Pulse Survey: US Utilities Preparing for Increasingly Distributed Grid

by Jessica Harrison, DNV GL

What’s the top issue on the minds of U.S. utility executives? The utility sector has seen significant transformation during the past decade-from smart technologies to regulatory changes-and faced unexpected challenges-from natural disasters to disruptive business models. Where are we now? What are the expectations and attitudes of the main players within the industry?

To capture a sense of the challenges and opportunities on the minds of leading industry executives and managers, DNV GL (formerly DNV KEMA) surveyed 200 U.S. energy professionals.

The results from DNV GL’s Utility of the Future Pulse Survey-drawn from an online industry survey of utilities, system operators, equipment and service suppliers and policymakers-reveal an industry that is readying itself to embrace change.

Overall survey findings reveal that one of the most significant challenges respondents face is distributed generation integration. Nearly 40 percent of respondents said this will be the most significant challenge to the utility industry during the next five years. Subsequently, key policy issues are the impact of net metering and distributed generation interconnection, greenhouse gas (GHG) and emissions control and the evolution of the competitive retail markets.

Together, more than 78 percent of respondents said these policy or regulatory advances will have the greatest impact on the industry’s evolution by 2020.

Recently, the market has seen rapid growth in distributed generation, particularly in clean energy resources. The amount of distributed storage installations has doubled every two years with even higher growth rates for residential photovoltaic solar. In many regions, state and regional energy goals promote distributed generation. Such distributed technologies are creating a unique environment for the future grid, leading to changes in how and where electricity is generated and how it moves over our networks.

Amid significant changes in distributed generation and evolving energy and environmental policy, the industry appears to be taking a proactive stance. In general, power providers plan to engage new entrants in distributed generation and retail supply. In particular, 55 percent of public and private power providers plan to take an offensive position relative to new stakeholders’ entering the distributed generation space, and 52 percent of private power providers plan to do so in the retail space. Furthermore, more than 4 in 5 see technology adoption or engagement in policy and regulation as actionable means for addressing industry changes. Demand response and support for distributed generation appear to be strong pursuits for entities that engage in behind-the-meter offerings.

Overall, the industry is ready for change and generally eager to adapt. Opportunities remain to shape the industry’s future, and many see the potential to build avenues for growth. As such, industry players should position themselves to capture new opportunities to prosper as the grid evolves. It’s time to develop strategies for adapting to and influencing the changes to come.

Significant Challenges

Distributed generation is viewed as a game changer for the utility industry. Although distributed generation introduces great benefits to the power market, it has its own challenges. Surveyed industry professionals said the most significant challenge for the utility industry within the next five years is grid integration of distributed generation.

fig 1

Although they provide an opportunity for higher efficiencies and give customers greater management of their energy, distributed energy resources (DER) test current business and regulatory models. Policy and regulatory decisions will need to be made regarding cost allocation and recovery. Integrating DER also will require new thinking about how to operate and invest in the grid. Technologies and regulatory and market mechanisms will be key to incentivizing customer participation that enhances the grid for all.

fig 2

Furthermore, questions remain about how to transition successfully from current approaches of power generation and delivery. Measures are needed to ensure grid operators have access to available ancillary grid management resources.

A secondary concern is lack of clarity around national energy and environmental policy. Several initiatives are underway at the federal, state and local levels that could affect generation portfolio mix significantly at the bulk and distributed levels. Such changes likely will open new opportunities in the industry. Adjusting to these changes, however, also will require planning.

Biggest Impact by 2020

The impact of net metering and distributed generation interconnection is on the minds of many. Most industry professionals expect net metering and distributed generation interconnection will have the greatest impact on the power industry.

Interconnection policies and rules form the basis of treatment of DER as the distribution, transmission and system scales, identifying what information is available to system operators and establishing requirements for unit owners. A shift in approaches to interconnection of DER is likely, and steps toward this evolution are underway. The Federal Energy Regulatory Commission (FERC), for example, recently amended the small generator interconnection procedures, which establish the terms and conditions under which public utilities must provide interconnection service to small generating facilities. Closely tied with interconnection policies are net metering rules. These rules define the process for crediting customers with offset purchases based on excess generation. Net metering can play a meaningful role in DER economics. Recently, behind-the-meter configurations and net metering applications have evolved in some regions such that customers may be able to obtain credits across multiple sites or accounts. Rules and practices for virtual or community net metering are evolving and could play a notable role in DER adoption and use.

fig 3

GHG and emissions control and further shaping of the competitive retail market in the remaining U.S. are other areas where the industry expects significant impacts within the next several years. The Environmental Protection Agency (EPA) Clean Power Plan is the latest action that is stimulating change in this area. The Clean Power Act aims to reduce carbon dioxide emissions from existing power plants 30 percent (compared to 2005 levels) by 2030. The act would have significant impacts on U.S. power plants and shape industry planning practices to come. With diverse options likely available to states for compliance, we expect to see innovative changes in the industry as a result of the upcoming rules. Such changes in response to evolving policies and regulations, in tandem with ongoing movement around DER, could accelerate a sizeable transformation in the utility sector by modifying the power sector’s resource portfolio mix and paving the way for new market players.

fig 4

Behind-the-Meter Applications

Demand response is a strong pursuit for entities that are engaging in behind-the-meter offerings. Such services include load management capabilities and programs, such as direct load control, variable pricing or participation in wholesale markets. In addition, many entities are positioning to support DER behind the meter.

Evolving software, metering and communications technologies, along with the penetration of behind-the-meter DER, are creating fresh potential for customers to engage in demand response.

For example, new end uses are gaining access to load management controls, increasing the opportunities for participation in demand response offers.

Furthermore, energy management controls and DER, such as energy storage, are increasing the price elasticity of customers.

In light of upcoming changes in distributed generation, energy and environmental policy and further evolution of competitive retail markets, industry power providers overall are pursuing an offensive strategy. The most active segments are distributed generation and retail gas and power supply, with less strategic change expected in bulk power generation or gas or power transmission.

Transmission and bulk power might be affected by DER eventually, but retail and distribution segments likely will be affected first.

fig 5

Priority Management Actions

As part of an offensive strategy for coping with change in the industry, and as a means to improve operational effectiveness and grow earnings, industry organizations are positioning to adopt new technologies.

Many are also actively seeking to influence future policy and regulations. Industry organizations appear optimistic about the opportunity to shape its evolution and the opportunities to grow.

With policies and regulations for DER and emissions controls still evolving, and technologies to support customer options around energy management continuing to develop, opportunities remain to shape the near-term evolution of our future grid.

Discussion among industry stakeholders is critical to understanding the implications of changing our generation resource portfolio and transforming our approach to power delivery.

This is the first step toward ensuring a smooth transition to the future grid.

Furthermore, technology adoption will be vital to adapting to these changes-in many markets, the capabilities afforded by new technologies will help the industry cope with impending changes by differentiating services or addressing integration challenges.

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Recommendations

The industry is ripe for change, and DER, GHG and emissions policy could play significant roles.

Opportunity remains to influence outcomes and shape opportunities, but it is important to define strategies to continue to prosper as the grid evolves. Here are some questions to consider:

â–  What approaches can best optimize investments in DER for maximum system benefit? What markets and technologies should be prioritized for either creating new or enhancing existing clean energy and DER strategies?

â–  What is the best approach for generating viable business models that facilitate power sector involvement for the benefit of customers?

â–  How would you approach a strategic partnership or acquisition or technology procurement to better position your offerings or services?

The utility of the future offers exciting prospects for near-term change and growth. Nevertheless, given the fundamental nature of impending changes-environmental policies and the decentralization of the grid affect the entire utility value chain-a holistic perspective is critical for devising successful adaptation strategies.

DNV GL’s Utility of the Future Pulse Survey provides a snapshot of an industry that is embracing change and looking to identify the implications and opportunities of emerging technology and policy trends.

It’s time to devise strategies on how to adapt to or influence these market changes.

Author

Jessica Harrison is head of energy strategy at DNV GL, where she leads the energy storage and electric vehicles practice in the Americas. She has a Master of Science from the Massachusetts Institute of Technology (MIT) in technology and policy and in civil and environmental engineering and a Bachelor of Science in Physics from the University of Michigan.

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