Navigant Research Blog

New York State Is Embracing the DER Revolution

Michael Kelly — June 9, 2016

clean energy backgroundA significant decision was recently handed down from the New York Public Service Commission (PSC) as part of the state’s Reforming the Energy Vision (REV) proceeding. On May 19, the PSC approved measures aimed at improving distributed energy resource (DER) integration and overall system efficiency through new revenue models. While the rate-of-return model has traditionally served utilities well, the advancement of renewable energy technologies requires incentivized revenue models in order to maximize the benefits to consumers and utilities alike.

Altering the Status Quo

Traditionally, utilities have earned revenue from their capital outlays through ratepayer returns. Investments in transmission lines or substations can be recouped, incentivizing a centralized power generation structure. With the recent influx of solar and wind energy, DER is now beginning to alter the status quo. While state and local governments across the nation are encouraging the integration of DER, many utilities lack proper incentives to address the problem head-on. In order to incentivize these types of distributed technologies, utilities in New York are now eligible for financial rewards for behavior that increases consumer economic and environmental benefits. Such behavior includes greenhouse gas and carbon emissions reductions, reaching energy efficiency targets, instituting customer engagement programs, and improving renewable energy project interconnection times. There are already examples of this DER strategy in action. Consolidated Edison, serving 3.4 million customers, was recently able to defer investment in a distribution substation through the more cost-effective means of DER adoption.

Along with the reformed revenue models, major utilities will also now be required to develop an overall system efficiency proposal by the end of this year to reduce generation during periods of peak demand. This measure is intended to promote more decentralized and efficient power generation sources. Finally, these reforms will enable the deployment of smart meters within New York. Barring ConEdison’s anticipated smart meter deployment in 2017, there is essentially no smart meter activity within the state. With over 8 million electric meters statewide, these reforms will hopefully improve the adoption of this fundamental smart grid technology. With this latest New York PSC decision, utilities are now left with a business case for advancing a more decentralized electrical grid that will ultimately provide benefits to both utility stakeholders and consumers. Following these and other REV reforms, the state is on track to meet its ambitious goal of achieving 50% renewable energy by 2030. My colleague Brett Feldman highlighted New York’s REV framework in a previous Navigant Research blog.

Reliability and Flexibility

DER allow for the prospect of a decentralized, reliable, and efficient electrical grid. With public demand for renewable energy resources climbing, states have an obligation to address consumer concerns. States troubled by the potential issues surrounding DER integration could benefit from studying the results of New York’s recent reforms. The future success of DER may well lie in these solutions aimed at addressing the concerns of both utilities and their consumers.

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