The Distributed Energy Future: Impacts and Implications

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1 The Distributed Energy Future: Impacts and Implications World Renewable Energy Forum Denver, CO May 17, 2012 Virginia Lacy

2 Reinventing Fire: RMI s strategic focus In Reinventing Fire, RMI looked out to 2050 and asked what it would take for the U.S. economy to dramatically and profitably reduce fossil fuel consumption. Two essential takeaways: Efficiency and renewables are critical Electricity system becomes backbone RMI s recommended Transform case Efficient Renewable Distributed Customer-centric 2

3 Important implications for the decisions we make now and RMI s strategic focus in electricity The active role of customers and buildings in the electricity system will expand. Increasingly richer, more complex grid network Advances in IT and demand side technologies Larger amount of variable renewables on system Large unknowns Need for flexibility will be twofold: strategic flexibility to respond and adapt in a changing environment physical flexibility in the grid to adapt to major renewable energy sources (e.g. more flexible load shape = significant value) New operation and planning rules, rates and markets 3

4 Recently collaborated with PG&E and others in a first step in exploring institutional structures Key Questions: How will increased penetration of distributed resources and ZNE buildings affect cost and value for utilities and customers? How could rate structures be modified to enable sustainable, fair, and efficient development of these resources? How might utility business models change? 4

5 Start with the basics: How do customers with distributed generation differ in their service needs from full-service customers? 5

6 Distributed generation can provide value at the right place, right time Energy (short term) Displace conventional power (incl. fuel and O&M) Closer distance to demand (reduce line losses) Capacity (long term) Displace need for new generation, transmission and distribution capacity Other potential sources of value: Grid support services Risk mitigation: smaller investments with shorter lead time Key Challenge: Costs and benefits are highly variable and nonlinear in nature. Thus, factors that affect value: flexibility predictability controllability location timing Dependent on the coincidence of DG production to the needs of the rest of the system. 6

7 The orientation of solar PV impacts its capacity and energy value to the grid At present, solar owners have incentive to maximize energy production with a southernly orientation, reducing capacity value at the system peak. Solar energy would be more valuable if it could be shifted toward the peak energy demand. 7

8 Under existing volumetric rate structures, the cost of providing service to DG customers is not paid for, and the value created by that DG is not recognized Cost savings? Cost savings? $/ Year $0 Traditional Cost to Serve Customer Bill Cost to Serve Customer Bill Cost to Serve Customer Bill $2,445 $757 $0 Traditional Distributed Generation Residential Zero Net Full Service Customer Customer Energy Customer Generation Cost Distribution Cost Transmission Cost Other Costs 8

9 Under high levels of efficiency and distributed generation, existing rate structures and incentives create misalignments. Cost allocation To the utility, revenue from DG customers may not match the cost to serve those customers. Further the cost of integration balancing supply and demand is not transparent. Social priorities Society values the environmental benefits that distributed renewables provide, but utility has little incentive to encourage it due to rate impacts. DG and DSM service providers DG Customers Flexibility and Predictability Providing reliable power requires grid flexibility and predictability. Power from distributed renewables fluctuate with the weather, adding variability, and require smart integration to best shape their output to the grid. Location and Time Limited feedback loop to customers that the costs of service and value of DG, DR and EE vary by location and time. Value recognition Mechanisms are not in place to recognize or reward service that is being provided by actor (utility or customer). $$ service Social equity Costs not paid for by DG customers are allocated to non-dg customers Non DG Customers 9

10 To move forward, three key areas must be addressed Identify, measure and communicate impacts, costs and values Sustainable distributed energy future Adapt utility business models to create and sustain value Remedy misalignments through sustainable pricing models Key areas of RMI work DOE Innovative Solar Business Models 10

11 Net Energy Metering, Zero Net Energy and The Distributed Energy Resource Future: Adapting For The 21st Century: Reinventing Fire: Rocky Mountain Institute Virginia Lacy Rocky Mountain Institute