Monday, November 25, 2013

Smart grid stakeholders: under pressure, but talking

By Patty Durand, executive director, SGCC

On Nov. 4, I attended the
Illinois Smart Grid Policy Forum in Chicago, hosted by the Center for Business and Regulation, University of Illinois Springfield. The stated theme was “Measuring Progress and Charting Directions,” but the forum’s declared scope and purpose was to help foster stakeholder collaboration:

“The Illinois Smart Grid Policy Forum has been created to encourage open discussion among stakeholders, policymakers and other interested parties concerning the development of smart grid in Illinois. Smart grid investments are made to achieve a variety of goals including improved service reliability, direct and indirect cost savings for consumers, and to achieve broader public policy goals such as integration of local generation and the promotion of smart energy usage.”

The backdrop in Illinois, of course, is
Commonwealth Edison’s $2.6 billion, 10-year smart grid program approved by the state legislature in 2011. The dollars and the decade needed for implementation speak to its scale. And a few key facts and statements that emerged during my attendance really spoke to issues that affect most of us, clear beyond Illinois.

Essentially, the three major stakeholders – utilities, regulators and consumers – all face considerable pressures as they attempt to align their interests to pursue grid modernization. That’s true for stakeholders in other states too.

You can glance at
the forum’s agenda here; I particpated on a panel on consumer benefits and smart grid investment which gave me an opportunity to share some of the SGCC’s research on those topics. But listening to others’ presentations, I realized how complex and ambitious the State of Illinois smart grid program was, and I was encouraged by the dialogue and daunted by the challenges. This truly is an industry transformation taking place before our eyes, and we are a part of it.

In my my view stakeholders must understand each other’s drivers and constraints in order to collaborate on grid modernization and the needed investments to make it happen. Perhaps, then, it is no surprise that I found the keynote address particularly compelling.

Rich Sedano, principal and U.S. programs director for the Montpelier, Vermont-based Regulatory Assistance Project, delivered the keynote. Sedano, a power engineer, served as a commissioner in the Vermont Department of Public Service for a decade. His slide deck was steeped in big themes and fine details relating to the pressures on utilities and regulators as we move ahead on smart grid-related projects.  

First, despite a decades-long trend of steadily rising demand, utilities of late have faced a drop in demand driven by the 2008 recession. It was really clear to me as I watched his presentation that as utilities address all of these costs including infrastructure renewal, de-carbonization strategies such as shifting from coal-based to natural gas-based power, increasing energy efficiency and the addition of renewable energy, there are many updward pressures on cost. Indeed, some state policies for energy efficiency call not just for efficiencies, but significant drops in demand, particularly during peak hours.

So with a large proportion of U.S. utilities still profit by volume sales, and a drop in sales coupled with a rise in costs, they are under pressure. De-coupling utility returns from volume sales might be a solution. But it might not, and even if so it’s only the first step.

Regulators are under pressure, as well. Utilities have the staff and the time to put together complex business cases and technology roadmaps that regulators must understand and perhaps approve. Regulators must grasp grid modernization measures that make sense in terms of financial return and customer value.

As the forum’s scope and purpose make clear, improved service reliability, energy efficiency, distributed generation, as well as direct and indirect consumer benefits, are all goals of the legislation. Also discussed were the critical benefits of job creation and economic growth. That’s been a major theme of ComEd’s program and, indeed, ComEd reports quarterly on job-related and economic growth outcomes generated by its project.

Finally, I’d add that, from my corner, consumers too are under pressure. They are scrutinizing their bills and need help controlling thei energy costs as the upward pressure on costs causes utilities to file for rate increases. Regulation has to adapt to the changing technological and economic times. Utilities have to develop credible business cases that offer solid consumer value while providing a return on investment. Consumers need to be engaged and educated to understand why we need to make considerable investments in their local grid as well as across the country.

Forward progress would seem to require that these stakeholders all understand each other’s drivers and constraints. Multi-dimensional pressures abound. But I still see all three groups’ mutual interests served by adaptation, collaboration and concerted action. At least that was my takeaway in Chicago in early November.  

Monday, November 4, 2013

Consumer Empowerment and Transactive Energy Markets

By Patty Durand, Executive Director, SGCC

In my last blog, I offered a glimpse at the new SGCC report, Smart Grid Economic and Environmental Benefits: A Review and Synthesis of Research on Smart Grid Benefits and Costs, which quantifies costs and benefits per utility customer per year of various smart grid enhancements to the grid.

It’s important that we document the value of smart grid investments for the consumer, who after all, pays the tab. But the focus on the present shouldn’t preclude looking ahead to where smart grid technology will lead us all in the future.

Consider the notion of “transactive energy markets.” The idea is that, once intelligence is extended across the distribution system, including smart meters for homes and businesses, and intelligence is applied to loads (heating/cooling, lights, electronics, electric vehicles) in those homes and businesses, we’ll have a complex web of supply and demand for electricity.

Here is my take on it: imagine affordable, distributed generation for homes and businesses, most likely in the form of solar photovoltaic panels, and couple it with affordable energy storage.  Then at some point every customer’s combination of generation and load will sometimes make demands on the grid and sometimes add surplus electricity to the grid.

The thinking on transactive markets is that a market will arise that optimizes the entire grid and its many nodes, or customers, by charging for electricity demand according to near-real time pricing, and rewarding those who contribute their surplus by paying the same time-sensitive prices.

Although this is complex and futurist, a trade group has been formed to focus on this topic. The Transactive Energy Association
explains its mission here. Between savvy practices and in-home automation, utility customers should be able to reduce their electricity uses when electrons are expensive and draw more when it’s inexpensive. With best practices plus distributed generation and storage, it’s possible to create a surplus, thus providing financial incentives for energy efficiency and wise use.

Those who don’t wish to deal with potential price volatility might purchase subscriptions as a hedge. Others may invest in automation for long-term gains.

Yes, much has to happen to make this vision a reality. And, yes, not all consumer segments will want to be involved.  But we’re closer to such a market than you might think. Consider net metering, which is a reality in many states: when a customer produces excess solar energy in California, for instance, the value of that contribution is figured into the utility bill. Likewise, in current demand response and dynamic pricing scenarios, those who cut their use at critical peak times are rewarded in some fashion.

Yet we’ll need affordable home energy management systems that can prioritize our personal loads and optimize the timing of their electricity use by monitoring dynamic market prices. Regional markets and clearinghouses will need to be organized and run efficiently to enable transactions.

It’s difficult to foresee how a market with millions of nodes, all automated to maximize the end user’s benefits, will affect the current, two-peak-a-day load profile. Will new, expensive peaks and low-price troughs emerge? Will the load profile flatten to a more consistent level across the 24-hour cycle?

And it’s hard to forecast how transactive energy markets will affect the utility business case. In the near-term, the efficiencies gained might well contribute to lower demand for peaking (and highly polluting and capital-inefficient) power plants.  We can’t ignore the potential outcomes for utilities and, for the foreseeable future, they will have an important role that’s properly rewarded. The promise for consumers, however, is a level of engagement that rewards efficiencies and wise use, which should benefit them personally, as well as cutting carbon emissions by rewarding distributed generation.

For more background on the concept of transactive energy via a WorldWatch Institute blog is available here.