What is a Distributed Energy Resource (DER)?

Distributed energy resources (DERs) are small-scale, decentralized power and storage technologies like rooftop solar, batteries, and smart home devices like thermostats or water heaters, which are located close to where electricity is used. In this blog we will examine what devices count as a DER, why DERs are multiplying so fast, and not only how they can fit into the modern grid, but how they are crucial to meeting projected capacity shortfalls.

 

In This Article

• What Is a Distributed Energy Resource?
• Common Types of DERs
• Why DERs Are Growing So Fast
• The Value DERs Bring to the Grid
• DERs, DERMS, and Virtual Power Plants
• Where DER Policy Stands in 2026
• Barriers to Scaling DERs
• FAQ
• Glossary of Terms

 

What Is a Distributed Energy Resource?

A distributed energy resource is any small-scale device that generates, stores, or manages electricity at or near the point where it’s consumed. DERs exist as front-of-meter assets managed by Grid distributed energy resource management systems (DERMS), while customer-sited, behind-the-meter DERs are managed by a Grid-Edge DERMS. Distributed energy resources include generation technologies like rooftop solar, storage like utility-scale or BTM batteries, and flexible load devices (smart thermostats, water heaters, EV chargers) that can shift or reduce demand on request.

The International Energy Agency (IEA) frames DERs as a structural shift in how power moves through the system: electricity no longer flows in a single direction from utility to customer. With enough distributed PV and storage on the grid, customers can generate and sell power back into the market, creating two-way flows that didn’t exist in a 20th-century, plant-to-customer grid design.

 

Common Types of DERs

Not all distributed energy resources (DERs) are the same. As noted, some are large, some small, and they can be located anywhere near where power is generated, transmitted, or controlled. Some of the most common types of DERs include:

• Rooftop and community solar photovoltaic (PV) systems
• Battery energy storage systems, residential and commercial
• Electric vehicles and EV charging equipment, including bidirectional (vehicle-to-grid) chargers
• Smart thermostats and connected HVAC systems
• Smart water heaters, used as low-cost thermal storage
• Combined heat and power (CHP) units
• Microturbines and fuel cells
• Demand response-enabled commercial and industrial equipment

 

Why DERs Are Growing So Fast

The distributed energy resource (DER) market is flourishing, shaped by several market and real-world pressures. Ultimately, there are three forces converging to push DER deployment well past where it stood even a few years ago:

• Falling hardware costs. Solar PV remains the dominant DER technology worldwide, and Grand View Research values the global distributed energy generation market at $538.2 billion in 2025, projecting growth to $884.8 billion by 2033, a 6.4% compound annual growth rate driven largely by cheaper PV modules and lithium-ion storage.
• Data center and electrification-driven demand growth. Pew’s energy modernization project points to data centers, manufacturing reshoring, and building and transportation electrification as the main drivers behind a U.S. electricity system now facing demand growth unlike anything seen in decades. DERs are attractive here because they can be sited and interconnected in months, not years.
• Market consolidation and investment. Private capital is moving in: For example, Madison Energy Infrastructure closed its 2025 acquisition of NextEra Energy Resources’ distributed generation platform, pushing its operating portfolio toward 1 gigawatt of clean distributed infrastructure even as federal tax-credit timelines tighten, a signal that developers see long-term value in behind-the-meter assets regardless of near-term policy noise.

Locational value is also becoming easier to quantify. The Department of Energy has highlighted NREL’s expanded Distributed Generation Market Demand (dGen) model, which uses site-specific grid data to show utilities and developers exactly where new DERs would deliver the most benefit, in turn providing a meaningful upgrade from the guesswork that shaped early DER siting decisions.

 

The Value DERs Bring to the Grid

So what’s the hubbub? Why have distributed energy resources (DERs) garnered so much attention in the energy sector? Put simply: DERs are an already available and proliferating asset for load flexibility. This means:

• Lower system costs. Aggregated DERs can reduce or delay the need for peaker plants and costly distribution upgrades, particularly when utilities can see and dispatch them in real time.
• Faster deployment than utility-scale generation. Pew notes that DER technologies are already commercially available and can be installed in months rather than the years typically required for transmission-scale projects.
• Resilience during outages. Paired battery-and-solar systems keep critical loads running through severe weather events and public safety power shutoffs.
• Lower emissions. Because most DERs are renewable or high-efficiency by design, wider adoption directly displaces fossil generation on the margin.
• New revenue for asset owners. Through demand response, BYOD, EV managed charging, and/or virtual power plant (VPP) programs, DER owners can be compensated for the flexibility their devices provide to the grid, a dynamic Deloitte describes as “DERstribution,” the bidirectional network of resources now forming at the distribution grid edge.

 

DERs, DERMS, & Virtual Power Plants

These three terms get used interchangeably, but they describe different layers of the same system:

• DER:  The physical asset itself (a battery, a thermostat, an EV charger).
• Distributed energy resource management system (DERMS): The software layer that gives a utility or aggregator visibility into, and control over, a fleet of DERs across a service territory.
• Virtual power plant (VPP): The operational outcome: a network of DERs aggregated and dispatched together to behave like a single, controllable power resource. The IEA identifies VPPs as one of five technology categories capable of delivering meaningful grid flexibility, alongside battery storage, EVs, smart water heating, and grid-interactive buildings.

Simplified, DERMS are how you see and coordinate DERs, and demand flexibility programs like VPPs are the strategic deployment of load that that coordination produces.

 

Where DER Policy Stands in 2026

State-level action has accelerated notably over the past year. A few examples Pew’s energy modernization team has tracked:

• Colorado approved Xcel Energy’s Aggregator Virtual Power Plant program, which lets third parties bundle batteries, smart devices, and electric water heaters into a VPP considered alongside conventional resources in utility resource planning.
• Illinois passed the Clean and Reliable Grid Affordability Act, which requires utilities to fold VPPs into their integrated resource plans and lets residents earn bill credits for sharing power from EV chargers, batteries, and water heaters.
• New Jersey modernized its DER interconnection rules, adding regularly updated hosting-capacity maps so developers can see where the grid has room for new distributed capacity.

Nationally, the picture is more mixed. Utility Dive’s 2026 outlook found that rising data center demand is pulling some utility investment back toward large-scale generation such as nuclear, gas, and geothermal, even as grid advocates argue DERs and VPPs still offer the fastest, cheapest path to new capacity. Visibility into DER fleets, several industry voices noted, will determine how quickly VPPs can scale to meet that opportunity.

 

Barriers to Scaling DERs

Understanding the potential value of distributed energy resources (DERs) is the first step toward longer efforts to enhance grid resiliency. Beyond piloting a demand flexibility program, DER initiatives thrive as they scale. That potential, but crucial scalability is challenged by:

• Limited grid visibility. Many utilities still lack the sensors and data infrastructure to see what’s happening behind the meter, which the IEA calls one of the central obstacles to integrating DERs at scale.
• Interconnection queues and permitting delays, particularly for larger commercial and industrial (C&I) scale projects.
• Market design gaps. Many wholesale and retail markets still aren’t structured to let aggregated small-scale resources participate on equal footing with traditional generation.
• Policy uncertainty, including shifting federal tax-credit timelines that developers must plan around even as they continue investing in distributed generation platforms.
• Workforce and digital divide issues, from broadband access to the specialized skills needed to manage large device fleets.

 

FAQ

Is a distributed energy resource the same as renewable energy? Not exactly. Most DERs are renewable (solar, small wind), but the category also includes non-renewable technologies like diesel generators, as well as storage and flexible-load devices, such as smart thermostats and batteries, that don’t generate power at all.

Do DERs replace the traditional power grid? No. DERs complement the existing grid rather than replacing it. They reduce strain during peak demand and add resilience, but the bulk transmission and distribution system still delivers the majority of U.S. electricity.

What’s the difference between “front of the meter” and “behind the meter” DERs? Behind-the-meter DERs sit on the customer side of the utility meter (home solar, a commercial battery). Front-of-the-meter resources are utility- or developer-owned assets connected directly to the distribution grid, such as a community solar farm.

Who benefits financially from DERs? Owners can save on their own electricity bills and, through demand response or VPP programs, earn compensation for making their devices available to the grid. Utilities benefit from lower peak-demand costs and deferred infrastructure spending.

How fast is the DER market growing? Global distributed energy generation was valued at $538.2 billion in 2025 and is projected to reach $884.8 billion by 2033, according to Grand View Research, a 6.4% compound annual growth rate.

 

Glossary of Terms

• Aggregator: A company or utility program that bundles multiple small-scale DERs together so they can participate in energy markets or demand response programs as a single resource.
• Behind-the-meter (BTM): Describes any device or system installed on the customer’s side of the utility meter.
• Demand flexibility: The ability to shift, reduce, or reschedule electricity consumption in response to grid conditions or price signals.
• Demand response (DR): A type of demand flexibility program that pays or incentivizes customers to reduce electricity use during periods of high grid demand.
• Distributed energy resource management system (DERMS): Software that gives utilities or aggregators visibility into and control over fleets of DERs.
• Grid-Edge: The outer boundary of the electric grid, where utility infrastructure meets customer-owned devices and buildings.
• Hosting capacity: The amount of new distributed generation a specific point on the grid can accommodate without upgrades.
• Interconnection: The technical and regulatory process of connecting a DER to the electric grid.
• Peaker plant: A power plant, often fossil-fueled, built to run only during periods of highest electricity demand.
• Virtual power plant (VPP): A network of aggregated DERs dispatched together to function as a single, controllable power resource.

 

Conclusion: What is a Distributed Energy Resource (DER)?

With energy demand spiking and no immediate relief in sight, utilities are faced with a unique challenge: invest billions, possibly trillions in necessary infrastructure upgrades or find another way to meet rising demand. While distributed energy resources (DERs) will not replace the need for these costly infrastructure upgrades, they will defer them while providing valuable load shaping flexibility through aggregate conservation and redistribution of existing resources. That’s why the regulatory and legislative landscape has heated up, driving the broader adoption of the demand flexibility programs that leverage DER technologies. DERs are here already and proliferating with every moment, providing an affordable alternative to meet growing demand today, while addressing the ongoing affordability crisis.

This blog was originally published on October 27, 2021 with updates made on September 24, 2026.