The Power of Change Innovation for Development and Deployment of Increasingly Clean Electric Power Technologies (2016) / Chapter Skim
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6 Modernizing the Electric Power System to Support the Development and Deployment of Increasingly Clean Technologies
6 Modernizing the Electric Power System to Support the Development and Deployment of Increasingly Clean Technologies
Pages 153-194
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From page 153... ...
The growth of renewable and distributed energy resources, the expansion of energy-efficiency programs, slowly growing or declining utility sales, low natural gas prices, and the need to invest in the grid to maintain its reliability and security have prompted consideration of the significant changes in utility technical, business, and regulatory models needed to facilitate the truly wide-scale adoption of increasingly clean power technologies. However, the industry is in the early stages of evaluation of these changes.
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From page 154... ...
At the same time, the industry is dealing with retiring coal and some nuclear generation and integrating variable large-scale renewable and distributed resources. Moreover, current utility business models often rely on volumetric increases in sales to provide funds for new investments.
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From page 155... ...
Increasing Reliability Problems and Outages Electric utilities experienced an increasing number of weather-related outages from 1992 to 2012 (Executive Office of the President, 2013)
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From page 156... ...
The investment requirements associated with tracking and mitigating security risks are substantial and will increase as understanding of these risks continues to evolve. Significant Growth in Distributed and Variable Generation Capacity Utilities are seeing significant growth in customer-sited, distributed generation.
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lifted the requirement of the Public Utilities Regulatory Policy Act that utilities in competitive markets purchase power from these facilities, CHP installations are once again increasing. An additional 870 megawatts (MW)
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From page 158... ...
Improved Reliability through Distributed Resources Distributed resources, if integrated under appropriate interconnection standards, in microgrids, or in automated distribution systems, offer the potential to improve grid reliability and resilience for customers that place a high value on uninterrupted service. These distributed resources may include increasingly clean energy technologies such as CHP, PV, and efficient fuel cells.
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From page 159... ...
As a result, suppliers to the industry are unlikely to provide sufficient support for the development of advanced technologies without utility leadership. Fortunately, policy makers and industry stakeholders are beginning to actively consider changes in utility business and regulatory models.
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From page 160... ...
State public utility commissions regulate the retail rates, distribution reliability, and service of investor-owned electric utilities. For nearly the first century of the industry, states took the stance that electric power was a natural monopoly like other utilities, the assumption being that competition is unstable, and avoiding duplication by competitive firms actually lowers prices.
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From page 161... ...
are responsible for the planning and operation of the bulk power transmission grid and the commitment and dispatch of central station generating units. 10 FERC regulates ISOs and RTOs with the exception of ERCOT, an interconnection entirely within the state of Texas that is regulated by the Texas Public Utilities Commission.
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From page 162... ...
Unfortunately, the traditional power grid will not support the level of distributed energy technologies that will occur based on current trends and demands for increasingly clean and more efficient, reliable, and resilient electric power. Stakeholders with diverse and often conflicting interests are active participants in ISO/RTO committees and parties to FERC and state regulatory
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From page 163... ...
Well-aligned incentives and the engagement of policy makers, regulators, and external stakeholders with utilities are likely to be important to enabling utilities to embrace innovation and fully support the adoption of costeffective increasingly clean energy and energy-efficiency technologies that can deliver net value to customers. This subsection describes the traditional cost-ofservice model for regulation of electricity distribution and vertically integrated electric utilities and its limitations.
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From page 164... ...
State public utility commissions have used a cost-of-service approach to set the rates charged by electricity distribution and vertically integrated utilities. 11 This process establishes the total of all costs prudently incurred to provide service, then sets rates necessary to enable the utility to recover the costs incurred during the year under review and realize a return on invested capital.
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From page 165... ...
Finding 6-1: To expedite innovative solutions, it will be necessary to redesign business models and regulatory incentives currently designed for a centrally controlled system so they are built on a customer-driven model with multiple solutions. A MODERN POWER SYSTEM THAT WOULD SUPPORT THE DEVELOPMENT AND DEPLOYMENT OF INCREASINGLY CLEAN ENERGY AND ENERGY-EFFICIENCY TECHNOLOGIES This section describes the features of a modern power system that would support the development and deployment of increasingly clean power and energy-efficiency technologies -- its technical features, a supportive regulatory approach and specific regulatory policies, new utility business models, and workforce development.
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From page 166... ...
A system that can produce these outcomes is one that (AEE, 2014) 12 • encourages innovation in power generation technology, transmission and delivery infrastructure, and service models; • empowers customers by giving them tools and options for managing their electricity costs; • improves the design, operation, and coordination of power markets; • moderates future customer bill increases relative to what otherwise would be experienced; and • creates sustainable business models for firms in the power sector.
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From page 167... ...
generation and capacity additions can be avoided, and resources that are no longer cost-effective to maintain can be replaced. Overall, enabling this multidirectional flow of electricity allows value to be gained from the use of distributed energy technologies, especially given storage capability.
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. With the expiration of that act's funding, new regulatory models have begun to emerge to support needed upgrades and technology investments.
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Over time, regulators have taken steps to adapt to changing conditions, including experimentation with alternative regulatory models. 13 Some of these alternative models provide greater support for new investment.
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From page 170... ...
In addition, unless the multiyear plan is tied to a reasonable utility business plan for new investment and changes in its operations, the revenue or rate cap may not match the rate levels needed for required capital investments. • Sliding-scale rate plans -- In a few states, including Alabama, Louisiana, and Mississippi, regulators determine a target return for the utility and set rates based on cost and revenue forecasts to achieve the return target, subject to a predetermined ceiling on rate increases.
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From page 171... ...
The regulator may adjust output metrics and incentives during the rate plan, with adjustments being applied to the remaining years of the plan. Ofgem has proposed or adopted performance incentives related to the following: − The frequency and duration of outages -- Incentives are based on studies of the value placed by different customers on uninterrupted service.
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From page 172... ...
An expert panel disburses multiple rounds of funding. 15 • Limited revenue reopeners -- While Ofgem's general approach is to require utilities to manage business risks, it may define circumstances in which rate plans may be reopened to address changes in underlying economic assumptions or unknowns such as new cyber-security requirements.
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The U.K. power industry faces aging infrastructure, a changing power generation mix with increased reliance on variable renewable generation, and limited revenue growth.
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. 18 See Public Utilities Commission of Hawaii, In the Matter of Public Utilities Commission regarding Integrated Resource Planning, Docket No.
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Finding 6-3: Many state regulatory commissions require additional analytical tools, training, and other resources to develop and implement effectively regulatory models that support and encourage the development of increasingly clean energy and energy-efficiency technologies. Recommendation 6-1: DOE should develop information, tools, and programs that would facilitate state regulatory commissions' consideration and implementation of regulatory models tailored to meeting current challenges.
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From page 176... ...
Unlike prior generations of programmable thermostats, a modern smart thermostat can • sense when a home or portion of a building is unoccupied; • identify when consumers with smartphones are arriving back in their home neighborhood; • automatically fine tune operational schedules to address seasonal changes; • reduce run times of air conditioner compressors on less humid days when the compressors are not needed; • balance heat pump operations to provide desired comfort and reduce the use of less efficient auxiliary heating elements; • prompt customers to change their furnace filters when accumulated dirt has reduced the filters' efficiency; and • provide reports on the efficiency of energy use and recommendations for energy savings. 27 One study estimates that the installation of smart thermostats could reduce the energy used by residential air conditioners in southern California by more than 11 percent (Nest Labs, Inc., 2014)
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From page 177... ...
Moreover, smart devices could respond continuously to help system operators offset ramping of variable resources or, if carbon and other environmental impacts were appropriately priced, to shift consumption to periods when resources with an optimal combination of lower costs and environmental impacts would be used. 28 Application of Nevada Power Company d/b/a NV Energy for Approval of its 2014 Annual Demand Side Management Update Report as it relates to the Action Plan of its 2013-2032 Triennial Integrated Resource Plan, Volume 5 -- Technical Appendix, http://pucweb1.state.nv.us/PDF/AxImages/DOCKETS_2010_THRU_PRESENT/20147/39345.pdf (hereafter Nevada Power Application)
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From page 178... ...
First, in organized power markets, wholesale settlements are in many instances based on distribution utility load shapes, not on the actual load patterns of each retail supplier's customers. Where settlements are based on customers' actual demand profiles, energy service companies (ESCOs)
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Incentives could be enhanced and responsive demand could play a greater role if load, like generation, were settled on a 5- or 15-minute interval basis. Customer-specific and more granular wholesale settlements could encourage utilities and competitive retail suppliers to work with their customers to automate and manage more efficiently the timing of flexible demand, offering lower prices to customers who use automation to create efficient changes in their usage profile.
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From page 180... ...
Fifth, state regulators could spur more demand for smart devices that are connected to the home or building, such as a smart thermostat or commercial building energy management system, by allowing these devices to be financed through on-bill repayment programs. These programs would permit the financing of energy management and energy-efficiency devices to be linked to the premises and be transferred from one owner or tenant to the next, which could prove an effective way for customers to finance the devices.
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From page 181... ...
In a conventional distribution system, voltage is increased at the substation and may be boosted at intermediate points to levels consistently above minimum requirements to ensure that as power usage changes over time and voltages drop through the length of the distribution circuit, minimum voltage levels are consistently maintained for customers at the end of each line. VVO programs can reduce electricity generation requirements on many distribution circuits by 2-5 percent using modern solid-state power electronics on distribution circuits and smart inverters in distributed resources or, in some cases, a range of control technologies in conjunction with load tap changers (LTCs)
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From page 182... ...
California energy consumers support energy R&D through both the Electric Program Investment Charge, a public goods charge that funds research programs managed by the California Energy Commission (2016) , and a unique joint venture between the state's electricity distribution utilities and Lawrence Livermore National Laboratory -- California Electric Systems for the 21st Century (CES-21)
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Recommendation 6-4: State regulators and policy makers should implement policies designed to support innovation. For example, they could evaluate approaches in which utility or energy customer funds are set aside to support state and regional innovation programs.
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For detail, see Chapter 4. New Utility Business Models Over the last two decades, the power system in much of the country has been fundamentally changed by open-access transmission, 40 the development of ISO and RTO markets, 41 market-based pricing of wholesale generation, 42 demand response in wholesale markets, 43 regional transmission planning, 44 and competitive retail supply.
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48 Emerging Opportunities for New Business Models The business model for electricity distribution until recently has remained relatively stable among most utilities. However, it is in distribution as well as in retail energy services that new utility business models are emerging.
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. 50 As illustrated earlier in Figure 6-2, new distributed energy technologies are challenging this model of distribution operations.
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Both models, however, face challenges to their full development and implementation. First, the efficient integration of distributed energy technologies, distribution automation, VVO, and other characteristics of a smarter power grid will require a more active DSO.
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, formation of the Office of Electricity and Energy Reliability's Grid Tech team, and support for standards development and the Smart Grid Interoperability Panel. While the DSO role is likely to develop over a number of years, the development of needed operational systems in time to match the pace of costeffective deployment of distributed energy technologies could prove challenging.
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From page 189... ...
53 New distributed energy technologies also will create opportunities for utilities and/or competitive suppliers to offer customers a broader range of energy services. Competitive retail energy suppliers could transition from providing commodity electricity service to managing customer energy bills.
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From page 190... ...
, and deployment at scale of distributed energy technologies; • integrated operational modeling and systems providing real-time operator awareness of multidirectional power flows across transmission and distribution systems; • a flexible information architecture and related interoperability standards to support the expanded availability of power system operational data and the evolution of operating systems and applications; • operational models, systems, and applications to support the integration and management of more intelligent and dynamic distribution systems and distributed energy technologies; • advanced cyber-security systems for a power grid that to an increasing extent relies on information and communication technology; • distribution-level market structures that can coordinate settlement of multidirectional transactions; and
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From page 191... ...
Poorly designed systems and those developed without appropriate security will be particularly vulnerable to cyber attack. Recommendation 6-5: DOE should undertake a multiyear R&D program to ensure the timely development of the capabilities needed for effective DSOs or CESPs through policy analysis; dialogue; and the sharing of experience and best practices among regulators, utilities, and other stakeholders to advance understanding of the emerging business models.
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From page 192... ...
The future workforce will need to be trained in new technologies, such as smart-grid devices, and to implement and maintain new systems, such as advanced distribution networks engineered for two-way power flows and high levels of distributed generation assets. The main factors contributing to the challenge of recruiting qualified individuals to plan and manage modern electricity systems are themselves interrelated.
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From page 193... ...
Prior to deregulation and restructuring, it was common for electric utilities to engage in long-term relationships with local universities. Utilities would provide tuition scholarships, fund internships, provide general "support" funds for programs of study in electric power systems, and even establish designated power systems research centers within local universities.
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. Finding 6-12: Industry-educator partnerships are the most effective way to train a skilled, technical workforce, and can bridge the immediate gap in the skilled electric utility workforce.
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