Integrating more distributed power generation and energy storage can help make a grid more flexible, resilient, sustainable and environmentally friendly. But in the U.S., there’s a catch — so far, utilities here are effectively barred from owning generation and storage assets at the distribution level.
Legislators and regulators, at the federal and state level, have an opportunity to craft policy solutions that would make these advanced strategies more feasible — thus empowering utilities to support broader long-term goals.
In several states, one form of distributed generation — rooftop solar — is growing fast, thanks largely to state incentives. This capacity is primarily installed by third-party providers and is not controlled in any way by utilities. Many utilities are struggling to adapt their distribution networks to accommodate this uncontrolled influx of variable power.
Similarly, it has been challenging for utilities to fund investments in control technologies that would accommodate multidirectional interaction from empowered consumers and third-party grid participants.
One way utilities can compensate for variability in renewable energy output, and other grid challenges, is to deploy smaller gas-fired generators around the grid — as well as automation to make it all function well as a system. (Eventually they might also deploy battery energy storage, once that technology matures to serve grid-scale applications.) Also, utilities could deploy more control technology to directly engage with end-use equipment enrolled in voluntary demand response programs.
Why aren’t utilities investing as much as they could in such solutions?Currently, it’s difficult for utilities to recoup that investment. Generally, regulators do not deem such investments as a “qualified distribution asset,” so utilities cannot include them in their rate base — even though increasing reliability, resilience, and renewables are top priorities for energy regulators.
The same funding quandary arises when utilities seek to deploy substation automation technologies, such as automation for automated management of feeder voltage and VAR (reactive power), and enhanced control center capabilities.
Kenneth Geisler, VP of Strategy for Siemens Smart Grid North America, discussed these challenges recently at the Legislative Summit of National Conference of State Legislators. He suggested several possible policy options that regulators and legislators might consider.
For instance, removing barriers for investor-owned utilities to invest in automation, monitoring, control and analytics technology — or perhaps actively incentivizing such investments — could help foster a grid that functions more effectively and efficiently as an integrated system. Self-healing grids, micro grids and advanced distribution management might become more commonplace.
Another policy move that might help utilities incorporate stabilizing technology into their rate base would be to reduce the depreciation schedule for utility equipment to five years, perhaps based on equipment type.
Most utility equipment investments follow a 30-year depreciation model. This may be appropriate for central power plant or major substation equipment, but it’s not a great fit for electronics such as communications, sensors, switching, and metering devices, or analytics software. A 30-year equipment depreciation model provides little incentive for a utility to evolve existing designs and broadly deploy more advanced technologies on a broad scale; something in the range of five years might prove more effective.
At the federal level, Geisler noted that a bill currently being considered by Congress, the SMART Grid Study Act, H.R. 2962 (sponsored by Rep. Donald Payne, D-NJ), calls for efforts to prepare, respond, mitigate and recover from natural disasters or cyber attacks. It would also provide for a cost/benefit of grid modernization — all of which would support the kinds of technologies required by a decentralized, more integrated grid.
Also, the EPA’s proposed rule on greenhouse gas reductions could help drive wider deployment of smart grid, distributed generation, and energy storage technologies.
“I think what regulators want to do is regulate,” said Geisler. “They are trying to design regulatory guidelines so that utilities can do more to incorporate more renewable energy onto the grid, and continue to evolve their operations and business with an increasingly prosumer market in mind. Increasing options to achieve these goals, such as making distribution-level generation more feasible, will allow utilities to evolve their designs.”
Geisler also noted that it’s crucial for EPA and state officials to have information on how demand response, distributed generation and smart grid technologies can support and enhance state compliance plans.
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