Cleantech Market Intelligence
How Can Regulatory Drivers for DER Realign Utility Business Models?
The movement of the electrical grid toward an Energy Cloud model with expanding distributed energy resources (DER) will require new regulatory rules to ensure both reliability and utility profitability. Creating a platform to generate, distribute, and sell energy closer to where it is consumed (referred to as utility 2.0) will require regulation 2.0 changes. Shifting DER and regulatory changes in world markets shape Navigant Research’s DER perspectives, which were highlighted in its recent market forecast report, Distributed Energy Resources Global Forecast.
Those closely following the development of DER models know that movement toward an altered regulatory framework has a number of requirements. These include roadmaps that balance innovation, the economic benefits of competitive markets, the maintenance of reliability, and the reduction of carbon emissions. The 51st State Initiative, a consortium of well-informed industry stakeholders, has created two sets of roadmaps to highlight the type of regulatory changes needed to strengthen the future of the electric industry along these lines.
Advancing Carbon Initiatives
Parallel to DER is the advancement of carbon reduction initiatives in the United States and around the world, as can be seen with the U.S. Environmental Protection Agency’s Clean Power Plan and renewable energy and carbon reduction requirements in both California and New York. DER is likely to play a central role in these efforts. The following developments highlight several recent key regulatory and policy initiatives that are a part of the DER journey:
- As part of the New York Reforming the Energy Vision proceedings, the New York Public Service Commission (NYPSC) introduced the Benefit Cost Analysis Order. This order will require the NYPSC to place a value on carbon emissions, consider portfolios of DER that capitalize on the grid benefits of DER aggregation software, and consider tariffs that compensate customers who generate their own electricity.
- In California, the California Public Utility Commission recently announced a proposal for an innovative framework to determine the rate of return on DER procurements similar to what occurs with traditional utility investments, like substations, power lines, and poles.
- ComEd, the Illinois transmission and distribution utility, recently discussed pending legislation that would allow a rate of return on energy efficiency programs (think energy efficiency as an asset) instead of the typical approach of decoupling revenue from electricity sales employed by utilities to overcome disincentives for energy efficiency.
- NYPSC recently approved Consolidated Edison’s Brooklyn/Queens Demand Management Program to address the overload of substation feeders with a combination of traditional utility-side solutions and non-traditional customer and utility solutions, including energy efficiency and DER.
- A March 2016 report from the South-Central Partnership for Energy Efficiency as a Resource entitled Efficiency and Ratemaking: Aligning the Interests of Utilities and Their Customers focuses on Texas, highlighting potential solutions to the energy efficiency decoupling challenge.
An important benefit of DER that also includes energy efficiency is the ability mitigate the carbon impact of fossil fuel-based electricity generation. The ability to utilize battery energy storage systems and innovative DER aggregation software suppliers are expected to make demand response, distributed solar, and energy efficiency larger, more reliable parts of the DER landscape. However, the regulation 2.0 changes currently underway will need to align the financial interests of local utilities and distribution system operators. This journey is certain to bring some uncertainty, but also plenty of opportunity for innovation and new business models.