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The need for speed: Utilities, clean tech and regulators agree the energy transition has to move faster

The transformation of the U.S. energy market — including the integration of solar and other distributed energy resources (DERs) onto the grid — needs to happen a whole lot faster. That was one of the surprising points of agreement among utilities, clean tech developers and regulators attending the Smart Electric Power Alliance (SEPA) Grid Evolution Summit: A National Town Meeting in Washington, D.C. July 25-27.

But — attendees heard at a series of roundtables on the second day of the summit — each of these key, at-times adversarial, stakeholders in the transition have a different approach on the priorities and pathways for getting there.

The tech developers say the utilities and regulators don’t move fast enough; the utilities say they have to balance the lightning pace of technology with grid reliability, safety and cost-effectiveness; and the regulators are looking for the new models that will let them respond faster and more effectively to ensure all stakeholders — including customers — can benefit.

Sharon Allan (far left), Chief Innovative Officer, SEPA moderates panel on the Innovation Cycle July 26, 2017 at Grid Evolution Summit: A National Town Meeting.

Another key point of agreement: better communication and collaboration are critical.

“When you have utilities, commissions and vendors working together toward a common goal, you’re more likely to get good results,” said Chandu Visweswariah, President and CEO of Utopus Insights. The company is a new energy analytics firm that is itself a collaboration between IBM and Vermont Electric Company (VELCO).

“All the proposals that we would receive used to come from the utilities,” said Kevin Hughes, Chairman, Maryland Public Service Commission. “That’s changed. The commission is very active, especially on environmental goals… and that has created a much broader stakeholder process to develop programs going forward.”

“We need to ask, is this the optimal solution for the customer? If the answer is no, go back to the drawing board and try again,” said Carlos Nouel, National Grid’s Vice President of New Energy Solutions.

Underneath the varying viewpoints is the bigger issue of the role of utilities going forward. Tanuj Deora, SEPA’s Executive Vice President and Chief Content Officer noted that the bigger question may be how the traditional regulatory compact of utilities’ “natural monopoly” on power distribution should evolve with the market.

“What we see, across the industry, is the need to clearly define the roles both utilities and DER developers will play in the market — and that raised a lot of questions,” Deora said. “What are the services that utilities provide that should remain part of their public franchise? Are there specific services or products where they can compete in the market? Are there certain technology areas where they should not participate? These are complex issues, and there will absolutely be different solutions in different states.”

 

Focus on outcomes, not predetermined solutions

“Our most refreshing conversations are when we’re working with a partner and a utility and we say, ‘How can we innovate? How do we come together to change the approach?’ agreed Bud Vos, President and CEO of Enbala Power Networks, a company focused on optimizing DER value on the grid. “We can also bring the regulator into the conversation.”

Vos and other clean tech developers said that too often, utility business practices rein in progress.

“This is an industry that is not embracing innovation as quickly as we can,” Visweswariah said. “We need to do pilots in four weeks instead of four months.”

“If the utilities can get out of the prescriptive (requests for proposals), defining what the solution is, things will take off much faster,” said Dave Packard, Vice President of Utility Solutions at ChargePoint, an electric vehicle charging firm.

Vendors also say regulators need to recognize that cloud software services are essential though not a capital expense.

 

‘We’ve stopped talking about megawatt-hours’

A panel of utility executives countered that they recognize the challenges. Several expressed a desire to work with vendors on outcome-based solutions rather than dictating a specific solution.

National Grid’s Nouel says his team issues open RFPs to encourage innovation: “We say, here’s the problem; give us the solution.”

And plenty of solutions are needed as the industry continues to evolve toward a customer-centric model that includes a range of DERs and involves highly visible choices that speak to customers’ values.

“A utility has to define itself more broadly than providing energy,” said Jill Anderson, Executive Vice President and Chief Commercial Officer, New York Power Authority. “We’ve stopped talking about megawatt-hours and dollars per kilowatt, and more about the outcomes they want.”

For utilities, roadblocks to faster progress are found in another location: regulation.

“Regulators tend to be reactive,” said Arlen Orchard, CEO and General Manager of the Sacramento Municipal Utility District. “Even when they try to be proactive, they take a long time to make approvals. Technology moves so fast that by the time they approve something, it’s almost irrelevant.”

 

Getting to pro-active regulation

Some on the panel of four utility commissioners agreed.

“People are asking utility companies today for things that 25 years ago they wouldn’t have thought about — causing us as regulators to change how we think about regulation,” said Commissioner Doug Little, Arizona Corporation Commission.

“I don’t think you can have PBR if you’re playing the ‘Mother, may I?’ game,” said Travis Kavulla, Vice Chairman, Montana Public Service Commission, referring to performance-based ratemaking. He thinks regulators should give utilities more freedom to respond to markets.

But such changes can be difficult to achieve.

“We’ve received some proposals on PBR tied to reliability, but we have not seen a proposal that would allow us to transition away from rate-based,” Hughes said. “A lot of people think we shouldn’t give [utilities] extra incentives to do what they’re supposed to do.”

California Public Utilities Commission President Michael Picker argued that proactive regulation can be essential when a new market sector emerges to ensure all participants have the tools to understand it. Demand response, for example, isn’t easy for residential customers to understand, he said

“People get generation. They know about wind turbines. They know about steam and gas and coal. They understand solar. But how do you make demand response real, concrete and tangible?” Picker said. “All those other technologies are moving electrons, but here you’re stopping electrons. You’re creating stillness. It’s nothing. How do you sell nothing?”

One informal poll of summit participants indicated that price remains customers’ top concern. But Picker emphasized that dollars and cents aren’t the only consideration:

“People need an approach that works with their values,” Picker said. “Only a portion of your customer constituency responds purely to price signals. Everyone else responds to a combination of values.”

 

The federal policy vacuum

Federal policy played a surprisingly small role in summit discussions, perhaps because most participants see a Congress and White House that are preoccupied with other issues. But Rep. Paul Tonko (D-NY) told the summit that he, too, thinks the pace needs to pick up.

Rep. Paul Tonko (D-NY) (left) talks with Tanuj Deora, SEPA Executive Vice President and Chief Content Officer.

“It’s important for us to not stand still,” Tonko said. “Sometimes I think we’re even slipping backward. Standing still is bad enough.”

He cited a meeting with entrepreneurs building hydrogen fueling stations in China. “They are aggressively investing in alternative fuels, and we are here arguing about the concept of climate change.”

The Hill isn’t entirely stalemated on grid issues. Tonko and two senior staffers from the House Energy and Commerce Committee reported that bipartisan consensus exists for infrastructure investment, including for grid modernization, though the amount of funding and the timetable remain murky.

In the absence of federal policy action, individual companies, utilities and regulators are collaborating on creative solutions.

Michelle Patron, Microsoft’s Director of Sustainability Policy, reported that the company has become a more proactive energy customer as it adds data centers to handle cloud-based solutions. That’s led to deals like one with Black Hills Energy in Wyoming, where Microsoft needed 240 megawatts of wind power for a facility. The utility provided the power, and Microsoft provided access to its backup generators, helping avoid the need for a peaker plant.

Meanwhile in Connecticut, the U.S. Department of the Navy worked with government agencies, the Public Utilities Regulatory Authority and others to add a fuel cell and microgrid to a waterfront neighborhood where sailors congregate on shore leave. The microgrid ensures the sailors can quickly return to submarines in an emergency – a unique resiliency need that was met through collaboration.

“Out of the box thinking enables us to move the industry forward without hurting ratepayers,” said John Kliem, Executive Director of the Department of the Navy’s Resilient Energy Program Office.

These individual examples, and the many others discussed at the Grid Evolution Summit, might help accelerate progress toward a modernized grid, one solution at a time.

In fact, Picker’s closing comment about his colleagues’ approach to PBR ratemaking could be applied to the industry as a whole:

“I’m going to see if these guys are successful and steal their best ideas.”

Nick Lanyi is a freelance writer and communications consultant. Contact him at nicklanyi@gmail.com.

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