One year ago, the D.C. Circuit Court of Appeals decided to vacate FERC Order 745, holding that demand response could not be traded in wholesale energy markets. Since then, the ground has shifted, as demand response (DR) companies and large customers adjust to an uncertain future in which DR may be restricted to retail energy markets. Now that the Supreme Court has held oral arguments in the appeal of the case and a final resolution is imminent, we contemplate how DR will fare and how the market might evolve.
If Charles Dickens were an energy analyst, he’d probably say the past ten years have been the best of times and the worst of times for wind power in America. Most observers would guess we’re referring to the on-and-off nature of the federal Production Tax Credit (PTC) which has created a chaotic investment environment for wind project developers and financiers. Yet comparing the two regions with similar total installed wind capacity adds another twist to the story: the importance of good transmission planning.
This month the experts of America’s Power Plan released a new resource for policymakers and electric utility stakeholders as a part of our work under the Solar Electric Power Association’s (SEPA) 51st State Challenge. The new report begins to answer the question – “Who should own and operate distributed energy resources?” The report examines a series of case studies on different ownership models for distributed energy resources (DERs) with system optimization as the metric for success. It turns out that there are many options for who can own and operate DERs—and any of them can work, as long as the revenue streams (and revenue delivery mechanisms) are designed or adjusted appropriately.
Utility managers pay attention to Wall Street, and often more can be learned about utilities’ top priorities by listening to shareholder earnings calls than regulatory proceedings. This is natural; as with any investor-owned company, managers of investor-owned utilities are obligated to maximize shareholder value. So it pays when regulators can find ways to align shareholder value creation with the public interest. Enter performance-based regulation. Efforts in this regard are underway across the nation—in states like Minnesota, Illinois, and New York.
Renewable integration in the West has forced reconsideration of system operations, planning, and markets. The key barrier to the optimal integration of renewable resources in the West is insufficient regional coordination. In order to develop a bulk electric grid that will be resilient in a dynamic future, the manner in which the system is planned and operated and the means by which entities are compensated for the energy, power, ancillary services, and emissions reductions they provide will need to evolve.
Price declines in residential solar and new battery systems like Tesla’s Powerwall are likely to mean more solar-plus-battery systems at homes and businesses around the country. Like other distributed energy resources (DERs), customer-owned distributed storage puts competitive pressure on utilities by reducing customers’ reliance on the grid. As costs of DERs come down, customers can afford to rely less and less on the grid for electricity service. This phenomenon, coined “load defection” by smart folks at the Rocky Mountain Institute, is antithetical to traditional utility business models where increased electricity sales drive revenue growth.
Though serious challenges remain, America has already come a long way in its transition toward a cleaner, more affordable, and more reliable grid. We see strong evidence that several of America’s Power Plan’s recommendations from 2013 have contributed to the modernization of the U.S. electricity system.
The price of renewables is plummeting, coal-fired power plants are retiring, and new technologies are changing customer relationships with utility companies. Across the country, the Clean Power Plan has forced conversations about optimizing the grid around higher shares of renewables and energy efficiency.
One of the most striking features of today’s modern energy economy is the pace and scale at which new technologies are changing an industry used to a much slower pace of evolution. New fossil fuel drilling techniques, drastically cheaper renewable generation, rapidly improving battery storage and power electronics, and the rise of information technology are either already or soon to be changing many of the fundamental features of our energy economy. Policymakers used to operating, planning, regulating and legislating in an environment where capital deployment happens over the course of years and assets maintain their value over the course of decades need to adapt their practices to account for accelerating change and disruptive feedback loops.
The Solar Electric Power Association (SEPA) posted all of the submissions to the 51st State Challenge, a call for electricity stakeholders to take a “fresh” look at electricity policy in a state with no preexisting regulations or market structure. With adaptation as a central policy goal, the 51st State can be a model for technology and innovation that helps all states find ways to promote an optimized electricity system.
Competitive wholesale power markets are meant to sustain needed investment based on market participants hedging risks in response to transparent pricing in the energy and ancillary services markets (“the energy market”). This has led to concerns that some of the money and risk exposure needed to drive investment is “missing” from the energy markets. Some market operators have responded by introducing “capacity markets,” which are intended to bridge the gap between revenues available from energy markets and the all-in cost of desired capacity. Capacity markets offer commitments, still short-term relative to most investment timescales, to make fixed payments for the right to call on the resource when needed.