Preface
The editor of this volume has solicited an assortment of contributions from some of the most insightful thinkers advancing the state of knowledge on issues affecting the electric industry at the intersection of the distribution network and customers, referred to as “the grid’s edge” in the volume’s title. The assembled chapters herein are particularly timely for California and other jurisdictions, such as Hawaii, Australia, and Germany, that are at the forefront of integrating large amounts solar and other distributed energy resources (DERs) interconnecting on the distribution grid, whether on customer premises or in front of the meter. Collectively, these works describe elements of several possible energy futures that may emerge as a result of the transformative trends shaping the industry today.
Two related forces have resulted in the rapid expansion of renewable energy generally, and DERs specifically, in recent years. First, California and other jurisdictions have made serious commitments in recent years to reduce greenhouse gas emissions, improve air quality, and promote renewable energy through a variety of policies and programs. In the electric industry, this calls for mobilizing capital toward new renewable power technologies and away from fossil fuels as the basis of our electric generation. Second, as the policy support has allowed certain clean energy technologies to scale up, performance has improved and costs have fallen rapidly. In the past decade, the costs of wind power and solar PV have fallen by 50% and 75%, respectively, and their costs continue to fall. As a consequence of these forces, the vast majority of the solar and wind capacity connected to electricity grids across the world was installed only in the last decade.
In addition to this shift in the source of power production, we have also seen new technologies resulting in a parallel trend toward decentralization and a new democratization of decision-making within the grid. Like solar and wind technologies, battery storage costs have similarly fallen by approximately half since the mid-2000s. Hundreds of thousands of Californian households and businesses now have experience generating their own power with on-site solar. With the rapid decline in battery storage costs and the advent of smart homes, a small but growing share of customers is gaining experience with managing energy usage as well.
As customers take advantage of the additional choices that become available to them, the relationship between customers and utilities will change. Some experts believe that these trends will, or should, fundamentally alter the nature of electricity markets and the role of distribution utilities. Several visions for the future of the electric industry have been proposed in recent years. As described by proponents, the utility of the future will be characterized by one or more of the following elements: (1) distribution grids are managed by distribution system operators (DSOs), which may or may not be the incumbent utility; (2) DSOs provide a platform for the exchange of energy and other services at the distribution level; (3) transactive energy platforms enable customers to buy and sell energy directly to each other across the distribution system; and (4) microgrids balance load and supply locally to the extent feasible and exchange energy with the transmission grid in response to differing costs or reliability considerations.
While it is important to begin thinking about longer-term implications of low-cost solar and storage, we should be cautious of becoming enamored of innovation for its own sake. Buzzwords in this field have proliferated recently, but we should maintain a healthy skepticism about which investments are most likely to generate real net benefits. I am not convinced that sweeping reorganization of the industry is necessary for DERs to deliver considerably more value to the grid.
For both strategic and practical reasons, I have chosen to focus activity at the CPUC on more tangible tasks that can deliver benefits quickly, rather than questioning the fundamental nature of utility business models. Among the three large investor-owned utilities in California that we regulate, customer-sited solar capacity is approaching 5000 MW. Installed energy storage capacity currently amounts to almost 50 MW, but another 130 MW are in the development pipeline. In addition, at nearly 250,000 electric vehicles, California accounts for half of the United States’ fleet. As Californian utilities already have high, and steadily growing, penetration of DERs, we are facing a near-term need to better manage our DERs to avoid detrimental impacts on power quality and reliability.
The overarching philosophy I have followed in pursuit of a more distributed energy future can be described as “Walk, Jog, Run.” While deployment of solar and storage adoption continues at a healthy pace, we are not facing an imminent reliability or cost crisis resulting from runaway adoption. We have time to experiment, pilot new technologies, and processes, and get it right before rushing headlong into major new investments or reliance on DERs to provide critical reliability services before these capabilities have been amply demonstrated.
To date, the factors driving the uptake of DERs, whether through technology-oriented programs managed by the CPUC, compensation under net energy metering, or the federal tax incentives, have been relatively blunt, with no differentiation based on locational value. As a result of these incentives, we are failing to derive the full value that DERs are capable of providing. In part this was due to a lack of any agreed-upon process to quantify locational value. After years of fruitless debate, it became clear that new tools and processes were needed to begin deploying DERs more strategically.
The vision we are pursuing is that, over time, DERs will be able to benefit from “stacking” multiple value streams. The FERC recently approved the California Independent System Operator’s Distributed Energy Resource Provider tariff, which allows aggregations of DERs to provide energy and other services at the wholesale level. To complement those wholesale revenue streams, we are beginning the process of identifying and quantifying the location-dependent distribution values that DERs are capable of delivering. Once those values have been quantified, the utilities will have mechanisms such as solicitations, incentives, and payments for services to compensate DERs for these services.
To shift deployment of DERs to lower-cost, higher-benefit locations, the CPUC has undertaken three groups of related activities:
To accomplish the first goal, utilities and other stakeholders have been developing a tool that uses highly granular power flow analysis to quantify the DER hosting capacity with a far greater accuracy than the rules of thumb currently in use. Once the initial version of the hosting capacity tool is finalized in early 2017, we will open a proceeding to incorporate the tool into the interconnection process, which should allow a significantly greater DER capacity to interconnect under the expedited “fast-track” process. By making the tool publicly available, DER developers will have better information about where they can expect to interconnect most easily.
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. With these areas of the grid identified, a mechanism must be established for the utility to recommend specific opportunities for DERs and receive authorization to conduct solicitations or offer incentives in those areas.
Finally, we are piloting incentive mechanisms that encourage utilities to seek DER alternatives to traditional distribution grid investments. As currently envisioned, these incentives will allow the utilities to earn returns on expenditures for DERs designed to compensate utility shareholders by an amount comparable to or greater than the net returns they would expect to receive on the traditional rate-based investment.
While the CPUC is focusing its efforts on more practical near-term concerns, we have been collaborating with our colleagues in New York and at the US Department of Energy to support technical and conceptual research into the longer-term barriers to a cleaner, more resilient, more distributed energy future. The authors who have contributed to this volume are providing critical, cutting-edge thinking to help practitioners begin to grasp how DERs, advanced distribution management systems, price signals, market structures, and utility business models may coalesce to realize that future.