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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: [email protected]
