5 Challenges Utilities face to Accommodate Distributed Generation

10-10-2013 5 Challenges Utilities face to Accommodate Distributed Generation

cable hight volt  The energy blogosphere is percolating with news of the impending crisis faced by many traditional utilities. The nearly hundred year old business model for many utilities is starting to unravel due the rapid growth in distributed generation of renewable energy, the need for a ‘smart grid’, and technological advances in energy storage, to mention a few. For the past century, utilities have been making money from people using more energy, not less. The deal was they were given monopolies in exchange for investing in massive, central power plants and transmission lines. They charged customers enough to earn a good ROI, and in addition, received guaranteed returns. But with distributed energy shifting control to developers, communities and even individuals that invest in their own energy sources, many utilities are pushing back. In at least seven states — Hawaii, Arizona, California, Colorado, Idaho, Louisiana and Vermont — they are trying to scale back net-metering policies that pay homeowners and businesses for the energy they send to the grid.  Some utilities, however, are finding ways to embrace the changes. Energy analyst Chris Nelder, was asked if utilities can survive the energy transition?  After the Edison Electric Institute (EEI) published its landmark report on the future of the utility industry, Nelder wrote a piece questioning the survival of many power companies. Pointing to the falling costs of distributed generation and rising rates of ‘demand response’ and efficiency participation, he concluded, “Some utilities will navigate the transformation successfully, while others will fight it tooth and nail until they die.”

 Here is a sample of what industry experts have to say on some of the most important issues facing the industry;

1. SMART GRID Alex Laskey, President and Founder, Opower: “The EU mandated 80% smart meter roll-out by 2018, which is very fast because, basically, the roll outs have been pretty paltry to date. At the same time, the EU passed an energy efficiency directive requiring each country to reduce consumption by 15% over a 10-year time horizon. One of the key things, if you read the text of the smart meter rollout, is there’s an out if the utilities or countries determine that there isn’t a positive business case for rolling out the smart meters. It’s an 80% requirement if there’s a positive business case. The business case is fairly thin without demand response and without energy efficiency. And so the question is, can the people in this room and the businesses represented in this room, whether they be utilities or service providers, help the utilities and national governments in Europe build these business cases in a way that robustly includes demand response because, if it doesn’t, these meters aren’t going to happen.” Robert Ethier, VP of Market Developments, ISO-New England: “How will the smart grid make network operators’ lives easier? It’s not going to change what we do, but it’s going to change how we go about doing it. We’re still going to have all of the same basic functions that we’ve always had, but hopefully we’ll do them in a more efficient way and in a way that gets better outcomes. We’re thinking about, for example, commitment and dispatch—software has improved that greatly over the last several years. When I first started at the ISO, which wasn’t that long ago, we were still calling up generators and demand providers and saying, ‘we want you to do this.’ Now that’s all automated, which seems trivial but it actually took a while to get us to that point. So I look forward to more smart grid technologies improving the efficiency with which we do the same jobs. We’re still going to have to plan the system, we’re going to—at least for the foreseeable future—have to dispatch the system, and we’re still going to have to run the markets everyday. But all that’s going to be better. There are going to be more players, it’s going to be easier for them to interact with us. Look at DR aggregation—the technology has enabled that immensely in the last ten years so that now you have an EnerNOC with thousands of customers or thousands, honestly, for all I know. And they are all dispatched by EnerNOC pretty seamlessly and we just see the results. That is tremendous progress and I think it actually makes us more efficient at what we do, but it’s not actually making it harder for us.”

2. DISTRIBUTED ENERGY RESOURCES Russ Feingold, Vice President, Black and Veatch: “Those utilities that maybe don’t have in their DNA, to the same degree as others, the wherewithal to let go of some of the control of transactions may not be as receptive to going after those kinds of value propositions. But I think it’s not that they’re not going to do it all, I think it’s just something where they’re going to be playing catch-up.”  Cheryl LaFleur, Commissioner, FERC: “This is something I have pretty strong views about, so I’ll just proselytize. I think that the best thing for this industry is not to present [microgrids and distribution generation] as a destructive force but part of the core business of the people delivering electricity. It’s all about cost to the customer, reliability and reducing environmental impacts. The products you all sell can help on all of those and that’s the core business. Paul A. Centolella, Vice President, Analysis Group: “As a former [commissioner of the Ohio Public Utilities Commission], I try to think of [distributed energy resources] in what’s the value proposition for customers. And I think there are really three. One is it improves asset utilization and reduces the amount of investment that’s ultimately required. Historically, we have, for the last decade, been at 45-50% capacity factors for generation. That’s well below what we see in other capital-intensive industries, which are typically over 75%. We can substantially improve that if we improve load factors. Secondly, in many areas we need flexibility. Paul [De Martini], you’re familiar with what’s going on in California, Cal ISO is out there saying by 2020 we may have situations where the coincidence between the fall off in distributed PV and the increase in evening peaks means that we may have to change our net load by as much as 50% over a three-hour period. We need a lot of flexibility and, potentially, this can provide that. Finally, in New England, the Northeast and much of the rest of the country, there is increasing regulatory focus in how do you make the grid more reliable, more resilient. And to the extent that we can have demand or distributed generation that actually responds to the immediate operating conditions on the grid, we can begin to do that in a more reliable and cost-effective way. So I think this plays a very important role but it fundamentally changes the function of a utility. You know, a distribution utility becomes a system operator in much the same way that RTOs are system operators at the transmission level and so it creates a whole new value function, but also a new challenge in terms of investment on the distribution utility side.”

3. ENERGY STORAGE David Owens, Executive VP of Business Operations, Edison Electric Institute: “I would say, probably, if it existed, the most disruptive technology would be storage because it could reduce the need for the wires portion of our business. If customers were able to put on rooftop solar, and if they had constant, reliable storage—I mean battery or some other technology that sustained their use—[they] certainly would still have to use the traditional system as a backup, but that, to me, would the most disruptive technology. Because—even though I don’t believe the word ‘independence’ would exist—there, the customer would believe that they have a level of independence from the utility. It would occur, clearly, with your large industrial customers and your large commercial customers—the customers that pay a substantial part of our revenue requirement. I also believe that the energy storage would create a whole new set of opportunities for the industry. But, certainly initially, it would be very disruptive.”

4. EVOLVING BUSINESS MODELS David Owens, Executive VP of Business Operations, Edison Electric Institute: “I think the utility should have the opportunity to be a full-service provider. So, yes, I think they should be able to participate in rooftop solar. I also believe there are a series of alliances and partnerships—as I view the utility of the future—that utilities have to engage in. We can’t invest in every dimension of the system, so we have to partner with others. But certainly I believe we have to have the ability to be in rooftop solar. I think we need to be able to provide a range of services behind the meter. Traditionally, we haven’t provided services behind the meter [and] I think we should have that opportunity. I’m not saying we’re the experts, but we can partner with others that are. So, I say, ‘open it up.’ I also believe that that, too, suggests a whole different way of pricing the products. There will be those companies that say, ‘I don’t want to be a full-service provider, I just want to be a wires company.’ And even a wires company is going to have a whole set of new challenges because we’re going more to variable generation—renewables, things were we don’t have dispatchable generation and forecastable demand. We have a very dynamic system now. So even if you’re just in the wires business now, the wires business has automatic controls, monitors, all types of solid state devices, which is a whole new business opportunity in my view.”

5. SECURITY & CYBERATTACKS Blake Young, CEO, Comverge: “I think [cyber attacks have] put a damper on the attractiveness of the cloud for utility CEOs in terms of their trust. To be quite honest with you, there are aspects of the cloud that the security architecture that you’re able to shape and craft outside of the cloud cannot be mimicked or replicated on the cloud. So I think the concerns are valid.”

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