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Solar plus storage no magic bullet: How about resilience insurance?

Ten months after Hurricane Harvey, electric system resilience is — understandably — very much top of mind for energy industry stakeholders in Texas — with potential solutions ranging from solar plus storage to more radical ideas, such as resilience insurance.

Instead of selling hardware like solar panels or battery packs, a utility would act more like a cloud computing service provider, said Cris Eugster, Chief Operating Officer of CPS Energy of San Antonio. Customers could be offered a contract that would commit the utility to providing a certain level of service during a disruption. Much like many cloud email providers, which ensure 99.9 percent uptime, the utility could ensure a similar level of reliability for its customers.

The idea would be to keep the customer whole, Eugster said. “But rather than . . . after the disruption, utilities would keep you whole during the interruption.”

Michael Gavenonis, Arcenio Lopez, and Cris Eugster join SEPA’s Jennifer Szaro for the “Planning for Resilience: What Works and Why” panel at Solar Power Texas on June 5, 2018.

Eugster was speaking at a workshop on “Planning for Resilience” at the recent Solar Power Texas conference in Austin, where the limitations of current technology and the challenges of valuing broad terms like reliability and resilience were hot topics for speakers and participants.

With the 2018 hurricane season now officially begun, one of the challenges — and opportunities — for utilities, and technology providers, Eugster noted, is that customers are “technology agnostic.”

They want solutions that ensure continuity of service, and they are “looking for utilities to create these products for them,” he said.

Each customer has differing needs and desires. For example, some residential customers are interested in — and would pay for — backup power for critical loads, such as their freezer, during an outage. Others want nothing less than the continuous service and comfort they expect when the grid is fully operational. Commercial and industrial customers’ needs vary, as well.

While solar plus storage are often publicly perceived as a quick and easy solution to resilience concerns, Eugster said, the technology still has a way to go.

The current limitations of the technology — specifically the 4-hour cap on run time for lithium-ion batteries — mean that customer requirements for ongoing power in emergencies either may not be met or may become too costly. Larger solutions like behind the meter microgrids just aren’t practical for residential or small commercial customers.

 

Resilience Insurance

Without a clear magic bullet, but still with real customer needs, utilities are well placed to serve as the trusted energy advisor to their customers with resilience and reliability needs, Eugster said.

A utility could offer a technology-agnostic solution combining renewables with more conventional strategies, such as more aggressive vegetation management or even undergrounding lines. Conventional generation — diesel or natural gas — could serve as an additional backstop for customers requiring emergency power for more than a few days.

Conference attendees were clearly intrigued with Eugster’s idea for resilience insurance — and the flexibility it might offer to meet the needs of different customer demographics.

The local mom-and-pop grocer could contract for a much higher level of reliability and longer resilience than a homeowner who just wants enough to run a few lights and refrigerator. Industrial customers at risk of losing critical inventory if a manufacturing process is interrupted would be able to contract for a different level of service than another industrial customer looking to ensure warehouses have basic safety and security lights.

At the same time, audience members quickly zeroed in on questions about how utilities might pay for such a service. Among the ideas CPS Energy is looking at, Eugster said, is setting customers’ insurance payments at a percentage of the value of the electric service at risk, similar to car insurance.

But, he stressed, whatever the payment scheme, utilities would need to keep it simple for customers.

Thomas Kirkpatrick, Vice President of Customer Service, Marketing and Distribution Services at AEP, offered a different perspective on this question during his panel on “Battery Energy Storage Solutions.” AEP, which owns utilities in Indiana, Kentucky, Ohio and Texas, had done market research on customer willingness to pay for resilience, and found that “residential customers were willing to pay $10 a month. Maybe $15.”

So, given a residential battery storage installation costing $3,000, a $10-per-month payment plan would have a 25-year return on investment. Clearly, not an attractive offer for customers or the utility.

 

Value stacking opportunities

While resilience is important to customers, it is also important for the entire system. Could utilities leverage resilience and reliability technology installed for or by these customers to provide grid support services and offset some of the cost to the consumer?

Opportunities for value stacking and resource aggregation exist. In markets where batteries can participate in ancillary services, utilities could see a better, quicker financial return. For example, Green Mountain Power has made storage units available to its customers for a low-monthly fee, but can leverage the units to cut peak demand and demand charges.

The catch-22 here is what happens in the event of an emergency service disruption, where the utility has dispatched a technology — say storage capacity — for purposes other than reliability and resilience. What liabilities would exist for both parties involved? How would the utility address the need for an access hierarchy to ensure power to the customer in emergencies? How complicated would the service agreement be, and how would the utility assign costs and revenues from the value stack?

Certainly, solutions to such questions can and will be found. Still, the key question remaining is what entity would be authorized to offer this resilience insurance? Would the service-level agreement be regulated, similar to rates? Or would it be offered by a utility’s non-regulated side, similar to offerings for back-up generation, or lighting operation and maintenance?

Although some solutions for resilience like undergrounding lines are clearly utility functions, could other solution providers contribute to the menu of customer solutions? If so, how?

One option would be for third parties to provide their own insurance service directly to the customers as part of any solar, storage or other sale. An even deeper integration would be for utilities and third-party solution providers to partner on an insurance program.

“What utilities need this hour and location will differ from what they need the next hour” said Polly Shaw, Vice President of Regulatory Affairs and Communications at Stem, Inc. “Sometimes, a software solution, like AI-backed, customer-sited storage and/or DERMS [distributed energy resource management systems], can solve for that better than hard infrastructure because you’re using more flexible assets. You can get to reliability in so many ways.”

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