Utilities need not wait to roll out innovative DER programs

By Seth Frader-Thompson

Editorial note: The following guest blog by Seth Frader-Thompson is the second in a two-part series the Smart Electric Power Alliance (SEPA) is publishing in the run-up to the National Town Meeting on Demand Response and Smart Grid, July 11-13 in Washington, D.C. The opinions expressed are the author’s own and do not reflect the views of either SEPA or its board of directors in general.

Last week, my colleague Frank Lacey posted a blog here making a case for utilities to adopt a new approach to so-called “disruptive” distributed energy resources (DERs), looking at them instead as assistive; that is, providing benefits to their customers and the grid.

Seth Frader-Thompson

Like Frank, I also will be speaking at the National Town Meeting on Demand Response and Smart Grid, July 11-13 in Washington, D.C. My session, however, will focus more on what utilities are actually doing to develop DER programs that provide the kind of customer and grid solutions that, I think, we would both agree are critical to the future of our energy system.

Read Frank Lacey’s June 30 blog here.

When utilities talk about distributed energy resources, the conversation often centers on mitigating the revenue impacts of these new technologies. What that tends to mean in practice is charging customers differently, with new rates that work within the traditional utility framework — such as retiring net metering and implementing demand charges.

But what if utilities explored new ways to leverage the value of DERs to reduce their costs instead of simply changing the way they charge customers? What if they could incentivize customers to adopt DERs that provide valuable grid services, which would in turn create a reason for utilities to embrace these technologies?

DERs will displace 320 gigawatts (GW) of centralized generation from 2014 to 2023, according to Navigant Research. Historically, utilities have seen such resources as a threat to their economic relationship with customers. But they should instead approach consumer adoption of DERs as a critical opportunity to partner with their customers to create shared value, leveraging customer resources to improve system reliability.

Check out the Beyond the Meter workshop at SEPA’s National Town Meeting here.

Customer-installed DERs — such as connected thermostats, smart inverters, electric vehicles, water heaters, and stationary batteries − allow utilities to reap the benefits of distributed energy technologies at a fraction of the cost of assets they might install themselves. Innovative utilities are already incorporating DERs into their load management programs in a variety of ways.

In New York, for example, utilities are issuing requests for proposals for non-wires options to expand their DER portfolios and find alternatives to traditional capital-intensive utility investments. Major New York utilities have already stated their commitment to exploring nontraditional avenues to grid reliability.

My presentation at the National Town Meeting will explore how the utility of the future might encourage its customers to install DERs and present a few examples of how utilities are approaching the evolving customer-utility relationship.

Thermostats

Thermostats control 50 percent of a home’s energy use, so it’s no surprise that Bring Your Own Thermostat® (BYOT) demand response programs have been the most successful model to date for utilities to take advantage of customer devices. BYOT is a customer-centric approach to demand response that allows consumers to purchase and install the thermostat of their choice, which is then enrolled in a utility demand response program. Customers are rewarded for offering their thermostats as grid assets – for example, allowing them to be adjusted by a few degrees at times of peak demand. In some cases, utilities may offer discounts and rebates to consumers to purchase these devices in the first place.

Since the BYOT model arrived on the market in 2012, more than 20 major utilities have launched related demand response programs. PSEG Long Island recently launched a BYOT program that is open to any thermostat manufacturer (maximizing customer choice), provides incentives for both consumers and manufacturers to participate, and is designed to make enrollment as seamless as possible.

With BYOT rapidly maturing as a load-control model, it can serve as a blueprint for how utilities can incorporate devices beyond thermostats into their load management programs.

Solar

More than 70 percent of the utilities surveyed in a 2016 Black & Veatch study said that solar is the DER that will impact them most in the short term. Such findings make solar a key area of opportunity for utilities to rethink their approach to DERs. What if they were to incentivize customers to design their home solar systems more strategically to better match the load curve? One possibility could be for utilities to offer a “time of production” rate that would reward customers for installing west-facing panels that can produce power late in the afternoon to offset a greater portion of peak demand.

The California Energy Commission is already taking this approach, with its New Solar Homes Program, topping up existing rebates with an extra 15-percent incentive for customers who install panels facing west.

Batteries

Green Mountain Power (GMP) has taken a creative approach to incorporating DERs into its plans by developing an innovative business model with Tesla. GMP customers can opt to lease a Tesla Powerwall storage battery for a low monthly fee, with no upfront installation cost, or they can partner with GMP to purchase a Powerwall, the output of which is shared with GMP in exchange for a monthly bill credit. In both cases, GMP is leveraging batteries to help shape its load curve and sharing its value with customers by reducing the cost of owning the device.

What is implicit in each of these examples is that leveraging the potential value of DERs also means new, innovative approaches to customer engagement. Like utilities, consumers must change or at least expand their views of these new technologies, seeing in them not only the potential to save money but to share value with the grid and their communities.

The way ahead for utilities, technology developers and regulators will be finding the right mix of incentives and the right messages to drive customers’ adoption of new distributed technologies and their participation in utility programs that optimize DER value for all.

Seth Frader-Thompson is President of EnergyHub, a company that develops software platforms for connected devices. He is also a member of the SEPA Board of Directors. He can be contacted via Twitter at @fraderT.