There’s been a great deal written about the regulatory uncertainty surrounding the new President but one thing is certain: the influence of renewables and Distributed Energy Resources (DERs) will continue to grow. So, will 2017 be the year that Utility companies fully embrace DERs and what will this new business model look like?
The growth of DERs
The challenges of loss of revenue due to DERs and the justifiable concern of the utilities that the DER users are not paying their fair share of Grid maintenance costs will need to be taken into account by regulators when they are making the Rate Design policies. At the same time, the Utilities are also beginning to see the opportunities that DERs bring to an aging infrastructure, badly in need of modernization allied with increasingly stagnant demand.
Regardless of the new administration’s attitude to the EPA, the Clean Air Act or the Clean Power Plan, it is clear that the US government is keen to legislate in a way that Utilities companies are rapidly adapting to DERs ties grid modernization to the integration of DERs. Indeed, we are beginning to see more and more evidence of Utility companies investing in DERs as a means to abandon or defer upgrades to existing bulk generation and transmission/distribution assets.
There are at least two reasons for this: renewable energy – especially solar – is rapidly reaching price parity with traditional energy sources, even natural gas. In some cases, solar and wind are proving, on average, most cost-effective than natural gas. The second reason is that Utility companies understand they need to change from a ‘cost centric’ to a ‘customer centric’ model to survive.
Utilities companies are rapidly adapting to DERs
While Utility companies struggle with stagnant or declining demand which has meant them seeing any impingement from DERs as a serious competitive threat, customers have been faced with rising costs and declines in the quality of service including unexpected power outages and planned rolling black-outs.
So, the growing customer demand for DERs is completely understandable. It is not seen by most as a money-making scheme but more as a way of improving energy provision services in a way that may lower the cost to them. It is that context that has seen Utility company executives quickly turn their attention to the opportunities – not the threats – of DERs.
It is instructive that in the State of the Electric Utility Survey 2015, 56% of the utility sector respondents said they understood the opportunities of DERs but were unsure how to build a viable business model. A year later, they had begun work on those models – with the majority favoring partnership with third party providers as the best route.
Seizing the DER opportunity
Whether acting as an aggregator for DER providers and microgrids or developing completely new supply chains, the Utility companies can lower the cost of DER market entry while protecting existing revenue generation and beginning to explore entirely new service opportunities away from bulk generation into niche and targeted supply.
For this to succeed, two things must happen. First, Utility companies that have traditionally provided an end-to-end service must learn how to work in what ABB has neatly termed the energy neighbourhood. ABB states:
“Adopting the energy neighborhood perspective can help bridge historic silos in the energy market, which have been hindering the evolution of more flexible, efficient, sustainable, and environmentally friendly energy systems. By working together more, or at least consulting each other more regularly and proactively, utilities, DER operators and customers can make mutually beneficial decisions about assets, business operations and resources.”
Secondly, The ability to communicate and share data and information across this neighborhood becomes essential and proactively adopting digital is going to be a key requirement in Utilities. The DER market already requires sensors and meters to regulate quality and output, the type of ecosystems being built for Utilities to integrate DERs into the grid require complete transparency and visibility. The Utilities, DER companies and customers working together have to be able to make complete sense of the structured and unstructured data involved in service delivery. Coping with this level of digital disruption was recently covered in an interesting blog from OpenText CMO, Adam Howatson which you can read here.
In practice, terms of service, SLAs and production and maintenance schedules will need to be combined with generation data and ratings engines to ensure that every party is sure that they and others are fully meeting their obligations. This is especially true with the trend towards Time of Use (ToU) and other demand-side rating design as a means to more effectively compensate DER providers. The challenge will be to implement new types of software – such as EIM – that can act as a central, integrated platform of communications, content sharing and data analytics both within the Utility company and beyond to connect and engage with customers, DER providers and, of course, the regulators.
Successful integration of DERs with the existing grid is going to be critically important, as DERs are forecasted to have a big impact on the “Duck Curve” – Net Load forecast curve for the 24 hours of the day. California System operator, CAISO, has performed detailed analysis of net load forecasts till the year 2020 and has shown the need for steep ramping of resources and possibility of over-generation risks. CAISO is also working with the industry and policymakers on rules and new market mechanisms that support and encourage the development of flexible resources to ensure a reliable future grid.
American Council for Energy Efficient Economy (ACEEE) has recently reported that Utilities can drive a 10% reduction in peak demand by using demand response capabilities and reduce the impact of the steepening Duck Curve. New EIM software as an integrated platform for communications will be crucial for the Utilities. It is essential for the successful sharing of content and structured and unstructured data with all the stakeholders including DER providers, Customers and System Operators and for introducing new Demand Response technology initiatives.
Read more on page 2 to find out about regulation, and regulators taking center stage.