Utilities and Solar Companies Want Market-Based Solutions to Facilitate Collaboration
Creating new DER revenue opportunities by redesigning markets emerged as a theme at this year’s Solar Power International conference.
This year’s Solar Power International conference came at a time when the vast majority of U.S. states are contemplating how to restructure policies and rates for distributed energy resources. Recent actions range from tweaking existing practices, to throwing them out entirely, to spearheading new solutions.
In this complex environment, clean energy experts are calling for greater collaboration in order for solar and other distributed energy resources (DERs) to continue seeing exponential growth.
“The solar industry has seen some big wins, but also a wake-up call that there will be fights for rates design and net metering,” said Nat Kreamer, CEO of Spruce Finance and chairman of the Solar Energy Industries Association, speaking at SPI last week in Las Vegas. In that policy context, “How do our business models evolve?” he asked.
“The utility is facing the same uncertainty, and we want it to be largely successful for both businesses,” Kreamer added. Right now, many utilities hold the position that they want to stop disruptive technology like distributed solar — “and it’s not working out so well.”
There are a lot of states with less than 1 percent solar penetration that are afraid to go higher when looking at the challenges other states face, said Steve Malnight, senior vice president of regulatory affairs at Pacific Gas & Electric. “We have to build roads to demonstrate that this is a good path to go on…and that’s only going to happen if utilities and the solar industry come together.”
There’s a growing consensus in the electricity industry that customer-owned energy devices need to be installed strategically in order to serve the grid. The concept of putting a value on those services and creating a market to compensate DERs is also gaining traction.
In a new strategy paper released during SPI, Southern California Edison laid out its vision for what a distributed energy future could look like. A central piece of SCE’s plan is to connect DERs to markets that expand customer choice and offer new revenue opportunities — putting an end to contentious net metering debates.
SCE laid out three potential ways to connect DERs to markets: the wholesale level, where DERs can sell services that reduce the need for large-scale generation; the distribution level, where DERs provide location-specific services to the grid; and third-party markets, where the distribution grid platform could enable markets for energy transactions between customers or marketplaces for new products and services.
“Coupled with declining prices of DERs, these markets could eventually eliminate the need for subsidies and administratively-determined tariffs,” the paper says.
SCE sees the writing on the wall. Today’s electricity customers are increasingly adopting DERs to achieve cost savings, enhanced reliability and a lower carbon footprint. California is home to 50 percent of private solar systems in the U.S. — more than half a million businesses and homes. Today, there are more than 200,000 plug-in electric vehicles in the state and a goal to reach 1.5 million by 2025. California has also seen strong adoption of energy storage, energy efficiency and demand response products. SCE estimates DER penetration could more than double in its service area over the next decade.
SCE’s plan also asserts the role of the utility as the distribution system operator (DSO).
“DSOs will interact with hundreds of thousands — even millions — of distributed resources, and coordinate between control rooms and field crews in real time to manage new markets and grid operations simultaneously,” the paper says. “Utilities already perform many of these functions and have the scale and capability to integrate DERs into the planning, development and operations of a modernized distribution grid.”
In 2015, SCE operators performed more than 22,000 switching procedures to reconfigure or isolate portions of distribution circuits to deal with outages, upgrade the system, or integrate new technologies. As DERs play a more prominent role on the grid, these operations will only become more challenging.
Getting out of “passive mode”
The SCE paper calls for the deployment of more communications and automation equipment along the network to resolve operational issues. Developing those operational capabilities will require the “expansion of fiber optic and field area networks for real-time data collection; automated sensors and devices to capture data and to control grid devices in response to real-time disturbances; and management systems to operate the distributed grid and markets.”
On September 1, SCE filed a $23.3 billion rate case that includes $2.1 billion in grid modernization spending between 2018 and 2020, to facilitate the adoption of DERs and enable them to provide grid services.
“We absolutely see that we would be the distribution system operator, and that we should offer up…market opportunities,” said SCE President Ron Nichols, in an interview.
“It would be a situation where, rather than us being in a passive mode — where customers put solar on when they want to, where they want to, and how they want to — we will have…more information on where the locations are more beneficial and, therefore, where customers could get a higher payment,” he said.
New York and California have already taken steps toward realizing this more collaborative DER future. New York is crafting market-based solutions through its Reforming the Energy Vision proceeding. In addition to carrying out distribution resources plans, California’s three investor-owned utilities are in the process of crafting Integrated Distributed Energy Resource plans, which will include proposals for market-based demonstration projects. Today, however, SCE notes that retail DER customers do not have simple ways to participate in wholesale power markets, nor to receive compensation for services to the local power grid.
In June, the Federal Energy Regulatory Commission approved the California Independent System Operator’s (CAISO) request to allow rooftop solar, behind-the-meter batteries, plug-in electric vehicles and fast-acting demand response systems play in state’s grid markets as a revenue-generating resource.
“We need to move to a market-based structure for valuing all DERs to ensure that they are fully compensated for the value that they bring to the grid,” said Jon Wellinghoff, SolarCity’s chief policy officer, in an interview. “Unfortunately, with the exception of the steps FERC has taken to enable these resources to participate in wholesale electric markets, we are still far away from realizing their full valuation potential that would include the value they bring to the distribution grid.”
SCE is working on a pilot project with SolarCity and the SunSpec Alliance that could be a model for the future. Under the $4 million program, SolarCity will aggregate the portfolio of 50 homes to provide distribution grid support, as well as ancillary services into California’s wholesale market. With the funds in its rate request, SCE wants to deploy more pilots to test out the concept.