Opinionated: Transformation at The Grid’s Edge

19 Jun 2017

By Fereidoon Sioshansi

Donald Rumsfeld, the former US Defense Secretary, referring to developments following the Iraq invasion famously said, in war, “Stuff happens,” suggesting that much of what happens is unpredictable and not necessarily pleasant. Similarly, in the electric power sector these days, stuff is happening – generally characterized by buzzwords including industry transformation, grid modernization and developments at the grid’s edge – broadly referring to the interface between the distribution network and customers’ premises, appliances, devices, distributed generation, storage, sophisticated energy management systems, electric vehicles, etc.

 

Fereidoon graphic 6.19.17

Source: The future of electricity: New technologies transforming the grid edge, World Economic Forum in collaboration, March 2017

 

The question is why the surge of interest in the topic – which attracted virtually no interest 2-3 years ago?

There are many explanations including the confluence of three major trends further described in The Future of Electricity: New technologies Transforming the Grid Edge, a report by the World Economic Forum in collaboration with Bain & Co. released in March 2017:

  • Electrification;
  • Decentralization; and
  • Digitization.

Many sources substitute de-carbonization for the first item, which makes it 3 “D”s, and easier to remember.

These 3Ds are rapidly and radically changing the role of consumers, empowering them and making them more engaged. This, unsurprisingly, means that they will be far more demanding of the distribution networks of the future. This, in turn, explains the massive proposed grid modernization investments.

We can expect this consumer-centric future with increased reliance on the distribution networks to materialize sooner rather than later given the rapid pace of technological innovation, falling prices and – broadly speaking – supportive regulatory environment, although this varies from one place to another.

While technological breakthroughs of the past took 30-40 years or longer to penetrate markets, nowadays, things happen fast, a trend that is likely to accelerate in the future.

And with the rapid penetration of renewables in and outside of California, the energy component of electric service is expected to shrink, making the cost of kWhs relatively trivial compared to the fixed cost of the network, which must increasingly do more to keep variable supply and demand in balance.

Another important issue–widely recognized–is that in a future where an increasing share of generation is coming from variable renewable resources, demand must begin to play a more active and pronounced role. Storage, currently a critical but missing piece, is unlikely to be sufficient to handle large variations in wind and solar – a growing share of the generation pie.

The other critical component is the presence or absence of regulatory schemes needed to provide appropriate incentives for necessary investments – such as in grid modernization and the development of sufficient charging infrastructure for EVs.

Regulation also must provide clarity on the growing role of distributed energy resources, including distributed solar PVs, distributed storage, micro-grids and yet to be implemented peer-to-peer trading and other means of transactions among consumers, prosumers and prosumagers of the future. (Prosumer refers to a consumer who is withdrawing from the grid part of the time and injecting into it at other times. Add storage and a prosumer becomes a prosumager, suggesting that he/she can store the excess energy and/or rely on shift patters of consumption and production at will.)

The current piecemeal and fragmented treatment of distributed energy, for example, has to be resolved. In addition, the value of these resources need to be better monetized and reflected in future tariffs, which must increasingly account for the bi-directional flows of electrons based on time, location and their value or impact on the network.

Finally, regulators in California, Hawaii and New York–with the latter’s pioneering reforming the energy vision  (REV)–must address how the changing role of the distribution network will redefine the role of stakeholders, including better clarity on who can do what, when and where and under what types of rules, rewards and investment recovery.

In the Preface to Innovation & Disruption at the Grid’s Edge, Michael Picker, the President of California Public Utilities Commission explains that he has “… chosen to focus actively at the CPUC on more tangible tasks that can deliver benefits quickly, rather than questioning the fundamental nature of utility business models,” adding,

“The overarching philosophy I have followed in pursuit of more distributed energy future can be described as ‘Walk, Jog, Run.’ ”

With so many distributed energy resources coming on-line at fast pace, the approach is understandable. Picker goes on to say,

“The vision we (the CPUC) are pursuing is that, over time, DERs will be able to benefit from ‘stacking’ multiple value streams.”

This entails improved monetization of the multiple benefits of DERs while acknowledging, paradoxically, their increased demands on the distribution network – for example with high concentrations of PVs and/or EVs on certain distribution circuits. California’s regulators are already sensitized to the new realities of DERs and other developments taking place at the grid’s edge.

On this, Picker adds:

“Targeting DERs to high-value locations also necessitates development of a tool to highlight areas of the distribution grid where DERs can provide location-specific values, such as distribution capacity deferral and voltage support.’

Likewise, in the book’s Introduction, Audrey Zibelman, former Chair of the NY Public Service Commission and now the CEO of the Australian Energy Market Operator, explains that:

“The crux of the utility changes contemplated in REV can be summarized into the following 5 areas, many of which are touched upon by authors of the [book’s] following chapters.”

  • Creation of a Distributed System Platform;
  • Promotion and encouragement of innovation;
  • Regulation of the earnings model;
  • System information and transactive markets; and,
  • Fair and cost effective universal access.

Two other regulators, Paula Conboy, Chair of Australian Energy Regulator and Johannes Mayer, Head of Competition & Regulation at E-Control Austria, echo similar sentiments in the book’s Foreword and Epilogue, offering perspectives from Australia and Austria, respectively.

The WEF report provides four recommendations for utilities, network operators and the regulators:

  • Redesign regulatory paradigm;
  • Deploy enabling infrastructure;
  • Redefine customer experience; and
  • Embrace new business models.

The challenge is how to implement the sensible words into actionable strategies given the many moving parts and the complicated and highly unpredictable regulatory environment in which many utilities operate today.

Despite many similarities and universal trends, at the end what works for one utility in one geographical setting may not be suitable to another facing different regulatory constraints as described in several related articles in this issue. Suggesting grand strategies is the easy part. Implementing them is far more difficult and perilous.

Innovation and Disruption at the Grid’s Edge can be purchased hereA 30 percent discount is available to Current subscribers and free postage using the code ENER317.

Sioshansi can be reached at t fpsioshansi@aol.com or visit www.eenergyinformer.com.

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