putting policy to work: optimizing the electricity system

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PUTTING POLICY TO WORK:

OPTIMIZING THE

ELECTRICITY

SYSTEM

SONIA AGGARWAL

FEBRUARY 2015

2www.amer icaspowerp lan .com

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WHAT IS SYSTEM OPTIMIZATION?

Electricity system optimization means

making the most effective use of a

portfolio of electricity resources to

maximize top public policy goals…

…delivering a system that is:

Reliable

Affordable

Clean

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WHAT ARE OUR OPTIONS TO OPTIMIZE?

I. What technologies can help optimize the grid?

II. What are the barriers to system optimization and how can we overcome them?

III. What can State Energy Offices do to address and overcome these barriers?

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I. What technologies can help optimize the grid?

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OPTIMIZING THE RESOURCE MIXSUPPLY-SIDE TECHNOLOGIES

Utility-scale

wind and

solar are

now cost-

competitive

with

conventional

generation

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OPTIMIZING THE RESOURCE MIXSUPPLY-SIDE TECHNOLOGIES

…but

variable

resources

come with

integration

costs

CAISO

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OPTIMIZING THE RESOURCE MIXDEMAND-SIDE TECHNOLOGIES

Lawrence Berkeley National Lab

Demand-side resources

Efficiency

Demand-response

Peak-coincident distributed generation

Rolph Disch

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OPTIMIZING THE RESOURCE MIX EFFICIENT GRID MANAGEMENT

• Advanced Metering & Data Mgmt.

• Smart Thermostats

• Automated Demand Response

• In-line Voltage Regulation

• Thermal/Chemical Storage

• Smart Charging

• Load-shaping Energy Efficiency

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SYSTEM OPTIMIZATION IN PRACTICEDEALING WITH VARIABILITY

CAISO

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SYSTEM OPTIMIZATION IN PRACTICEDEALING WITH VARIABILITY

Infrastructure

Demand response

Load-shaping EE

Encourage West-facing solar

CAISO

“Flatten the head’

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SYSTEM OPTIMIZATION IN PRACTICEDEALING WITH VARIABILITY

Infrastructure

Demand response

Load-shaping EE

Encourage West-facing solar

Fast-ramping natural gas

Storage technologies

Smart EV Charging

CAISO

“Shrink the belly”

…SYSTEM OPTIMIZATION

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WE CAN TEACH THE DUCK TO FLY!!

Jim Lazar, Regulatory Assistance Project, “Teaching the Duck to Fly,” 2014

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II. What are the barriers to system optimization,

and how can we overcome them?

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BARRIERS TO SYSTEM OPTIMIZATION

CURRENT REGULATORY MODELS

POWER MARKET DESIGNS

POLICIES

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BARRIERS TO SYSTEM OPTIMIZATION

Example: Cost of Service Regulation

Revenue =

Operating Costs + (Capital Spend)*(ROR)

As utility investment increases . . .

Revenue increases

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OVERCOMING BARRIERS CHANGING INCENTIVES

ALIGN FINANCIAL INCENTIVES…

UtilitiesCustomers

IPPs3rd party service providers

$Reliable

AffordableClean

…WITH GOALS

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FROM: “Did we pay the right amount for

what we got?”

TO: “Are we paying for what we want?”

Utility and Regulatory Models for the Modern Era

by Ron Lehr

Change the central question…

OVERCOMING BARRIERS PERFORMANCE-BASED REGULATION

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Example: Performance-Based Ratemaking

Revenue = Operating Costs + (Capital Spend)*(ROR)

± Performance Incentive

OVERCOMING BARRIERS PERFORMANCE-BASED REGULATION

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Example: Performance-Based Ratemaking

Revenue = Operating Costs + (Capital Spend)*(ROR)

± Performance Incentive

Revenue Increases

As utility investment increases . . .

Performance improves…

OVERCOMING BARRIERS PERFORMANCE-BASED REGULATION

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Regulators

Set quantitative

performance goals

Establish reward &

penalty structure

Utilities

Meet goals

Receive rewards

and/or penalties

• Reliable service

• Customer satisfaction

• Equity

• Innovative third-party

services

• System-wide least cost

• Resource diversity

• Effective facilitation of

open access

• Environmental perf.

• Innovation

Retail Level, e.g.:

Wholesale Level, e.g.:

OutcomesAlready a

standards

driven

industry

Policymakers

Establish policy

priorities

Work with

regulators

OVERCOMING BARRIERS PERFORMANCE-BASED REGULATION

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All resources should compete as equals to provide:

Energy

Capacity (if traded)

Ancillary Services

Begin trading important services like:

Flexibility

Ramping

OVERCOMING BARRIERS MARKET DESIGN FOR OPTIMIZATION

Michael S. Gordon / The Republican File

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A state could choose to create a “distribution system optimizer”

This entity could be:

A properly incented utility

A nonprofit similar to the ISO/RTO

Either way, an Integrated Distribution Plan can help

OVERCOMING BARRIERS DISTRIBUTION SYSTEM OPTIMIZATION

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III. What can State Energy Offices do to promote

technology and policy solutions?

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PLANNING-BASED OPTIMIZATION POLICIESTRANSFORMATIVE

Build system optimization into the core of state energy plans and attendant state energy policies.

Create a roadmap for regulators and utilities to move toward performance-based regulation tied to overall societal goals for the power system.

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EVERY STATE IS DIFFERENT…

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State Energy

Offices

Markets

Planning

State Energy Offices can use a handful of important tools in different market

structures to enable the resources needed to optimize the system.

POLICIES FOR SYSTEM OPTIMIZATION

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PLANNING-BASED OPTIMIZATION POLICIESINITIAL STEPS

Encourage—or host—dialogue among utilities, commissioners, legislators, governors’ offices, and stakeholders about how to take advantage of new technological opportunities.

Promote adequate budget and support for the PUC to explore these issues.

Fund pilot programs for new technologies (consider partnering with national labs or DOE). Take advantage of state-owned buildings as testing grounds.

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MARKET-BASED OPTIMIZATION POLICIESINITIAL STEPS

Study the costs and benefits of improving market product definitions, including local job creation, energy affordability, reliability, and environmental performance.

Study the costs and benefits of expanding or linking existing markets with neighboring markets – perhaps first through an energy imbalance market.

Open bidding for small amounts of new grid capabilities like “flexibility,” and see what bids in.

Engage with other State Energy Offices to increase regional coordination and trading.

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MARKET-BASED OPTIMIZATION POLICIESTRANSFORMATIVE

Join new markets and/or consolidate balancing areas.

Create an actionable roadmap for improving market structure and transparency in the state.

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GET INVOLVED: NGA STATE LEARNING NETWORK ON

NEW UTILITY BUSINESS MODELS

Later this month, NGA will release an RFP for interested states to apply for:

Tailored briefings and technical assistance

Funding for an in-state summit

A three-day workshop including state team time

Quarterly webinars and monthly team calls

The latest research on utility business models

Access to advisors from America’s Power Plan, LBNL, RAP, NARUC

Contact: Aliza Wasserman: awasserman@nga.org

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THANK YOU

sonia@energyinnovation.org

@cleantechsonia

www.americaspowerplan.com

@USPowerPlan