Unlocking Grid Value with a Common Language for Distributed Energy Resources

The energy sector is buzzing with talk of distributed energy resources (DERs), demand response (DR), and virtual power plants (VPPs). But behind the buzzwords lies a significant challenge: a tangle of inconsistent definitions reveals disjointed perspectives that hinder us from coordinating these valuable resources to tap their full potential. By proposing a set of definitions in a framework for aligning stakeholders, this paper seeks to clarify the landscape and accelerate DER deployment.

DERs can help the electric grid, but multiple obstacles stand in the way. DERs have been shown to provide critical grid needs - capacity, energy, and ancillary services - at much lower costs than alternatives. The technology works for increasing grid responsiveness and reducing demand, but adoption is slow. The benefits of DERs, DR, and VPPs – and barriers to their adoption – are hot topics in energy news. But the current conversation largely omits two obstacles: inconsistent definitions and a variety of standards for calculating cost-effectiveness.

Shared, up-to-date definitions that relate adjacent concepts could increase collaboration. "In the energy industry, we're so entrenched in our siloes that we don't even know who the other stakeholders are…and our different definitions keep us working on parallel tracks instead of together," said Ed Schmidt who is Director at MCR Performance Solutions, a consultancy that serves utilities.

According to Allison Bates Wannop, The DER Task Force just wrote their own definition intended to be "simpler" than the six-line definition in the Federal Energy Regulatory Commission's (FERC) Order 2222. The Task Force wrote their DER Bill of Rights from the perspective of the DER owner, but their definition is written from the grid perspective: "A distributed energy resource (DER) is any generation, storage, or capacity asset connected to the distribution grid or directly to an end-use customer." Other definitions – such as in the National Standard Practice Manual for Benefit-Cost Analysis of Distributed Energy Resources – include perspectives of both the grid and the customer/DER owner.

"Terminology hasn't kept up with the times. DR is not just about curtailing load on a hot summer day. We need to think about the broadest range of demand-side resources, like time-based rates, what's now possible with low-cost communication and controls, VPPs, and energy efficiency," said Andrew McAllister, a commissioner in California's Energy Commission.

Notably, IEEE has created a bit of order in this chaos. In 2024, their Power & Energy Society Task Force on "Demand Response in the DER Era" analyzed 15 disparate definitions of DR from the U.S. (e.g., U.S. Department of Energy [DOE], FERC Orders 745 & 2222, and Independent System Operators [ISOs]) and Europe (e.g., IEA & EU Directive 944). IEEE met their goal to define "what DR is rather than what it aims to do." The IEEE definition is a huge step in the right direction. Yet, it does not fully position DR with respect to DERs and energy efficiency (EE).

VPPs have recently dominated discussion in the DER space, although the concept dates back to the late 1990s. In a 2024 podcast, Jen Downing – lead author of the DOE's 2023 report, "Pathways to Commercial Liftoff: Virtual Power Plants" –  shared the challenge of choosing the term Virtual Power Plant over a popular alternative, "distributed power plant." Two recent VPP definitions integrate perspectives of the grid and DER owners: the DOE report and the definition by VP3, an industry organization trying to make VPP liftoff happen. But like the conversations in the energy news, these definitions do not situate VPPs in the complete picture of the DER space. That leaves important opportunities for companion DER strategies off the table.

For example, where does energy efficiency fit in the puzzle? This has not been prominent in energy news but was recently an undercurrent of conversation at the International Energy Program Evaluation Conference. In an explanation of DR participation in wholesale electricity markets, ISO-New England distinguished dispatchable demand response from non-dispatchable demand savings that reduce electricity demand over many hours, such as energy efficiency and behind-the-meter generation.

We propose a diagram to define relationships between adjacent concepts followed by a companion set of definitions focused on what each concept is from the grid and customer perspectives with illustrative examples. The essential relationships between our definitions depend on the distinction between equipment and services. A DER is a physical piece of equipment that may or may not offer services to the grid, such as DR and Demand Savings. A VPP coordinates DERs to provide DR service to the grid when needed.
 

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• Distributed Energy Resource (DER) is any generation, storage, or capacity asset – including flexible loads and energy efficiency – connected to the electric distribution grid or directly to an end-use customer behind their meter (BTM) that can operate independently to achieve their owners' purposes or can be orchestrated to complement the centralized, utility-controlled electricity supply from the transmission grid. [1], [2]
  • Examples: Customer-owned electricity supply, such as batteries and solar panels, customer loads capable of flexible timing, such as home heating and electric vehicle charging, and energy efficiency enhancements, such as heat pumps and weatherization.
  • Costs and benefits: Although orchestrating DERs increases complexity and uncertainty in grid operations, many utilities have demonstrated that DERs offer the electric grid additional means to efficiently balance supply and demand under dynamic conditions while enhancing reliability, affordability, power quality, and resilience.
• Demand Response (DR) is the action of Distributed Energy Resources (DERs) located behind customer meters to voluntarily, actively, and temporarily adjust their electricity consumption and/or production in response to signals such as commands, prices, measurements, or alerts. [3] DR provides a service to the grid which typically pays customers for the minor inconvenience, such as shifting the schedule for EV charging.
  • Examples: Utilities signaling peak hours to customers through Time-of-Use pricing (so customers choose to charge their electric vehicles at off-peak times) or through control signals to smart devices at peak times such as temporarily shutting off pool pumps or drawing on home batteries.
• Demand Savings (DS) is the action of Distributed Energy Resources (DERs) located behind customer meters that reduce or cap electricity demand over long periods but cannot adjust the amount saved in response to a signal. [4] DS reduces a customer's bill and – in a period of load growth – additionally provides a service to the grid.
  • Examples: Energy efficient appliances, lighting, and heat pumps for heating and cooling; branch circuit sharing among an increasing number of plug-loads, such as electric vehicle charging and heat pump water heaters, without expanding panel capacity; and behind-the meter generation, such as solar photovoltaics.
• Virtual Power Plants (VPPs) aggregate Distributed Energy Resources (DERs) capable of Demand Response (DR) – such as batteries, electric vehicles, and smart thermostats – so they can operate together when needed as if they were a single, utility-scale, dispatchable power plant providing capacity, energy, and/or ancillary services to the grid for balancing supply and demand. A VPP enrolls DER owners and rewards them for contributing to efficient grid operations. [5] VPPs mimic the services provided by traditional firm electricity generation, such as a fossil or nuclear plant, but with a much smaller environmental footprint. [6]
  • Examples: The coordinated, two-hour dispatch of 100,000 participating home batteries across California with equivalent output to a mid-size natural gas power plant or a big-box retailer who is paid by a VPP operator to temporarily reduce energy consumption when the power grid is stressed.
  • Distributed Energy Resources Management Systems (DERMS) enable proactive, optimized grid control of DERs to minimize disruptions and phantom loads, incorporating geographic detail of distribution feeders and circuits. [6]
    • DERMS and VPPs have been called two sides of the same coin: "VPPs are more focused on the financial value captured by markets whereas DERMSs are more focused on maintaining the physics of the power grid by ensuring that localized voltage and reactive power are marshaled on behalf of grid stability." [6]  

This coherent set of definitions is intended to help unleash the promise of DERs by broadening the conversation to strategies that coordinate DR, VPPs, and DS. For example, Kendrick Li, Director of Clean Energy Programs at Pacific Gas & Electric (PG&E), described a coordinated strategy: "Time-of-Use pricing for charging electric vehicles manages this increasing demand well enough that PG&E is only experimenting with high-tech approaches for EV charging but not applying them at scale in 2025." Meanwhile, they have established VPPs for battery discharge and are pursuing VPPs to manage heating and cooling." According to Stina Brock, CEO of Derapi, a business focused on making it easier to connect DERs, "given the load growth we're facing, we need all available tools to mitigate the impact of prices rising for consumers."

Specifically, our definitions might spark three areas of broader conversation about minimizing the need for new generation and grid upgrades to meet load growth:

• Price-sensitive behavior: Price signals could offer reliable DR for large, flexible loads without a VPP and enhance affordability by reducing customers' bills.
• Demand Savings (DS): Innovative utilities could reframe their energy efficiency programs as a strategy for meeting load growth. Increasing efficiency would simultaneously provide capacity for load growth and enhance affordability.
• DER owner perspective: Focusing the conversation on the partnership between the grid and DER owners naturally leads to discussing DER participation – a critical enabler. For DERs to provide large-scale benefit, high rates of participation by DER owners are required. Once regulatory changes in markets allow fair payment to DER owners for all the services they can provide to the grid, utilities and other parties will need to win enrollment and ongoing participation. 

DER technologies are here, they work, and they could enhance affordability. "DERs have been shown to achieve critical grid needs - capacity, energy, and ancillary services - at much lower costs than alternatives," said McAllister.

The pieces are on the table, but we need to put the DER puzzle together to get a bigger picture. For example, "VPPs are not new and have been operating with commercially available technology for years. Most of the 30-60 gigawatts (GW) of VPP capacity today is in demand response programs that are used when bulk power supply is limited; these programs turn off or decrease consumption from DERs such as smart thermostats, water heaters, and commercial and industrial equipment. However, VPPs have the technical potential to perform a wider array of functions." [5] But it is only this new tech that has been the focus of recent energy discussions. 

There are other existing pieces that have not been part of the conversation. Pricing that sends signals to reduce demand is also long-established with large industrial and commercial electricity customers. According to Praveen Kopalle's research, dynamic pricing enabled by current technology can substantially reduce electricity consumption during peak hours. Emergency alerts have averted blackouts when the grid was under extreme stress. Energy efficiency programs are available in every U.S. state. Residential customers are using load balancing devices to maximize capacity – that is cap peak demand – on their electric panels to prevent the need for utility service upgrades. Another piece on the table is small-scale solar photovoltaic capacity, which was over 56 GW in the U.S. in August 2025 with ongoing capacity increases forecast for solar alone and paired with storage. Related definitions may help the various stakeholders work together on coordinated strategies.

For progress, proposed strategies must dovetail with utilities' complex constraints and challenges. McAllister of the California Energy Commission said, "It is hard for utilities to focus on DERs with their huge number of pressing issues: protecting affordability while meeting projected load growth, maintaining reliability through disasters, achieving states' clean energy targets, rolling out Advanced Metering Infrastructure, hardening the grid, increasing cybersecurity, and dealing with aging infrastructure and workforce." 

Proposed strategies must also engage DER owners' perspectives and constraints. Most recent discussions in energy news express a grid perspective and imply that DERs are just sitting out there waiting to benefit the grid. Too little attention is paid to utility customers' motivations for purchasing the asset that grid experts call a DER. For example, a driver buying a Ford F-150 Lightning EV imagines their off-road adventures, not how they can contribute to grid efficiency with Vehicle-to-Grid (V2G) bidirectional charging. And that DER owner will expect fair compensation if they choose to share their beloved truck with the grid. 

The same goes for water heaters: people install them for hot showers whenever they like. In short, folks invest in appliances so they can use them without thinking about timing their use or the chance to share their asset for a cost/benefit trade-off. Most don't know what a DER is and have never imagined the grid as a two-way street. Brock said "less than 20% of DERs out there are currently engaged in utility programs to provide grid flexibility or support the grid in some way." How can we capture DER owners' attention and win their participation?

"A[nother] challenge to coordinated strategies for DER adoption will be that different standards for evaluating costs, benefits, and cost-effectiveness are used by different stakeholders: ISOs and reliability engineers for utility assets, energy efficiency programs, grid planning methodologies, and shared investments in DERs by utilities, their customers, and their regulators," says Schmidt. But that is a problem to tackle once the stakeholders are using a common language to tap the full potential of coordinated DER strategies.

If you have comments or questions about this article, please reach out to the author, Honor Passow, PhD, PE, at Honor.J.Passow@dartmouth.edu. 

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Honor Passow is a Senior Fellow at the Irving Institute and a Senior Lecturer at Dartmouth's Geisel School of Medicine.

References

[1] DER Task Force, "Definition of DERs in Personal communication with Allison Bates Wannop," Oct. 29, 2025.
[2]  T. Woolf, C. Lane, M. Whited, and C. Neme, "National Standard Practice Manual for Benefit-Cost Analysis of Distributed Energy Resources," E4TheFuture, Aug. 2020. Available: https://www.nationalenergyscreeningproject.org/national-standard-practice-manual/. [Accessed: Oct. 29, 2025]
[3] J. L. Mathieu et al., "A New Definition of Demand Response in the Distributed Energy Resource Era." arXiv, Oct. 24, 2024. doi: 10.48550/arXiv.2410.18768
[4] ISO-New England, "About Demand Resources," ISO New England. Available: https://www.iso-ne.com/markets-operations/markets/demand-resources/about. [Accessed: Oct. 29, 2025]
[5] J. Downing, N. Johnson, and M. McNicholas, "Pathways to Commercial Liftoff: Virtual Power Plants," US Department of Energy, Sept. 2023. Available: https://climateprogramportal.org/resource/pathways-to-commercial-liftoff-virtual-power-plants/. [Accessed: Oct. 29, 2025]
[6] P. Asmus, "VPPs and DERMSs: Different Sides to the Same Coin," Navigant Research, Boulder, CO, 2018. Available: https://www.scribd.com/document/757792903/Navigant-Research-AutoGrid-DERMS-White-Paper. [Accessed: Oct. 25, 2025]