna Group's team of industry insiders is ready to help. Learn more at ⁠⁠antennagroup.com⁠⁠.

Latitude Media, covering the new frontiers of the energy transition. I'm Shell Khan, and this is Catalyst. 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. Coming up, this time might just be different for distributed energy resources. When utilities need flexible capacity they can count on, they turn to energy. Hub. Energy Hub works with more than 170 utilities, coordinating over 2.5 million devices to manage 3.4 gigawatts of flexibility built for the moments when utilities can't afford

uncertainty. Energy Hub builds and operates virtual power plants that utilities actually stake their grid planning on, coordinating EVs, batteries, thermostats, and more through a single platform built for utility scale. Predictive, verifiable, and designed to perform when it counts. Learn more at energy hub.com. are flowing into clean and critical infrastructure. But those investments aren't driven by technology alone. They're shaped by markets, by policy, by capital, and by the institutions that connect them.

I'm Alfred Johnson, CEO of Crux, and host of a brand new podcast, Critical Capital. Each episode, I talk with people deploying capital, shaping policy and building the clean economy. Tune in as we unpack how progress is actually made. Listen to Critical Capital on Spotify, Apple, or wherever you get your podcasts. Catalyst is supported by Fish Tank PR, an award-winning PR firm focused on climate and energy tech, renewables, and sustainability.

Fish Tank is known for generating prominent and effective media coverage for the brands they work with. If you want a PR partner that's thoughtful, shoots straight, and gets results, you'll like Fish Tank PR. To learn more about Fish Tank's approach, visit fish tankpr.com. That's F-I-S-C-H-Fish-Tankpr.com. I'm Shale Khan. stage companies at Energy Impact Partners. Welcome. 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? 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. But we do have plenty of learnings from watching this market largely failed to deliver its full promise over the last decade or so. If you were 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. Excited to be back, as always. Okay, distributed energy resources. I don't want to spend a ton of time just 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?

So in this article, I have a whole taxonomy, but we want to get into the details. I think there's really two key categories of DERs. And there are the things, basically the things that are distributed capacity resources, which I can define in a second, and then the things that are not. 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 throw shade on energy efficiency and distributed solar, because I think those can both be extremely valuable resources, including for grid planners, not as much for grid operators because 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 challenge is that what grid operators need increasingly today are resources where they give you a button. on-off button so that you can provide capacity to the grid when it's needed and ideally for however long it's needed. 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. 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 important to note.

Of course, yeah. I mean, yeah, 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 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 operate just like any other power generation resource and give you an on-off button and turn on for as long as needed, particularly if it's a really efficient, low emissions, natural gas gen set. For example, one of our portfolio companies, the DIP, 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's the closest

thing to a perfect resource from a grid operator standpoint, because 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 some of the newer categories that I think are interesting, that's one category. There's kind of 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 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 into 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. And then the third category 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 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. 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 won't even know the difference. And so storage is a duration-limited resource. 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. 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 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? I think there were really two reasons why DERMania, DER enthusiasm, which I participated in.

So again, I'm not 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 performing the energy vision proceeding and all these other, you know, extremely optimistic DER forecasts and plans were coming out. We're too early. The first is primarily that 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 was 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 myriad ways that they were considering using distributed energy resources to reduce costs for customers and to solve problems on the grid. And 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 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. 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 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 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. There just wasn't an incremental need for new capacity in most places. And so why build DERs when you don't need them? 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 venture capital. You want to be selling painkillers, not vitamins, right? Yeah.

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 a fast enough on the timeline that was needed. And so it was a vitamin. Hey, neat.

Maybe this would be a better way. It wasn't a pain. at that time. That's a great better. And actually, to take that metaphor a little bit further, they were vitamins that were not fully FDA approved in the sense that they were still some risk. Yeah, exactly. Like something I saw in an Instagram ad. I don't have Instagram anymore, by the way, but theoretically one might see it in an Instagram ad. Yeah, and that gets back to this partial challenge for DERs even today, for most classes of DER, which, 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 need capacity on a particular feeder, distribution feeder, out at the edge 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 into that neighborhood. And you know that solves your problem because it gives you capacity, increase capacity all the time, and 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 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. 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 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 it was also just an expensive resource. It was. And some of these resources still are expensive. And I think what the DER optimists or maximalists 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 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 panels. And it's also true, by the way, of all kinds of other distributed energy resources that were enabled by, the so-called internet of things, right? Like the cost of setting up a device,

making it connected and capable 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 we didn't get right was that the soft costs of deploying DERs would not fall.

And that's largely the cost. cost of customer acquisition. It's like getting people, getting customers, 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 circuit breaker, and you put all the safety switches in place, and you get a skilled labor out on site to make that happen. It adds a lot of cost. And so even during this period, as, you 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 has been like a past, you know, two to three years phenomenon where we've started to see, especially for batteries, the cost of systems start to really come down a bit. Virtual power plants are becoming a reliable way for utilities to manage capacity. But in rolling Devices is just the start. What really matters is confidence, knowing those resources will perform when dispatched and being able to prove it from the control room to the living room. Energy Hub's

platform handles the full picture, from near real-time forecasting, locational dispatch, and the kind of rigorous verification that holds up when regulators, grid operators, or leadership ask, did it deliver? Easy enrollment creates momentum, proven performance builds trust. That's why more than 170 many utilities rely on Energy Hub to manage over 2.5 million devices delivering 3.4 gigawatts of flexible capacity. See what that looks like at Energyhub.com. We're living through a profound economic shift, and energy sits at the center of all of it. Trillions of dollars are flowing into power plants, transmission lines, battery factories, data centers, but the future of energy isn't shaped by technology alone.

It's shaped by markets, by policy, by capital, and by the institution. that connect them. I'm Alfred Johnson, CEO of Crux, the capital platform for the clean economy. Join me for my brand new show, Critical Capital, as I talk with people deploying capital, shaping policy and building projects. Together, we unpack how risk is priced, how incentives are structured, and how progress is actually made. Listen to Critical Capital on Spotify, Apple, or wherever you get your podcasts. Are you tired of overpaying for big-name PR firms, but not really knowing what they're delivering? Is your comms team wasting time reviewing lengthy messaging briefs and decks instead of engaging journalists or producing content? Are you wondering why your competitors are getting press and

you aren't? Fishtink PR is an award-winning climate and energy tech, renewables, and sustainability focus PR firm dedicated to elevating the work of both early stage and established companies. Whether you need to position yourself as a thought leader in between project announcements or translate complex ideas and technologies into tangible, compelling stories that resonate with the media, fish tank can help. Check out fish tankpr.com. That's f-i-s-c-h-fish-tankpr.com. 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 we're 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. Am I framing, like, sort of how you think about it, right? I think that, yeah, that's exactly. right. I'm pretty darn confident that the time is now. 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 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 engineers from 2017, if I convened them again today and said, like, are you seeing places, hot spots on your network where there's load growth that's going to be very difficult to meet and extremely expensive to build out and upgrade a distribution feeder. I have zero doubt that the answer would be very different today.

So 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 starting to see budge in some ways, but it has 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 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 other three-letter acronym of virtual power plant or VPP, where like there are real VPPs now, hundreds of megawatts in scale that are being dispatched to actually make a difference on the grid in some places. And so I think, and I hope that we see economies of scale starting to create a positive feedback loop for DER deployment.

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 don't care about the cost as much because 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 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 the cost of retail electricity, which is what a lot of these resources get compared against

from a customer perspective is going up. So I actually don't worry that much about the cost. It matters, of course. But that, to me, is not 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 it's going to happen. And where so many different technologies and categories have hit a brick wall in electricity historically

is where people assume that just because the 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 introduced, but that they're introduced, but that they're, 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 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 going to, the curve is going to 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? To your point, one of my weaknesses is that I have an economics training 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 a good point that, like, there's a lot of friction 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 great that the economic fundamentals will, in this case, 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 also speaks

to the increasing comfort of system operators using these resources. So one of the things that actually prompted me to write 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 really caught my attention. 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 the resources they have signed up 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, crap, like grid operators really, truly need these resources now. And it is a signal of that. And so if you're finally actually using these resources, you're probably going to want to go find more of them. But I also think it speaks to the comfort that grid operators are having with DERs as an actual solution to their problems because it's not theoretical anymore. And so, you know, I'm not going to 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 you're, you know, have a little bit more maturity 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 going to replace all the gas, all the gas power plants that that we are building right now. This doesn't stave off the need for all the other types of resources 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. Fort and Worth, I actually do agree with you.

But I think it's important for us always 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. And, again, in regulated markets, right? Like, it's different. Things in ERCOT are just going to happen. But in regulated markets, something needs to happen and then proliferate pretty quickly

through lots of other territories and 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. I think that's right. Yeah, and it's going to happen at different paces for different types of resources. So while we've talked a bunch about batteries and I am, like my long-term view on batteries is about as bullish as it gets as, you know, in homes and businesses and vehicles and all kinds

of other things, in the near term, like in a three to five. year time frame, 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. And it really shouldn't be that way. Like there's definitely more latent demand response potential out there. You know, it's around 20, 25 gigawatts now. Could we double that? Like, that seems completely doable. Can you draw the distinction between, I'm not sure people always understand, what is the distinction between just expanding demand response

versus this concept of a virtual power plant? Yeah, I mean, it's partially because many people, myself included, just casually use demand response as a stand-in for commercial, like larger-scale facilities offering up flexible load. You know, in practice, you can have a virtual power plant, which is just an aggregation of resources that provides, you know, push button control of some kind to the grid operator. You know, commercial and industrial facilities that have agreed to a demand response program can be a part of a virtual power plant. Usually, though, the connotation, 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 big demand response program kind of is, 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 really not been called on very much. I mean, if you're a grid operator and you have a button that says demand response, but when you use this, you're probably going to 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 going to be pretty hesitant about pushing that button. I think what really makes the demand response market grow is enrolling customers with more automation, a little bit more sophistication around how resources are dispatched so that they can, with less impact 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 really sort of mastered doing that kind of next level of demand. with industrial consumers, where they really look at a facility holistically and think, how can we ring the most megawatts out of that facility with the least impact on operations?

And I think that'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. Okay, so I'm going to 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 solve a meaningful portion of the gauntlet problem. What does that look like? Like, how do we get there?

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 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 is in 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 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 a regulator 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 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. Okay, so now on the flip side, right, that's the bull case. On the flip side then described to me

the bare 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... The opposite of what I just said. It's the opposite of that, yeah. Like what goes wrong here? Yeah, I mean, in addition to that, there's a bunch of kind of, there's a bunch of pretty, kind of glaring risks. If we're talking about batteries, then supply chain is a pretty big risk and FIAC restrictions on qualified for the ITC. What's that?

Fire code potentially. So far, that's not been a problem for residential batteries. It has been in larger commercial buildings and 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. 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 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 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 even some gen sets, because for the most part, you're not going to run a natural gas gen set indefinitely, truly for the entire year. You need to really plan for it much more carefully, because you need to make sure that 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 play.

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 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. All right, Andy, fun as always, I'm sure we'll do it again as soon as you intuit what is already on my mind and write another article, which will happen two weeks from now or something. Always a great time, and it's fun to be potting with another longtime DER believer.

Andy Lubershane is a partner at EIP 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 Shale Khan, and this is Catalyst.