by Michael Rustum, Donald Gelinas and Daniel Broderick, Dickstein Shapiro LLP
The nation increasingly will rely on variable energy resources, predominately wind and solar generation resources, to meet its growing demand for electricity.
Renewable resources can provide a clean, plentiful supply of electricity, but the integration of such resources on a utility scale challenges system planners and regulators because of their remote location relative to load and because their output is intermittent and cannot be controlled. These characteristics differentiate variable energy resources from traditional generation resources (e.g., fossil and nuclear) and create regulatory, physical and economic challenges.
Electric systems with energy increasingly supplied from variable energy resources require increased generation reserves to ensure electricity remains available when, for example, the sun doesn’t shine or the wind doesn’t blow.
Moreover, because wind is most plentiful during off-peak hours when demand is lowest, electric systems with large wind supplies might require additional capacity to meet peak daytime loads. These reserve and capacity requirements impose physical and financial restrictions that limit variable energy resources’ ability to cost-effectively replace nonintermittent resources.
While the electric industry confronts the technical difficulties of integrating variable energy resources on a large scale, regulators must decide how to respond if utilities seek to recover from customers the potentially higher costs of complying with renewable portfolio standards as wind and solar generation penetrate the market. The Federal Energy Regulatory Commission (FERC) recently proposed to authorize higher reserve charges to variable energy resources than to traditionally fueled resources to account for their differing impacts on the system. FERC, however, conditioned such authority on transmission providers first implementing certain reforms to mitigate any higher costs associated with integrating variable energy resources into the grid.
First, transmission providers would be required to adopt more frequent (intrahourly rather than hourly) transmission scheduling, which would enable variable energy resources to match their transmission schedules more accurately with their expected output, thereby reducing exposure to excessive costs for reserve services.
Second, FERC proposes that variable energy resources supply transmission providers with meteorological and operating data, which will augment and improve transmission providers’ power production forecasting capabilities and permit them to better manage the intermittency of variable energy resources and deploy such resources more efficiently. While these two prerequisites to any proposal impose different reserve requirements on variable energy resources and are intended to mitigate higher costs through better operating and forecasting procedures, the proposals do not go far enough.
Regulators can and should do more to reduce the exposure of variable energy resources to increased costs by promoting the use of market-transformational energy storage technologies. Storage technologies, which can be installed on either the demand or supply side, can satisfy reserve and capacity requirements while improving overall system efficiency. The new technologies include, among others, thermal storage air conditioning, battery storage and compressed-air energy storage. While technically distinct, each technology satisfies reserve and capacity requirements with the most economical energy available.
Storage technologies can meet on-peak demand with energy produced and stored off peak and can help reduce costs and make better use of wind resources whose output is often highest when demand is lowest. For example, thermal storage air conditioners use off-peak electricity to make ice during nighttime hours, then rely on that ice–rather than electric air conditioning compressors–to cool buildings during daytime peaks. Storage devices similarly can extend the period over which solar resources can be used by storing energy produced during daylight hours for use during the evening peak. Thermal devices, batteries, compressed air and other storage technologies represent potentially dispatchable resources that levelize and smooth the demand curve and pair nicely with variable energy resources.
Utilities must be allowed to recover their costs of integrating variable energy resources, but when federal and state regulators are imposing increasingly stringent greenhouse gas and renewable portfolio standards, it is short-sighted to ignore mechanisms that can minimize the costs that the variable energy resources and consumers will bear. Before allowing transmission providers to impose additional reserve costs on variable energy resources, regulators should minimize those costs by requiring transmission providers to demonstrate that they have employed available and cost-effective storage technologies. Such regulatory initiative would reduce the costs of delivered energy from and facilitate the more efficient integration of variable energy resources and foster the development of a nascent energy storage industry. FERC has taken a step toward integrating the variable energy resources into the electric grid. Now, all regulators should take the next step to ensure that the transition is as painless as possible.
Michael Rustum is a partner in Dickstein Shapiro LLP’s Energy Practice. Reach him at email@example.com or 202-420-3178.
Donald Gelinas is an energy practice advisor at Dickstein Shapiro LLP. Reach him at firstname.lastname@example.org or 202-420-4727.
Daniel Broderick is an associate at Dickstein Shapiro LLP. Reach him at email@example.com or 202-420-2618.
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