Why It’s time to fully embrace America’s energy grid diversification
U.S. regulators should help drive more distributed resources into the grid, ICF’s Philip Mihlmester writes, recommending how they can do so to the benefit of energy consumers and utilities.
The United States is at an energy crossroads. There’s a significant movement underway, led by innovative private sector entities and a few forward-thinking regulators, that’s capturing the attention of Americans looking increasingly toward energy sources outside the traditional utility purview to power their homes and offices. That’s why it is time for regulators to empower utilities to incorporate more distributed energy resources (such as distributed solar, energy storage, energy efficiency and demand response) into a modern grid that reliably powers the everyday life of their customers.
Indeed, the basic regulatory model for electric utilities has been relatively unchanged for about a century. It was originally based on a system that delivered one-way power flows from large, remote central station generating plants to end-use customers scattered across a large service territory. This model necessitated features such as central planning by the utility to serve the needs of its monopoly distribution service territory, for which they received a guaranteed rate of return on utility invested capital in generation, transmission and distribution assets.
But, all that is being challenged as we speak. To facilitate the grid of the future, this century-old model must adapt to the modern realities of alternative distributed energy availability, environmental concerns, customer connectivity, and a rapidly growing demand for consumer choice. The new model should allow utilities to invest in modernizing America’s power grid to facilitate the increased beneficial use of distributed energy resources (DER) and to earn a reasonable return on that investment. Increasingly, grid modernization proceedings are becoming the vehicle for the utilities to request the investments needed to support greater integration of DER.
Regulators are key to driving that change, and many utilities are open to exploring DER options. A few utilities, in conjunction with their regulators in states like Minnesota, New York, California, Nevada and Hawaii have launched full-fledged pilot programs to understand how to fold increasing amounts of distributed energy sources into local grids and portfolios. These states are focused on how to better integrate DERs into the utility planning process, including issues such as hosting capacity, load and DER forecasting, interconnection and methodologies to determine the value of DER to the distribution system.
Some of these states are looking at pilot projects to help third party suppliers and utilities learn to develop the performance and compensation requirements associated with using DERs as grid assets. For example, Con Edison will be testing new smart home rates that are designed to facilitate fair customer participation in DER programs by being “margin neutral”, i.e., they leave the utility with the same margin regardless of the amount of energy the customer uses and allow DER customers to be paid the incremental avoided cost of grid services they provide. The rates will be tested as part of a demonstration project that seeks to determine the price-responsiveness of customers’ connected devices, including solar and storage, to new price signals, which will be key to understanding how connected DERs and devices can be controlled for grid and customer benefit.
In addition, California IOUs are in various stages of their DRP pilots where different types of behind-the-meter and in-front-of the meter distributed resources are being competitively procured to avoid or defer traditional “wires” solutions. As part of one of it’s pilots, PG&E has successfully integrated a Distributed Energy Resource Management System (DERMS) to monitor, optimize and dispatch DERs to manage system constraints and to evaluate the potential value that flexible DERs –– battery storage and solar inverters –– can provide the grid, with the potential to benefit all customers.