Home Think Topics Distributed Energy Resources What are distributed energy resources (DER)?
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Published: 4 June 2024
Contributors: Alice Gomstyn, Alexandra Jonker

What are distributed energy resources (DER)?

Distributed energy resources, or DER, are small-scale energy systems that power a nearby location. DER can be connected to electric grids or isolated, with energy flowing only to specific sites or functions.

DER include both energy generation technologies and energy storage systems. When energy generation occurs through distributed energy resources, it’s referred to as distributed generation.

While DER systems use a variety of energy sources, they’re often associated with renewable energy technologies such as rooftop solar panels and small wind turbines.

There are several benefits to using DER. Distributed energy resources that generate power through renewable energy sources often produce no emissions, while DER powered by natural gas produce lower emissions than other fossil fuel-powered systems. This enables decarbonization.

DER also enhances power system resilience: DER can help supplement central power plants at times of surging electricity demand and serve as a source of backup power when extreme weather events damage utilities’ infrastructure.

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What are some common DER technologies and systems used for energy generation?

DER technologies include both traditional fossil fuel-based systems and newer, cleaner energy technologies. The former include combustion engines powered by oil and diesel, which produce high levels of greenhouse gas emissions. Cleaner technologies with lower or no emissions include:

Solar photovoltaic systems

Solar photovoltaic systems—or solar panels and solar cells—are increasingly being used as DER. Globally, 167 gigawatts of distributed solar PV systems were installed between 2019 and 2021.1

Wind turbines

DER wind turbines are also known as distributed wind. Distributed wind installations vary in size and electricity generation capacity. They can range from less than 1 kilowatt, which can power pieces of equipment, to 100 kilowatts, which can power an industrial site.

Fuel cells

Fuel cells generate electricity through a thermochemical process involving fuels such as hydrogen. While most of the hydrogen used for fuel cells is produced by burning natural gas, it can also be produced using renewable energy—this is known as “green hydrogen.” Hydrogen fuel cells are used in some electric vehicles and can be found in some power plants.


Cogeneration is the concurrent production of electricity and heat from a single energy source. Also known as combined heat and power or CHP, cogeneration technology can run on fossil fuels, such as natural gas, or renewable energy-based fuels, such as biomass.


Microturbines are small combustion engines that run on biogas, natural gas, propane and other fuel sources. Most are about the size of a refrigerator and produce between 15 and 300 kilowatts of electricity. This relatively low output notwithstanding, when grouped together they can power entire facilities, such as wastewater treatment plants.2

What energy storage technologies are used as distributed energy resources?

Energy storage is the capturing and holding of energy in reserve for later use. Examples of energy storage technologies used as distributed energy resources include:

Battery storage

Battery storage is the most common form of electricity storage. While utilities often have their own large battery energy storage systems (BESS), smaller, “behind-the-meter” BESS can be stationed on the properties of energy consumers. Residential BESS installations are projected to reach a capacity of 20 gigawatt-hours by 2030.3

Electric vehicles

Electric vehicles (EV) can function as distributed energy resources when they are plugged into charging stations. Through vehicle-to-grid (V2G) technology, unused energy stored in the EV’s battery can be fed into a power grid. V2G energy projects have recently developed in several countries, including Germany, the United Kingdom and the US.

Electric water heaters

Residential electric water heaters can act as thermal batteries, storing energy as heat. The unused heat can be “discharged” as energy to power grids. Some grid operators already use electric water heaters for storage purposes, while policymakers and researchers from Australia to New York are encouraging wider adoption of electric water heaters as distributed energy resources.

How do DER systems work in conjunction with electric grids?

While DER might serve only specific sites, they can also be linked to local energy grids through a process known as interconnection. Interconnection takes place through both administrative and technical means: DER owners must submit applications to utilities for interconnection and they must also ensure they have the correct support technology in place. Such technology includes devices known as inverters.

Inverters convert direct current (DC) electricity into alternating current (AC) electricity. Many DER units, such as solar and wind power installations, generate DC electricity, while most energy transmission and distribution takes place through AC electricity. Inverters convert the DC electricity that is generated by DER into AC electricity that can be transmitted through power grids.

Some DER feed power into larger grids after first connecting to microgrids, which are small-scale grids that provide electric power to local areas. One or more DER technologies typically comprise a microgrid. In addition to functioning in conjunction with traditional large-scale power grids, microgrids might also operate in “island mode,” meaning they function autonomously.

DER can also be aggregated into energy networks known as virtual power plants (VPPs). Energy providers and system operators can tap VPPs to meet electricity demand when their own supplies fall short.

What are the benefits of DER?

DER systems provide a host of benefits for people and the planet.

Energy efficiency

By providing power to nearby points of consumption, DER helps reduce the energy loss that typically happens as electricity flows through transmission lines. Additionally, DER enables more efficient energy management through demand response programs: utilities offer incentives to energy customers to shift their energy usage and allow utilities to access customers’ DER systems to meet electricity demand.

Lower pricing

Consumers with DER systems can either produce cheaper energy for their own use or receive energy bill credits for providing energy to their local grids—a practice known as net metering. DER is also cost-effective for electric utilities: as they integrate DER into their systems, they can avoid costs associated with new energy infrastructure development.

Lower emissions

Many distributed energy resources are powered by renewable energy or hydrogen, resulting in lower emissions than oil and coal-based energy generation.

Power system resilience

Climate change has increased the frequency of extreme weather events and natural disasters, which can damage power infrastructure, causing power outages and disruptions. Distributed energy resources enhance power system resilience by providing backup options for energy generation when centralized power stations are impacted.

What are the challenges of DER?

The benefits of distributed energy resources notwithstanding, both consumers and grid operators encounter challenges in DER adoption.

Upfront costs

Although DER systems can reduce energy costs in the long term, the installation costs of distributed energy resources such as fuel cells and photovoltaic arrays can total thousands of dollars—a prohibitively high price for some consumers. Government incentives, such as tax credits and subsidies, can help defray the upfront costs.

Overburdened electricity grids

Electricity grids and distribution systems built in the 20th century weren’t designed to accommodate bidirectional flow—that is, the flow of electricity from centrally located power plants to consumers and the flow of electricity from consumer-owned DERs into a grid. As such, grids can be overwhelmed by the electricity coming from DERs, creating grid congestion and putting areas at risk for blackouts. Increased coordination between energy system stakeholders—including regulators, grid operators and consumers—and the application of smart grid technologies might help address these challenges.

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Resources What is energy storage?

The ability to store energy can reduce the environmental impacts of energy production and consumption and facilitate the expansion of clean, renewable energy.

What is a microgrid?

Microgrids are small-scale power grids that operate independently to generate electricity for a localized area, such as a university campus, hospital complex or military base.

Optimizing energy production with the latest smart grid technologies

Smart grid technology promises to modernize the traditional electrical system with an infusion of digital intelligence.

What are smart meters?

Smart meters are digital devices that measure and record electricity, gas or water consumption in real time and relay the information to utility companies.

What is advanced metering infrastructure (AMI)?

Advanced metering infrastructure (AMI) is an integrated, fixed-network system that enables two-way communication between utilities and customers.

What is energy management?

Energy management is the proactive monitoring, control and optimization of an organization’s energy consumption to conserve use and decrease energy costs.

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1 Unlocking the Potential of Distributed Energy Resources” (link resides outside of ibm.com), IEA, 2022.

2 Renewable Energy Fact Sheet: Microturbines” (link resides outside of ibm.com). US Environmental Protection Agency, August 2013.

3 Enabling renewable energy with battery energy storage systems” (link resides outside ibm.com), McKinsey & Company, 2 August 2023.