Enabling the Future – NECEC Panel on MIT EI Utility of the Future
For most veterans of the utility industry, the “utility of the future” hearkens back to the 1990s and the introduction of deregulation and wholesale markets. Today’s “future” represents an even greater departure from previous discussions. What’s new is the rapidly rising penetration of renewables and distributed energy resources, and the prospect of evolving technologies (storage, automated monitoring and control systems, information technology and communications) available to support flexible demand and supply. There is still more innovation to come. As always, prices of oil, gas, and coal can be a wild card in the global market. That is why the authors of the Utility of the Future study chose to quote Antoine Saint-Exupéry, “As for the future, your task is not to fore see, but to enable it”.
Optimizing the Use of Assets to Reduce Costs
As part of an event series, the New England Clean Energy Council (NECEC) brought together an impressive panel to discuss the recently released MIT Energy Initiative study – The Utility of the Future (see summary below in italics). The expert panel -moderated by Janet Gail Besser, former MA Regulatory Commissioner and current Executive Vice President of the NECEC – weighed in on the study. The panel included energy system experts Richard Tabors, Executive Director, Utility of the Future Project and MIT Energy Initiative; Jesse Jenkins, a member of the Utility of the Future Project research team; Tim Woolf, Vice President, Synapse Energy Economics; and Paul Centolella, President, Paul Centolella & Associates.
The discussion was not for the faint of heart – there was complexity. This is to be expected given the background of the panel, the audience and the diverse set of study sponsors and supporters – mainly, utilities and oil and gas companies from North America and Europe, consultants, government agencies, world and regional organizations, systems operators, and academia. Two hours was not enough time to do the study justice.
Take just one chapter of the Utility of the Future – Chapter 4 – Prices and Charges. Now, more than ever, with the increased penetration of distributed energy resources, price signals are needed to coordinate resources in the most efficient and cost-effective way in the context of climate objectives. The study advocates for prices for energy supply and delivery services to be location and time specific, technology neutral, and metered at the point of injection or withdrawal. Of course, the cost of enabling infrastructure to get to location and time specific prices needs to be analyzed against the benefits.
The Utility of the Future does not shy away from challenges faced in rate design. Take just one aspect of Utility of the Future rate design – price signals. To be effective, price signals cannot be muted by other charges. The study notes that in some regions, residual network costs (e.g., distribution operations and maintenance expenses) and other charges related to policy (e.g., taxes, and funding for energy efficiency and climate mitigation programs) can be substantial in relation to energy supply (see Figure 4.2). Then too, the cost of the enabling infrastructure for time and location varying prices would be added to the network costs.
In the end, it all depends on the math. The recommendation is that residual network and policy costs should not be based on kWh, as most are today, but rather be charged as a fixed lumped sum annual cost, paid out monthly with the magnitude of the charge adjusted for income or property-size. What if the monthly non-volumetric charges overwhelm the price signal? [Note: Ralph Cavanagh of the NRDC and Lisa Woods of the Edison Foundation, discuss fixed charges in an October @energygang podcast on paying for the grid may be of interest]. Perhaps it is best to remove or at least minimize taxes or other charges to the extent possible. What if the prices and charges become too onerous and give consumers with large loads a reason to leave the grid altogether? What if the price signals are not material enough to attract new resources to the market or for the customers to participate (buy or sell) in the marketplace?
These are all questions worthy of discussion. Pro-active regulators, utilities, third-party energy developers and suppliers are already on the path of shaping what the utility of the future will look like in their jurisdictions. Notable examples are efforts in CA, NY, HI, and IL. Certainly, all agree that there will be regional differences in conditions (sun, wind, hydro), transmission and distribution systems, and asset economics. However, to support a healthy market, there also needs to be consistent and fair market participation rules, and location and time based price signals so that all resources are valued on a level playing field for the services they provide and can effectively compete. That’s what the MIT framework seeks to provide.
What could move the discussion forward? For one thing, modeling of price signals would be helpful. Ideally, much could be accomplished by holding a series of workshops on the Utility of the Future study outside the formal regulatory process, including regulators, policy makers, utilities, third party energy developers and suppliers, associations, and customer representatives.
The MIT Energy Initiative’s Utility of the Future study presents a framework for proactive regulatory, policy, and market reforms designed to enable the efficient evolution of power systems over the next decade and beyond. The goal is to facilitate the integration of all resources, be they distributed or centralized, that contribute to the efficient provision of electricity services and other public objectives. This framework includes:
- a comprehensive and efficient system of market-determined prices and regulated charges for electricity services that reflect….the marginal or incremental cost of providing these services
- improved incentives for distribution utilities that reward cost savings, performance improvements, and long-term innovation
- reevaluation of the power sector’s structure to minimize conflicts of interest
- recommendations for the improvement of wholesale electricity markets
This study also offers a set of insights about the roles of distributed energy resources, the value of the services these resources deliver, and the factors most likely to determine the portfolio of cost-effective resources, both centralized and distributed, in different power systems. We consider a diverse set of contexts and regulatory regimes. MIT Energy Initiative Utility of the Future