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Tapping the Mother Lode: Employing Price-Responsive Demand to Reduce the Investment Challenge

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The rapid and parallel growth in both variable electricity production from wind and solar, and in large inherently flexible loads (such as electric vehicles and heat pumps) presents an opportunity to ensure that each transition is both reliable and affordable. In a future that will be increasingly capital-intensive, demand flexibility can significantly reduce the amount of infrastructure that must be financed. But much remains to be done to access that potential, most of which is beyond the reach of traditional approaches to demand response.

The primary focus must shift from strategies that require flexible demand to mimic centrally dispatched generation, to strategies that empower consumers to save money by linking their consumption more dynamically to daily fluctuations in variable supply. At a retail level, this includes adopting a series of innovations that widen consumers’ access to the untapped potential for flexible loads to reduce costs and lower electricity bills. At the wholesale level, it means attacking institutional practices that discriminate against flexible demand reliant on energy market pricing, and that artificially depress energy prices by pre-emptively committing consumers to pay for uneconomic investments through forward capacity mechanisms. Overall, it means progressively assessing and integrating responsive demand into forward resource planning and procurement processes.

This paper is one of a series of eight produced by ESIG’s Aligning Retail Pricing with Grid Needs Task Force, led by RAP’s Carl Linvill. The task force examined ways that retail pricing may be used more widely and more efficiently to allow flexible demand to respond to grid needs.

Discom Business Models Require Changes to Promote Distributed Energy Resources

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In this third part of our distributed energy resources (DER) in India series, we look at changes to the current distribution company (discom) business models. These models can overcome the financial disincentives DERs often face. Instead, discoms can embrace and promote DERs to improve system efficiency, increase consumer savings, and address climate change goals.

This short paper discusses the reasons the current discom model should change and how regulators should listen to concerns many discoms have when it comes to the changes associated with promoting DERs.

The paper also discusses the steps regulators can take when it comes to transforming the current discom business model, including:

  • Require discoms to evaluate non-wires alternatives to meet system needs where practical and cost effective
  • Require discoms to create distribution system platforms
  • Require discoms to modify tariff design to send unbundled granular price signals to facilitate DERs
  • Require discoms to develop DER programs
  • Develop a process to effectuate changes to the discom business model

Read Part 1: Empowering Retail Customers: Improve Efficiency, Lower Costs and Reduce Emissions

Read Part 2: Facilitating Distributed Energy Resources Requires Policy Actions 

Electricity market reform, beyond the gas crisis

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In the past, power market reform happened to increase efficiency, to reduce greenhouse gas emissions, or to improve reliability and security of supply. Today in Europe, the desire to further change the market stems from the ongoing energy crisis. As the European Union introduces a new round of electricity market reforms, RAP explores where new market regulation would usefully tackle the root causes of the ongoing energy crisis, meet consumer needs and help Europe move away from fossil fuels.

The current energy crisis is a gas crisis. It is a nightmarish scenario stemming from the Russian invasion of Ukraine and the resulting supply disruption of cheap pipeline gas, converging with decommissioning of nuclear capacity and low hydro output. Hedging strategies by energy suppliers and consumers fell short and unprecedented wholesale market prices for fossil gas made consumer gas and electricity bills explode.

Strategies must therefore improve hedging in the market if Europe is to mitigate the energy crisis – and prepare for the next. To this end, RAP recommends replacing the role of fossil gas with renewables, demand-side flexibility and energy efficiency. More precisely, this requires:

  • Recognising and promoting demand-side resources as a vital system resource.
  • Building out more solar and wind, and doing so better and faster.
  • Protecting basic consumer needs better than in the past.

For policymakers weighing whether to implement these actions, the authors explain the various considerations.

Power Outage Rapid Response Toolkit

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Interruptions in electricity supply – ‘the lights going out’ – make for arresting headlines and capture public attention. Yet it is strikingly rare for any kind of electricity generation shortfall to trigger blackouts: major reliability events are nearly always the result of grid failure incidents such as wires frying or being damaged by trees.

Furthermore, none of the recent events that have occurred in markets with high shares of renewables have been caused by over-reliance on renewables to provide sufficient electricity supplies. In spite of this, the fossil energy industry has a track record of seizing on any opportunity to promote the narrative that more fossil generation is needed and that the growing shift to renewables is undermining and driving up the cost of secure supplies.

To dispel many of the myths surrounding the causes of recent significant power outages, the toolkit looks at four case studies: Texas 2021, California 2020, Great Britain 2019 and South Australia 2016.

These case studies prove it is important that advocates for a clean energy transition can set the record straight quickly, credibly and substantively. This package equips advocates with information and tools to respond quickly to the misinformation that spreads rapidly in the wake of power grid reliability events, and in particular:

  • introduces the advocate to reliability events, and their causes and consequences; 
  • provides a checklist for advocates to understand and analyse emerging reliability events (a separate, interactive checklist can be downloaded here: Power Grid Rapid Response Checklist);
  • provides holding lines for advocates during the information vacuum that normally proceeds a reliability event;
  • explains why large-scale reliability events are almost always caused by network failures and not renewable electricity generation.

Using Benefit-Cost Analysis to Improve Distribution System Investment Decisions: Issue Brief

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Electric utility regulators are paying closer attention than ever before to individual distribution system investment decisions, in part because of the rapid growth in distributed energy resources and the need for new grid modernization investments.

To achieve the best outcomes for ratepayers and society, regulators need robust and comprehensive tools for evaluating utility investments. Benefit-cost analysis is, in many cases, a superior analytical tool to traditional least cost/best fit methods. It can recognize and maximize a wider range of benefits and consider a broader range of impacts. It also allows for a more detailed analysis.

This issue brief compares the two analytical approaches and describes the many opportunities to use benefit-cost analysis (BCA) in new and better ways.

Author John Shenot and contributors Elaine Prause and Jessica Shipley also explore five crucial questions that regulators must answer as they shape benefit-cost analysis policies for their jurisdictions:

  • In what proceedings will we use BCA methods?
  • Who will conduct BCAs?
  • How will we engage stakeholders?
  • Which cost-effectiveness test(s) will we use?
  • How will we use BCA results to make decisions?

For those interested in a more thorough treatment of the topic, a companion reference report offers more detail as well as many examples from state regulatory proceedings.

Using Benefit-Cost Analysis to Improve Distribution System Investment Decisions: Reference Report

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Electric utility regulators are paying closer attention than ever before to individual distribution system investment decisions, in part because of the rapid growth in distributed energy resources and the need for new grid modernization investments.

To achieve the best outcomes for ratepayers and society, regulators need robust and comprehensive tools for evaluating utility investments. Benefit-cost analysis is, in many cases, a superior analytical tool to traditional least cost/best fit methods. It can recognize and maximize a wider range of benefits and consider a broader range of impacts. It also allows for a more detailed analysis.

This reference report compares the two analytical approaches and describes the many opportunities to use benefit-cost analysis (BCA) in new and better ways.

Author John Shenot and contributors Elaine Prause and Jessica Shipley also explore five crucial questions that regulators must answer as they shape benefit-cost analysis policies for their jurisdictions:

  • In what proceedings will we use BCA methods?
  • Who will conduct BCAs?
  • How will we engage stakeholders?
  • Which cost-effectiveness test(s) will we use?
  • How will we use BCA results to make decisions?

The reference report includes many examples of BCA use from state regulatory proceedings.

A companion issue brief offers a condensed treatment of the topic for those seeking a summary.

Facilitating Distributed Energy Resources Requires Policy Actions

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Distributed energy resources can provide key opportunities that would empower India’s retail customers to improve system efficiency, lower costs, and reduce emissions. In the first part of our DER series, we laid out the arguments for how deploying distributed energy resources (DER) in scale provides a key opportunity to empower customers.

DERs include elements such as energy efficiency, demand response, storage resources, distributed generation closer to load (such as rooftop solar), and more. DERs help customers modify their electric usage in ways that will save them money, offer reliability products to electric wholesale system operators and discoms to increase reliability and efficiency of the system, and help reduce emissions. The promotion of DERs, however, requires affirmative action by utility regulators and policy makers.

In the second part our series, we outline policies that will facilitate the entry of DER providers.