Power Sector Transformation Advances, With Choices, Questions, and Big Opportunities
As we head into the New Year, RAP’s U.S. team will be devoting more time to a broad set of issues known as “power sector transformation.”
Power sector transformation in the United States will affect the way many of us interact with the grid, from the smallest customer to the largest electric grid operator.
As I see it, this transformation will manifest itself in a range of ways: Electricity customers will generate more power, there will be more automated load control, and more energy efficiency and renewables on the grid. We’ll see more energy storage, more electric vehicles, and improved grid efficiency and flexibility. (And that is just in the distribution system; a host of transmission system reforms are underway, and perhaps we will talk about those in another piece.) Altogether, we are looking at a two-way grid, with utilities focusing more on service and less on sales. Some utilities are embracing these changes, some are curious, while others seem intent to slow progress and protect the status quo.
Dramatic changes, from plunging prices for solar panels, LEDs, and storage systems to speedier processing of more data allowing for better use of resources means that these are trends, not fads. Policy and regulatory tools had better keep up. We at RAP consider it our challenge to help.
While these changes are universal, they are not rolling out everywhere at the same rate. We are seeing them first in states with high electricity prices, successful experience with customer-driven efficiency and generation, and a sharp awareness of the power sector’s environmental impact. There is evidence of at least some change in all states.
This power sector transition has many elements. I think of the state of New York’s Reforming the Energy Vision project as a full catalog. Ordering the full catalog is daunting for sure, but at least starting a shopping list seems reasonable for a state positioning itself for the future. Most of these elements have merit on their own, but if one embraces power sector transformation as a goal, a broader, unifying strategy and clear policy direction from government is helpful.
To my mind, the elements of power sector transformation fall into two buckets.
In one bucket are those elements that tend to protect the positive attributes of the current system, including the time-honored foundations of social justice, fairness, and equity. Universal access to a basic level of service, attention to affordability, allocation of costs properly among customer classes—these are just a few among many examples. Electricity consumers trying to just live their lives and do their jobs do not have to be worse off and should not be.
In the other bucket are elements that I associate with progress. These components, such as resource portfolio standards, interconnection standards, and value-based rates, promote innovation and fit with emerging needs and wishes of some customers. They add value by avoiding more expensive, less robust investments like demand-driven wires construction and inflexible power generation while using existing equipment better. Another “progress” element includes reimagining the distribution company as not just a delivery company but as a service provider, lowering barriers to customer-sited resources.
So what should states do first? They can choose strategies based on local urgency, or importance, or pick those that look like easy “early wins.” But effective action suggests some effort at prioritization.
Inevitably, the transition of electricity regulation to reflect a two-way, customer-centric grid could take a long time. Why? It’s unfamiliar territory, there are hard choices to make, and political constituencies supporting it may be weak. Routine business does not stop, and staff resources in all camps are limited. In addition, the benefits of transformation can seem speculative relative to the more concrete transition costs, and there are many pieces that most states can handle only serially, iterating as they go. And while transformation may bring societal gains, there are losers who will fight. I can envision that in 2025, most states will be well on their way toward this transformation, although most of these will still feel “in progress.” That’s OK.
Since our founding, RAP has held the view that utility outcomes sometimes seem at odds with public expectations, especially with respect to clean energy. We have said that clarifying expectations and making clean energy and other priorities more profitable will improve results. Now, with power sector transformation, customers are taking more control of these outcomes, and regulation is challenged to adapt. The good news is there are more tools than ever.
People ask me for my outlook on 2016. Overall, I think states will react to these trends in diverse and creative ways. Some states will take a collaborative, problem-solving approach and, with stakeholders working together, develop priorities for responding over time. These states will move past paralysis over the many commercial and societal interests contending for policy attention, and will secure value. States that embrace the future will empower customers while reducing waste and managing risk, and utilities and regulators will continue to earn and care for their “social license.”
Some states may signal that the utilities could drive these trends and secure progress. This may require changes to regulatory incentives in order to bring out a utility’s best, and regulators, for their part, may have to signal their willingness to be creative while sticking to the mission of protecting the public interest. The emergence of new technologies and services and the customer’s steadily growing appetite for them will force change. Being proactive and thinking ahead to anticipate these changes will better serve regulators, utilities, and the public at large.