The Regulatory Assistance ProjectChinaEuropean UnionUnited States

www.raponline.org

Distributed Generation and Decentralized Grids: Some Practices

and Models to Consider

January 28, 2015

IRENA Renewable Energy Training WeekJanuary 25-29, 2015 ǀ Abu Dhabi, UAE

David Farnsworth, Senior Associate

Outline

1. Review of Resources Related to:

Microgrids – The UN Best Practices Study

Designing DG Tariffs Well – Linville et al, RAP

Designing Markets to Accommodate Variable

Resources: “Teaching the Duck to Fly,” Jim Lazar,

RAP

2. RPS and RE Tracking – “Follow the Money.”

3. Discussion

2

Suggested Resources

• Three Resources:

1. Microgrids – The UN Best Practices Study

2. Designing DG Tariffs Well – Linville et al, RAP

3. Designing Markets to Accommodate Variable

Resources: “Teaching the Duck to Fly,” Jim

Lazar, RAP

3

4

Microgrids

• Microgrids – distributed systems of local energy generation,

transmission, and use –technologically and operationally ready to

provide communities with electricity services, particularly in rural and

peri-urban areas of less developed countries.

Microgrids for Rural Electrification: A critical review of best practices based on seven case studies, United Nations

Foundation, February 2014

• Over 1.2 billion people do not have access to electricity, including

550 m (Africa)

300 m (India)

International Energy Agency, 2012

5

Microgrids

• The traditional approach to serve many of these communities: extend

the central grid.

• This approach is technically and financially inefficient due to a

combination of:

capital scarcity,

insufficient energy service,

reduced grid reliability,

extended building times and

construction challenges to connect remote areas. Microgrids for Rural Electrification

6

The Central Grid

• “Our current, baseload-based electricity system is extremely

inefficient…only about 44% efficient … astoundingly low.”

• We need to improve that, and there’s great potential for

doing so by using a distributed generation system, and by

having systems that are much more responsive and much

more able to match supply with demand….”

Interview With NREL Director Dan Arvizu On Distributed Energy / Distributed Solar

(Benefits & Obstacles), http://cleantechnica.com/2013/01/30/distributed-power-

distributed-solar-benefits-obstacles/7

Critical Components

• Microgrids for Rural Electrification identifies critical

components that explain why the twelve Microgrids

considered thrive or struggle, or why they enter virtuous or

vicious cycles:

Strategic Planning,

Operations, and

Social Context

8

Virtuous cycles

Virtuous cycles achieved through the

production of:

(i) sufficient revenue to support the grid

and

(ii) service and schedule reliability to keep

consumers as loyal customers.

9

Virtuous cycles

10

Vicious cycles

Vicious cycles characterized by:

a chain of poor maintenance,

disappointed customers,

insufficient revenue and

dysfunctional community support.

11

Vicious cycles

12

Microgrids – Plan for Certain Practices

Seven critical factors to plan for, every practice is equally

relevant:

• Tariff design,

• Tariff collection mechanisms,

• Maintenance and contractor performance,

• Theft management,

• Demand growth,

• Load limits, and

• Local training and institutionalization. 13

Microgrids – Not every practice is equally relevant

• Depends on the type of business model established by

micro grid developer:

• For-profit,

• Partially subsidized, and

• Fully subsidized.

Microgrids for Rural Electrification: A critical review of best practices based

on seven case studies, United Nations Foundation, February 2014, Schnitzer

et al, https://cleanenergysolutions.org/content/microgrids-rural-electrification-

critical-review-best-practices-based-seven-case-studies14

Suggested Resources

• Three Resources:

1. Microgrids – The UN Best Practices Study

2. Designing DG Tariffs Well – Linville et al, RAP

3. Designing Markets to Accommodate Variable

Resources: “Teaching the Duck to Fly,” Jim

Lazar, RAP

15

Designing Distributed Generation Tariffs Well

• Improvements in distributed generation economics,

• Increasing consumer preference for clean, distributed resources, and

• A favorable policy environment in many states have combined to produce

significant increases in distributed generation adoption in the US.

• Regulators are looking for the well-designed tariff that fairly:

Compensates DG adopters for the value they provide to the electric

system;

Compensates the utility for the grid services it provides, and

Charges non-participating consumers for the value of the services

they receive.

16

Regulatory options for dealing with DG.

• The authors consider:

Current tariffs; and

Benefits, costs, and net value to distributed generation adopters,

non-adopters, the utility, and society as a whole.

• The paper highlights:

A valuation methodology so that the presence or absence of cross-

subsidies can be determined;

Rate design and ratemaking options for regulators to consider, and

Recommendations for fairly implementing tariffs and ratemaking

treatments to promote the public interest and ensure fair

compensation. 17

The Transition in the Customer/Company Relationship

• Technology is making customer resources less expensive

• Technology is enabling customer resource participation

• Power sector institutions are evolving

• What constitutes fair compensation in a time of transition?

18

Sound Decision-Making Benefits All

• For consumers: Keep more $$, quality

• For utilities: Corporate health, purpose

• For investors: Safety, value, expectations

• For employees: Safety and welfare, pride

• For the regulatory process: Confidence

• For society: Key role for power in society

A process that promotes shifting risk rather

than managing risk is inherently unstable

19

Designing DG Tariffs Well: Twelve Points

1. Value is a two-way (or more) street

2. Consider all relevant sources of benefit and cost over the long term

3. Select & implement a valuation method

4. Cross-subsidies may flow either way

20

Consider: Cross-Subsidies Run Both Ways

• If value of PV < compensation:

– Other customers subsidize PV customers

– Under-recovery of utility’s fixed costs

– Upward pressure on rates (cross subsidy)

– Reduced utility shareholder returns

• If value of PV > compensation:

– PV customers subsidize other customers

– Suppresses PV deployment

21

Twelve Points …

5. Extrapolating from extreme situations is misleading

6. Infant industry subsidy tradition

7. Rules matter (e.g. interconnection)

8. Be no more complicated than necessary

22

Twelve Points

9. Support innovative power sector models

10.Keep incentive decision separate from rate design

11. Keep decoupling decision separate from rate design

12.Consider mechanisms for “have-nots”

23

Consider: Many Possible Alternative or Supplemental Tariff Policies

24

• Fixed charges

• Demand charges

• Bi-directional distribution rates

• Time-based rates

• Minimum monthly bills

• Stand-by rates

• Value of Solar Tariff (VOST)

• Separate PV customer class

For a complete discussion, see

Designing Distributed Generation Tariffs Well

• Publication: Carl Linvill John Shenot Jim Lazar:

http://www.raponline.org/document/download/id/68

98

• Webinar: http://www.raponline.org/event/webinar-

designing-distributed-generation-tariffs

25

Outline

1. Three Resources:

Microgrids – The UN Best Practices Study

Designing DG Tariffs Well – Linville et al, RAP

Designing Markets to Accommodate Variable

Resources: “Teaching the Duck to Fly,” Jim

Lazar, RAP

2. RPS and RE Tracking – “Follow the Money.”

3. Discussion26

27

Increasing solar means steep afternoon

ramping – Teaching the Duck to Fly

28

Customer demand for new energy technologies is hitting a brick wall of

regulatory systems designed for the last century. This is especially true in

the design of power markets.

Renewables and demand-side technologies have some features that will

disrupt energy markets as they grow. As a package, they present a very

different way of running the grid, with greater efficiency, energy security,

and lower emissions. But market designs need to evolve to accommodate

innovation and clean energy.

Mike Hogan and Bentham Paulos, “Dealing with the Duck.” Public Utilities Fortnightly, January

2014.

Increasing solar means steep afternoon

ramping – Teaching the Duck to Fly

29

I could take the head off that duck, just give me some demand

response.

Unnamed participant at a meeting of California regulators

Ten Strategies To Align Loads to Resources(and Resources to Loads) with Illustrative Values for Each

1. Targeted energy

efficiency

2. Orient solar panels

3. Use solar thermal with

storage.

4. Manage electric water

heat

5. Require new large air

conditioners to include

storage

6. Retire older inflexible power plants

7. Concentrate demand charges into

“ramping” hours

8. Deploy energy storage in targeted

locations

9. Implement aggressive demand

response programs

10. Use inter-regional exchanges of

power

30

Not every strategy will be applicable to every utility.

What Causes This Challenge?

Variable Loads: we’ve

had those forever.

Wind: Variable supply.

Solar: Predictably NOT

available for late PM peak

demand.

31

Guess What: Ducks Can Fly

32

A duck in water has very much

the shape of the CAISO graphic.

The “fat body” floats, and the tall

neck breathes.

A duck in flight stretches out its

body and straightens its neck in

order to reduce wind resistance.

Our job is to straighten

this duck out.

Our Starting Point:A California Utility’s Projected “Duck”

33

4,000 MW Peak Demand; 2,000 MW Minimum Demand;

73% Load Factor; Max 1-hour ramp: 400 MW

Forecast: 2,500 MW of wind and solar added 2012 – 2020;

Predicted 63% Load Factor; Max 1-hour ramp: 550 MW

0

500

1000

1500

2000

2500

3000

3500

4000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Total Load

Load Net ofWind/Solar

Strategy 1: Targeted Energy Efficiency

Focus efforts on EE measures with afternoon peak orientation.

34

5% of total

usage by 2020;

3:1 ratio

between on-

peak and off-

peak savings.

Kitchen

lighting is a

great example.

A/C is huge.

Strategy 1: Targeted Energy Efficiency

Focus efforts on EE measures with afternoon peak orientation.

35

0

500

1000

1500

2000

2500

3000

3500

4000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Post Strategy Total Load

Post Strategy Net Load

Original Net Load

Original Total Load

Strategy 2: Orient Solar Panels to the West

Fixed-axis solar panels produce a more valuable output if oriented to the West.

36

100 MW shift

out of AM

into PM

hours, out of

~700 total

rooftop

solar

assumed.

6 PM

Strategy 2: Orient Solar Panels to the West

37

0

500

1000

1500

2000

2500

3000

3500

4000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Post Strategy Total Load

Post Strategy Net Load

Post Strategy 1 Total Load

Post Strategy 1 Net Load

Strategy 3: Use Solar Thermal In Place of Some Solar PV

Solar thermal energy is more expensive, but can be stored for a few hours at low cost.

38

Substitute 100

MW of solar

thermal for 100

MW of utility-

scale PV, out of

1,500 MW of

utility-scale

solar total

assumed.

Strategy 3: Use Solar Thermal In Place of Some Solar PV

39

0

500

1000

1500

2000

2500

3000

3500

4000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Post Strategy Total Load

Post Strategy Net Load

Pre-Strategy Total Load

Pre-Strategy Net Load

Strategy 4: Control Electric Water Heating

Install grid control of electric water heating;

Supercharge during low-cost hours.

40

Illustrative utility

has ~12% of state

load; assume it can

gain control over

5% of the electric

water heaters in the

state, for 300 MWh

of load shifting.

Strategy 4: Control Electric Water Heating

41

0

500

1000

1500

2000

2500

3000

3500

4000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Post Strategy Total Load

Post Strategy Net Load

Pre-Strategy Total Load

Pre-Strategy Net Load

Strategy 4: Water HeatTotal US Potential Is Huge

45 million electric water heaters in US

4.4 kW peak power per water heater

200,000 Megawatts total potential demand augmentation when needed

40,000 Megawatts to potential peak load reduction when needed.

Up to 25 kWh potential storage per water heater Battery bank for 25 kWh: ~$10,000

42

Strategy 5: Require 2-hour Storage On New AC

Require new AC units over 5 tons to include at least 2 hours of storage, under grid control.

43

Move 100

MWh of AC

load out of

the 6 – 8

PM period

into off-

peak

periods.

Strategy 5: Thermal StorageCould Be A Much Larger Resource

A/C chilled water or ice storage can move the entire cooling load into low-cost hours.

44

Strategy 5: Air Conditioning StorageA/C is ~30% of Peak Demand

45

• Commercial load doubles;

• Residential load up 4X.

• Option:

– Appliance standards

– Service standards

– Retrofit incentives

Strategy 5: Require 2-hour Storage On New AC

46

1000300100 3000 10000

100

1000

10000

10

CAES

Chilled Water /

Ice Thermal

H2O heaters

Metal-air

Na-S

Flow

Lead-acid

Ni-CdEV

Li-ion

Zinc-air

H.P.

capacitors

H.P. flywheels

L.D. flywheels

L.D. capacitors

Distributed /

demand-side

Battery

Grid-scale

Flywheel /

capacitor

Cap

ital co

st

per

un

it e

nerg

y -

$/k

Wh

ou

tpu

t

Capital cost per unit power - $/kW

Cost per Unit of Performance

for Various System Flexibility Options

PSH

Strategies 4 &5: Very Inexpensive Compared With Battery/Flywheel

47

Strategy 6: Retire Older Inflexible Generating Plant

Older steam plants with night minimum loads and slow ramping are being replaced with gas “flex” units that ramp quickly.

48

GE Flex Combined Cycle Unit

Strategy 6: Retire Older Inflexible Generating Plant

No specific change attributed; assumed to be embedded in the 2020 forecast from the sample utility.

49

How Did We Do?

Pre-Strategy, without Solar/Wind: 73% LF

Pre-Strategy, with Solar/Wind: 63% LF

Post-Strategy, with Solar/Wind: 83% LFHourly Ramp: 340 MW vs. 400 today, and 550 w/o strategies

50

Teaching the Duck to Fly

Requesting Permission for Take-Off

Outline

1. Three Resources:

Microgrids – The UN Best Practices Study

Designing DG Tariffs Well – Linville et al, RAP

Designing Markets to Accommodate Variable

Resources: “Teaching the Duck to Fly,” Jim

Lazar, RAP

2. RPS and RE Tracking – “Follow the Money.”

3. Discussion52

What is a Renewables Portfolio Standard?

• A duty placed by a state on a regulated retail provider

• Typically to ensure that a percentage of the energy

provided by the company – e.g., 2% of 2015 retail sales.

• Can include both utility-provided and customer-

developed RE.

• Alternative Compliance Payment (ACP) required for not

meeting RPS requirements, value of REC goes to designated

fund, e.g., the “Massachusetts Clean Energy Center.” http://www.mass.gov/eea/energy-utilities-clean-tech/renewable-energy/rps-aps/retail-electric-supplier-compliance/alternative-compliance-payment-

rates.html

53

For RPS Purposes, Quick Background on US Retail Electric Market

Two basic models for

electricity “providers”:

• Vertically-Integrated or

• “Restructured,” i.e., retail

function separate from

generation and transmission.

54

DISTRIB

CO.

TRANS

CO.

GEN

CO.

Traditional,

i.e.,

Vertically-

Integrated

Functions:

• Distrib

• Trans

• Gen

Model 1 Model 2

What is an RPS?• RPSs categorize and define renewables differently,

for example:

• New/Existing (entering into service before/after

26/1/2015

• Utility-owned; or customer-owned.

• Solar, wind, biomass, methane digester, “small”

hydropower (i.e., “run-of-river” or “≤ 1 MW”).

55

56

Tracking Systems

57

RPSs rely on

tracking systems

to account for

ownership of

attributes

associated with

renewable

megawatt hours,

also known as

Renewable Energy

Certificates

(“REC”), i.e., “Green

Certificates” in the

EU)

What is a REC

https://www.youtube.com/watch?v=6jpLsSKQiIE58

RECs have

individual serial

numbers and can

contain other

identifying

information such

as plant name

and location,

month and year

of generation,

fuel type, and

emissions rate

(lbs. per MWh).

What is an RPS? • A REC represents the property rights to the environmental, social, and

other non-power qualities – all known as attributes” of renewable

electricity generation.

• A REC and its associated attributes can be sold separately from

the underlying physical electricity associated with a renewable-based

generation source

• “All grid-tied renewable-based electricity generators produce two

distinct products:

Physical electricity

RECs

59

RPS – the ProcessCompliance for 2% RPS demonstrated as follows:

• Utility company confirms for the regulator the amount

of:

Energy sold over relevant year, i.e., its “portfolio”

RECs acquired and retired to reflect correct

percentage of overall energy portfolio.

Simple illustration:

• Company sold 10,000 MWhs in 2014 and retires 200

RECs.

60

RPS – the Process• Retiring a REC is important; what does “retire” mean?

• Think about the tracking system; it works like a banking account.

Generators and retail companies have their own accounts.

For each MWh of electricity that a wind project produces, the tracking

system mints and stores a REC in the generator’s account.

The retail company buys RECs from the generator, and when directed by

the generator and retail company, the tracking system transfers the

RECs from the generator account into the retail company’s account.

Note, only one owner at a time, and when the retail company uses the

REC to demonstrate compliance, the REC and its serial number is retired

for good, and can never be used again.

61

Some Observations about REC Tracking Systems

• They can be used to prove ownership of the

renewable attribute.

• They can prevent double-counting of the attribute.

• They do not track electrons, but can track

investment in and claims about renewables projects.

62

Thank You

Discussion

63

Resources• “Interview With NREL Director Dan Arvizu On Distributed Energy /

Distributed Solar (Benefits & Obstacles),” http://cleantechnica.com/2013/01/30/distributed-power-distributed-solar-benefits-obstacles/

• “Microgrids for Rural Electrification: A critical review of best practices based on seven case studies,” United Nations Foundation, February 2014, Schnitzer et al, https://cleanenergysolutions.org/content/microgrids-rural-electrification-critical-review-best-practices-based-seven-case-studies

• “Designing Distributed Generation Tariffs Well”: Carl Linvill John Shenot Jim Lazar: http://www.raponline.org/document/download/id/6898

• Webinar: http://www.raponline.org/event/webinar-designing-distributed-generation-tariffs

• “Dealing with the Duck,” Mike Hogan and Bentham Paulos, Public Utilities Fortnightly, January 2014.

• “Alternative Compliance Payment Rates,” http://www.mass.gov/eea/energy-utilities-clean-tech/renewable-energy/rps-aps/retail-electric-supplier-compliance/alternative-compliance-payment-rates.html

64

About RAP

The Regulatory Assistance Project (RAP) is a global, non-profit team of experts that focuses on the long-term economic and environmental sustainability of the power and natural gas sectors. RAP has deep expertise in regulatory and market policies that:

Promote economic efficiency Protect the environment Ensure system reliability Allocate system benefits fairly among all consumers

Learn more about RAP at www.raponline.org

David Farnsworth: dfarnsworth@raponline.org