The Dynamic Distribution System: A Concept for the 51st State Project

 The Dynamic Distribution System:
A Concept for the 51st State Project
By Bruce Beihoff, Tom Jahns, Robert Lasseter, and Gary Radloff
Any statements and opinions expressed in this paper are solely from the authors and are
not the views and opinions of the University of Wisconsin System, University of
Wisconsin-Madison, Wisconsin Energy Institute, or any other affiliated organizations of
the authors.
Table of Contents 51st State Project – Dynamic Distribution System
Introduction of the Dynamic Distribution System (p. 3-4)
Major Dynamic Distribution System Operation and Control Principles (p. 4)
A Systems Approach Required for Design (p. 5)
Networks as Architectural Endeavor (p. 5-6)
Designing New Small Networks: Resilience, Autonomy, and Plug & Play (p. 7-8)
Guiding Principles for Dynamic Distribution System Marketplace and Rates (p. 8)
Designing the Market and Rates in a Dynamic System (p. 8-10)
Designing the Network (p. 10-11)
The Importance of enhancing steady DERs growth and strategic microgird use in
creating the evolution of the energy system (p. 11-13)
Key Constituents (Stakeholders roles and impacts) (p. 14-15)
Designing the Policy (p. 15-17)
Notes and References (p. 18-19)
Images
Figure 1 – Dynamic Distribution System – p. 3.
Figure 2 – Architectural Approach Defined – p. 6.
Figure 3 – Dynamic Distribution with Multiple DSO’s and their Relationship to the
TSO – p. 8.
Figure 4 – Architectural approach to DDS Site Design – p. 13.
2 The 51st State Project – Creating a Dynamic Distribution System
Introduction: The 51st State would create a dynamic distribution system1 that
includes oversight by a distribution system operator (DSO)2 as the local energy
balancing authority and marketplace clearinghouse. (Figure 1) As conceived, the
dynamic distribution system uses local sources to track loads, stabilize voltage
and frequency, and smooth intermittent renewable energy generation providing a
predictable, constant load profile to the utility. The primary purpose of the
dynamic distribution system is to allow for integration of thousands of distributed
energy resources (DERs), defined as power generation and/or storage systems
(including electric vehicle batteries), that connect directly to the distribution
network or connect on the customer side of the meter, including photovoltaics
(PV), internal combustion engines, gas turbines, fuels cells, wind turbines,
biomass anaerobic digesters, heat pumps, combined heat and power facilities,
and microgrids. This new dynamic distribution system connects central and local
electricity generation with a marketplace that enables energy transactions, such
as payments passing between buyers and sellers of energy at the local
distribution level. This new system provides a promising framework for (DERs)
to deliver the same services at a better price, with decreased power losses,
decreased emissions, and better reliability. Figure 1 – Dynamic Distribution Systems 1
Beihoff, B., Jahns, T., Lasseter, R., and Radloff, G. (2014). Transforming the Grid from the Distribution System Out. The
Potential for Dynamic Distributions Systems to Create a New Energy Marketplace. A Wisconsin Energy Institute white
paper, University of Wisconsin-Madison. July 2014. Available at www.energy.wisc.edu.
st
2
Kristov, L. and De Martini., P. (2014) 21 Century Electric Distribution System Operations.
http://resnick.caltech.edu/docs/21st.pdf
3 Key Dynamic Distribution System features: (for details see pp. 7-8) • Emphasize plug-and-play functionality with the distribution region. • Promote peer-to-peer model among DER sources (no master controller is
required for dynamic control of the distribution system). • Encourage fast autonomous control for load tracking, voltage and
frequency control. • Enable market participation by all sources. • Localized control is exercised to implement balancing authority and
market provider responsibilities. Dynamic distribution is an energy and power system founded on principles that
are emerging from the latest in power systems control theory, microgrid research
and implementation, grid automation experiences, dynamic market models,
ethernet, to produce dynamically adapting networks. A key assumption is that the
dynamic distribution system removes most of the technical issues and planning
uncertainty from the legacy interconnected central station generation due to the
growth of distributed energy resources.3 The increased volatility seen at the
transmission-distribution, (T/D) interface due to increased penetration of
renewables and DERs is stabilized by the use of advanced DER technology and
demand side management in the distribution system. Many alternatives to the
dynamic distribution system are being explored and practiced today. Smart Grid,
Mesh-Grid, Strong Grid, Co-Generation, Off-Grid, are all fairly well known brand
names for electricity grid solutions that are either focused on large centralized
master controls or minimalist, single home or factory isolated generation
approaches. The dynamic distribution system attempts to draw the best elements
of the grid design ideas continuum today to create a dynamic marketplace.
Major Dynamic Distribution System Operation and Control Principles
•
•
•
•
•
The ISO/TSO continue to play their current role as balancing authority
and electricity market providers at the transmission level.
Each local distribution region has its own distribution system operator that
serves as the balancing authority and electricity market provider for its
close proximity region.
Central power plants have responsibility for delivering bulk power to
distribution regions.
The distribution system operators act to reduce the volatility of power flow
from central power plants to their distribution regions.
The distribution system operator has authority in region to adjust DER
power sources, utilize energy storage, and loads to achieve objective of
reducing volatility of power flow.
3
Accenture (2014) How can utilities survive energy demand distruption? Accessed February 9, 2015 at
www.accenture.com
4 A Systems Approach Required for Design
One of several critical questions in designing a new energy system for the 51st
State is how to most effectively integrate thousands of (DERs) while still
maintaining a balance and a connection to the other 50 states with their legacy
central generation electric power system and aging electrical grid. To put it
simply, the 51st State is still a part of a robust energy system requiring an
understanding of systems designs, networks, architectures, technologies,
economic markets, the environment, and policies – including standards, rules
and regulations. The new energy system design in the 51st state is not an
isolated silo. Yet, the 51st State does create a unique opportunity to design a new
system, first, from the bottom-up starting at the home, business, industrial park,
campus, and community to best integrate distributed energy resources and these
local energy generation load centers, and then consider how they connect to
what will remain of legacy energy infrastructures. This means answering a
second critical question of how to rethink and redesign the transmission and
distribution interface of the energy system. The dynamic distribution system is a
framework for providing local or regional power generation architecture at the
intersection of the transmission and distribution system. The dynamic distribution
system approach is to create smart local distribution centers run by Distribution
System Operators (DSOs).4 Competing in the marketplace overseen by the DSO
could be local users groups, third party companies, utilities, and combinations of
these entities. The DSO and the dynamic distribution system forms an adaptive
and self-optimizing system for best solving the interactions of reliability,
efficiency, total economy, and total sustainability. It also enables the most
symbiotic integration with fuel and water networks in the densely packed
environments.
Networks as Architectural Endeavor
The present technological approaches have not yet taken the central problem of
grid evolution and it’s relation to the other related energy networks as a
architectural endeavor. (Figure 2 Architectural Approach Defined see next page)
Successful architectural evolutions of the past three decades have taught us
some central principles that we have combined in new ways to conceptualize the
dynamic distribution system:
(1) Self-adapting distributed control that has balance between totally autonomous
operation and optimum global cooperation;
(2) Adaptive market model imbedded into the improved technology system
architecture;
(3) Self-organizing and resilience capability encompassing grids containing wide
range of centralized and decentralized resources.
4
st
Kristov, L. and De Martini., P. (2014) 21 Century Electric Distribution System Operations.
http://resnick.caltech.edu/docs/21st.pdf
5 Figure 2. Architectural Approach Defined
Distributed energy resources include many different technologies with very
different characteristics, for example battery storage, inverter-based generation
can respond to load changes in a few cycles. Natural gas generators, microturbines and flow batteries take seconds to respond while fuel cells requiring
many minutes. Renewables are intermittent changing with local weather and
cannot alone provide power for a changing load. Currently, diurnal intermittency
of solar PV creates risk of over-generation and excessive ramping of
dispatchable base power. In layman’s terms some observers refer to this as the
“duck curve” where in areas with large amounts of self-generation PV the existing
large utilities must deal with customer power demand increase at the end of the
day as house lights and air conditioners power up and the sun goes down.
The increased penetration of micro power in the electrical network is creating
technical and financial challenges for today’s utilities, but this need not be the
case. A new dynamic distribution system can address these challenges to
traditional electric utilities by having the responsibility of tracking load
fluctuations, firming intermittent renewables and providing a distribution-level
marketplace at the local or neighborhood level. Off-loading these fluctuations
allows for more efficient operation and planning for the centralized generation
system. Changing these management functions to the dynamic distribution
system enables the efficient and effective integration of larger amounts of
renewable energy, including biomass power, geothermal, and intermittent solar
and wind. This system combines the best of both the centralized generation
system and distributed energy resources and could be the technological
foundation for a new energy value proposition in which both utilities and third
party power providers prosper. This means designing a new market model and
at the same time creating a new network model.
6 Designing New Small Networks: Resilience, Autonomy, and Plug & Play
The dynamic distribution system represents a paradigm shift from the legacy
centralized generation plant. The dynamic distribution system design and
architecture starts with a bottom up approach meaning the new network is a
clustering of smaller networks of power generators and loads – existing in close
proximity to each other – with peer-to-peer sharing of information and
technology. The paradigm shift is also away from – the concept of “economies of
scale” which historically has defined the advantages of large base load
generation – to the concept of “economies of numbers.” What the latter means is
having many functionally clustered generators close to demand (loads) reducing
costs compared to getting power from a remote power station, further reducing
the amount of expensive transmission build outs, and reducing the inefficiencies
associated with power and heat losses in the legacy energy system. Again,
another paradigm shift is away from legacy unidirectional power flow to
bidirectional power flows. It is also believed that when fully operation the dynamic
distribution system can significantly reduce base load generation reserve
capacity, and typical energy system over building, resulting in further savings
with the economies of numbers over economies of scale.
Technology advances are what will make the dynamic distribution system a
success, but many of these technologies are on the market today. For example,
advanced controller technology provides the fast autonomous control for load
tracking, voltage and frequency control and will eventually allow for
communications with the distribution system operator in the new market model.
The peer-to-peer model common among distributed energy resources create
system flexibility and combined with autonomous controls allow microgrids to
work with generation, storage, and loads to seamlessly operate while balancing
voltage and frequency issues. The plug and play functionality also contributes to
system flexibility and adaptability, for example, having generators near the heat
loads creating more opportunities to use highly efficient combined heat and
power plants. It is best to conceptualize the plug and play functionality of DERs
as when using a home appliance. In addition, the new functional cluster energy
networks located below the substation level of the energy system will lessen risk
and enhance resiliency as DER hardware and software exist at this smaller scale
design points. Potential energy system problems, if they occur, can be solved or
managed at this local hub or micro level. In the event of catastrophic weather
events, the proliferation of microgrids allow for local energy generation to go into
island mode and ramp up as needed. (See Figure 3 next page) – showing the
broader picture of dynamic distribution systems with multiple Distribution System
Operators (DSO) having different mixes of sources, loads, and storage.
7 Figure 3 – Dynamic Distribution with Multiple DSO’s and their relationship to the TSO
Guiding Principles for Dynamic Distribution System Marketplace and Rates
1. Eliminate volatility at the Transmission / Distribution (T&D) Interface 2. Open access participation to the marketplace.
3. Transparency in all energy market transactions.
4. Performance goals for utilities and energy providers with clear metrics for
success.
5. Incentives to meet performance goals and penalties for failure to meet
performance goals.
6. Maximize opportunities for energy technology innovation including as
needed experimental tariffs or temporary buy back rates in markets to test
new technology innovation.
7. Energy rates and tariffs will include calculations for externalities in rate
making including: reducing water usage, reducing greenhouse gases from
generation sources, improving air quality, and other risk assessments.
8. Designing rates that equitably distribute key infrastructure costs and
necessary build outs.
Designing the Market and Rates in a Dynamic System
A dynamic distribution system, based on a new balance in structure and function
between centralized and decentralized architecture, requires a new market
model. This involves a balance between highly regulated exclusive franchise and
free-for-all bid and trade schemes. Alone these two energy market schemes are
sub-optimal when taken as isolated solutions to our ever more dynamic social
and economic needs. These factors suggest a dynamic market built from building
8 blocks some of which are taken from the two ends of the central to ultradistributed spectrum of possibilities. This portfolio of sub-markets approach is
logically centered on the distribution layer of the electrical network based on two
major driving factors:
(1) distribution is the natural interface between distributed energy, centralized
power, and point of use generation;
(2) the scale of distances in the distribution network allows waste heat to be
distributed as a utility thereby greatly increasing efficiency;
(3) the market can effectively and safely be tailored to the local and regional
needs of the economic ecosystem at the distribution layer of the electrical
network. The dynamic distribution system combines a regional and locally
tailored market model built from this new set of building blocks.
As an example the market in California and a market in New York would contain
a different combination of tailored cooperative building blocks (e.g. Adaptive spot
trade exchanges, supply-demand equilibrium exchanges, bid-trade pools,
performance rates exchanges, dynamic pricing plans, and energy services
bundling (as an example). It is not intended that all these marketplace models
would exist right away, but more likely would be an evolution of integration for
achieving the best combinations. This building block approach for the first time
creates flexible and robust, self-tuning market with number of cooperating submarkets. It is further envisioned that this new dynamic electrical and thermal
distribution market would also serve as an evolutionary, cost-effective
architecture to adapt and integrate centralized generation, transmission, fuel
supplies and individualized energy markets into a more balanced and integrated
energy ecosystem.
To understand the designing of the 51st State marketplace the following
definitions are helpful:
Market Place Model Definitions:
Adaptive spot trade exchange: market mechanism that changes the energy
spot price and allowance of next price increment based on adaptation to overall
market volatility and present value metrics;
Supply-demand equilibrium exchange: market mechanism that ‘set’s next
price bid based on computing distance of present bid price from the supply
demand equilibrium point as inferred from availability and demand dispatch
algorithms;
Bid-trade pools: market mechanism that creates pools to which power users
and producers subscribe that bid and dispatch as coordinated entities in larger
markets;
9 Performance rate exchanges: energy purchase rates that are calculated on a
specific updated schedule that are based on a balanced combination of spot
cost, overall efficiency, and other externality measures;
Dynamic pricing plan: market mechanism that dynamically changes the cost of
energy based on real-time calculation of direct and indirect costs;
Energy service bundling: market mechanism that permits the utilities and third
party energy providers to offer additional services to consumers beyond metered
power and apportion these the charges in various rate and billing structures (e.g.
premium power system resilience. premium power quality, pulse power, power
system maintenance, distributed energy system leasing, project financing,
technology upgrades, system retrofits, etc.).
Price signals are the key element of a dynamic distribution system and its
dynamic marketplace. Transparency of pricing is critical to success. Rules of the
marketplace will be set by policymakers and enforced through standards that
apply to utilities, third-party vendors, and all other market participants.
Designing the Network
In the 51st state a traditional integrated utility-style energy generation-distributiontransmission infrastructure continues to exist. Industrial customers or residential
end-users wishing to purchase bulk power or maintaining a traditional electric
and/or thermal connection from a base-load plant could continue to have these
transactions if desired. Certain assumptions are being made that the 51st state
already has a large penetration of solar PV in the market and that other
renewable generation from third-party providers is available through wind
turbines, anaerobic digesters, and geothermal. The biggest difference is with the
dynamic distribution system a new network and new market exists that has a
level playing field for competition among third-party energy generations,
customer-based generation, and utility spin off service and energy companies.
The phrase “integrated distributed” electricity system has been coined by others
to define a high-DER penetration, multi-directional energy flows and multi-level
optimization network below the sub-station level.5 This design is particularly well
suited to meeting the needs of residential or industrial parks utilizing DERs,
community-solar clusters, municipalities and smaller community energy sights,
for example, individual buildings with smart energy systems that may or may not
use microgrids. Many of the DERs will be self-optimizing meaning they would be
able to island with smart building and microgrid technologies. Another term to
describe these areas is the “local distribution area” and a distribution system
operator (DSO) would exist at the transmission-distribution interface. The
purpose is to simplify issues involving control and coordination mechanisms,
networking, data management and other operational issues relating to a
5
st
Kristov, L. and De Martini, P. (2014). 21 Century Electric Distribution System Operations.
http://resnick.caltech.edu/docs/21st.pdf
10 balancing authority. The DSO would aggregate and coordinate all DER and enduse loads within each of the local distribution areas. This also allows for a single
point bid and ability to respond to dispatch signals from an independent system
operator (ISO) or regional transmission organization (RTO). Most importantly, it
allows for balancing of intermittency because the integrated decentralize system
may be a layered or nested hierarchy of self-optimizing sub-systems. This grid
control platform allows for data analytics and new business models for managing
volatility.
The new business model has the DSO providing open-access distribution
services. This area services include balancing supply-demand, using the
interchange with an ISO/RTO for sales and purchases, settling transactions with
DERs and end-users, assisting with open access interconnection procedures.
One aspect of the DSO and service arrangement could include that the
DER/customers who add variability might have added service fees and the
DER/customers helping managing variability receive bonus payments. Further,
this system allows for scalability and management of any system risks at level
well below the other areas of the grid. The new business model increases market
service opportunities that may be provided via tariffs, bilateral contracts, or other
methods to service other entities across the distribution system such as a
municipal utility or cooperative utility in the area or region. The DSO could
operate local markets and relieve customers and energy end-users of many
administrative burdens.
The importance of enhancing steady DERs growth and strategic
microgrids use for creating the evolution of the energy system
Distributed energy resources provide great promise in building out the new
dynamic distribution system. The growth of DERs combined with greater
utilization of microgrids creates a network architecture that can allow for a
transition from the legacy energy system to the dynamic distribution system.
Microgrids are drawing increased international attention as a means of
harnessing these forces for the mutual benefit of end users, third-party providers
of energy services, and utilities. The microgrid is a localized grid that can
seamlessly enable plug-and-play interconnection of any type of distributed
resource while efficiently transferring both electrical and thermal energy between
sources and loads, and smoothly disconnecting/reconnecting to the main grid as
needed to provide resiliency. Future microgrids will need to increasingly take on
the role of market builders. To create this new value paradigm, we need to
extend the microgrid concept to accommodate and support an advanced
distribution system.6 In other words, micro-power’s reliability and low cost
proposition is challenging the basic electrical utility’s “economy of scale” model,
and the possibility of building highly distributed power network containing
thousands of micro-generators is become a serious competitor to the traditional
model.
6
Lasseter, Robert H. (2011). Smart Distribution: Coupled Microgrids. Proceedings of the IEEE. Vol. 99, No. 6, June 2011.
11 A new energy distribution system combining the best of plug and play DERs,
microgrids, and advanced power distribution and control equipment present the
possibility of evolving the existing utilities and third party energy stakeholders to a
better, more adaptive system. This new thoroughfare allows the electric utility,
third parties, and power users to access (and profit from) a network of distributed
energy resources (DERs), including greater clean energy generation options,
demand response, and energy storage, as well as other technologies. In fact, this
option may enable a better use of the overall energy transmission resource by
allowing for measures such as targeted customer services of improved reliability,
clean energy generation, pulse power, campus reconfiguration, and ongoing
upgrades, preventative maintenance and overall lower system operating costs.
What can come from the increased deployment of microgrids and the creation of
a new distribution system is the chance to re-task the electric utility and extract
more return from the associated investments. This is the new value proposition
for the energy system of the future and can grow the revenue pie for all parties.
A microgrid is the ultimate culmination of the distributed generation concept,
creating a localized grid of electricity for a community, business park, or
individual firm. Policymakers and regulators faced with the challenge of lowering
the energy sector carbon emissions are called on to embrace the benefits of a
microgrid as the great integrator of all the DER sub-networks and their benefits.
Utilities must recognize that the microgrid can be a critical part of their new
business model by providing the key linkage between the existing substations to
what some call the “distribution edge” or “grid edge”7 where distributed
generation resources will be located.
A California Public Utility Commission (PUC) white paper8 points out that there
can be an easy way to encourage electrical utilities and third-party distribution,
control, DERS equipment and microgrid developers to collaborate by creating a
policy that targets sitting tailored DERs combinations, microgrids, and distribution
automation in areas that would provide benefits to the existing electric grid
(distribution networks). Such a process would motivate DERs distribution
equipment and microgrid developers to collaborate with utilities to identify areas
that are experiencing congestion, power quality, capacity, or grid-balancing
issues. The targeted sitting strategy might allow for costs to be built into a utility
rate structure or attached to the physical assets tax equity instead of requiring
the microgrid developer or specific customer to shoulder the full installation costs.
One advantage of microgrids is their ability to be located near distributed
generation sites, at locations that will benefit from having CHP onsite without
requiring major grid infrastructure upgrades. Another added value of microgrids is
the customer benefit of resiliency, and the ability to function as an island during a
7
The Rocky Mountain Institute. (2013). New Business Models for the Distribution Edge. Published April 2013.
www.rmi.org/new_business_models GTM Research. (2013) Grid Edge. Utility Modernization in the Age of Distributed
Generation. Accessed at www.greentechmedia.com
8
Villarreal, Christopher, Erickson, David, and Zafar, Marzia. (2014) Microgrids: A Regulatory Perspective. California
Public Utilities Commission. April 14, 2014.
12 major weather event. Microgrids can also be strategically located to provide
resilient power to critical urban infrastructure sites such as hospitals, police and
fire department, as well as sites that can serve as safe havens for citizens in a
catastrophic event such as public schools and university campus areas.9
Reviewing figure 4 (Architectural Approach to Dynamic Distribution System Site
Design see below) shows a conceptual approach to this evolutionary method.
This system architecture based planning and management process enables
utilities, third party stakeholders and governmental entities to start small and
produce large benefits. The design depicted in figure 4 shows (starting far left
and moving to the right) the targeted selection of neighborhoods with either high
DERs penetration or that might benefit the grid in balancing of intermittent
generation, network mapping of the region, looking at all networks integration
(exp. electrical, water, and fuel networks), running market models based on
dynamic economic pricing, and layering findings over life-cycle assignments to
measure and determining overall system benefits.
Figure 4 - Architectural Approach to DDS Site Design
9
Villarreal, Christopher, Erickson, David, and Zafar, Marzia. (2014) Microgrids: A Regulatory Perspective. California
Public Utilities Commission. April 14, 2014.
13 Key Constituents (aka stakeholders)
-
Electric utilities, whether vertically integrated or distribution only
The solar/DER industry value chain, from manufacturers to developers to
installers
The solar/DER customer
The non-solar/DER customer
Regulatory and policy-making bodies
Independent power producers
Municipalities as unique government entity
A critical constituency in the success of the dynamic distribution system remains
the electrical and thermal, gas and wires market regulators. The DSO could be
an important player in planning for the energy system, but much of its feedback
must also go back to regulators overseeing the state and/or region. Many believe
that advancing DERs, microgrids, energy storage could take some pressure off
the short-term need to build out more transmission infrastructure. Yet, it must
also be acknowledged that with thousands of new self-generation and storage
sites other infrastructure builds out may be necessary. This means a statewide
planning process remains critical in the 51st state, similar to other states. The
traditional integrated resource planning for energy must be adapted to the
dynamic distribution system with the additions of merchant DER, microgrids and
thousands of behind-the-meter DER systems in a local market alone. This gets
back to an earlier discussion about systems approaches needing to recognize
that top-down administration will likely continue for system-wide planning needs.
Still, the bottom-up approach of the dynamic distribution system allows for
greater citizen-engagement as businesses and homeowners now become a
partner/collaborator in a successful energy delivery system versus the more
traditional end-user consumer only role. Organizations such as the Institute for
Local Self-Reliance, and their energy researcher John Farrell, have produced
policy papers on the “democratization of the electric grid” opportunities with
rooftop solar PV10. The creation of local distribution areas in the dynamic
distribution system model has many synergistic opportunities with community
solar sites, the formation of energy cooperatives, and local government policy
goals whether the community does or does not have a municipal utility. A core
value in the dynamic distribution system is making energy generation and
economic transactions transparent to all. The local government entities in
partnership with distribution system operators, along with a role for state
regulators, must make sure that there are rules of the operation of the new
energy market that guarantee it is a “free market” versus a “free-for-all”. The
bottom line is that that solar/DER customers, the DSO, local and state
government have a new relationship in a more transparent and democratic
energy market place.
10
Farrell, J. (2014). Beyond Utility 2.0 to Energy Democracy. Institute for Self Reliance. December 2014.
14 A great new business opportunity is created under the establishment of a
dynamic distribution system for the solar/DER industry value chain, from
manufacturers to developers to installers. While some assumptions were made
that solar PV market penetration was higher than today in the other 50 states, it
is still expected that the DDS will be a catalyst for market growth and new value
propositions. There is no reason why existing electric utilities cannot also
participate in the growth of the energy value pie if they are willing to compete with
third party energy generators and other new businesses. The expertise of utilities
and their ability to invest in the market is an asset and will help make the energy
system meet goals that electricity is provided safely, reliably, and affordably.
While regulators will need to make sure utilities are not given an unfair market
advantage, a balance can be struck to allow for maintaining utility investments in
transmission assets in the 51st state. Likewise, non-solar/DER customers can
chose to contract for energy services with utilities if they wish. More alternatives
may be available to these customers in the 51st state, but if there is a customer
loyalty with their utility that can remain.
Municipalities and local government may see an increasing role in energy policy
and market development. Today, municipal government is playing a leading role
in climate change policy and clean energy development and that role can likely
increase with the dynamic distribution system. Community organizations may
engage citizens more around energy as solar PV, storage, microgrids, and smart
energy buildings proliferate in their hometown. Some issues such as zoning and
industrial park development have always been local and now energy may well be
an increasing part of that policy mix. Again, with transparency of energy
development and prices, the local citizenry should gain an understanding of what
energy means to their lives and community.
Designing the Policy
In the United States, federal energy policy, from the Federal Energy Regulatory
Commission (FERC) – covering wholesale generation, inter-state transmission,
and wholesale energy markets, North American Electric Reliability Commission
(NERC) – covering policies to guarantee reliability of the transmission grid, and
to a lesser degree some of the Department of Energy policies, will continue to
impact the 51st state. Likewise, the ISO/RTO will continue to provide
nondiscriminatory transmission access and organized wholesale markets for
electricity to facilitate competition among wholesale suppliers, schedule the use
of transmission lines and manage transmission with locational pricing signals.
Since the U.S. delegates a large portion of energy policy to states, the 51st state
will have great latitude to design unique energy policies. Broadly speaking a
federal carbon tax policy would help the new dynamic distribution system to price
true energy generation costs by better reflecting externalities such as carbon
dioxide, methane, and other greenhouse gases from any high carbon fuels such
as coal, oil and natural gas. In lieu of a federal carbon tax, the 51st state would
utilize transitional policies such as performance based incentives or rates with
15 utilities, independent power producers and other energy generators to advance
clean energy production, greater energy efficiency steps, more use of combined
heat and power generation, and reductions in greenhouse gases. The
performance based incentives or rates might be a transitional policy step if the
market starts to correct itself to advance clean energy technology over high
carbon energy generation. The 51st state would develop policy goals for
increasing renewable energy generation, targets for energy efficiency, and
targets for environmental compliance and develop strong, clear metrics for
achieving goals and targets. Generally, using clean energy generation such as
solar PV, wind, anaerobic digesters in the local distribution area of the dynamic
distribution system could benefit the entire energy system.
It is likely that energy services will come in new categories and that cost
allocation will have to reflect these changes in the service delivery. On a simple
level, some customers will see categories like their cable service contract such
as a basic level of service at a lower cost, and then an enhanced level or levels
of service depending upon customer needs and wishes. Some easy to
understand enhanced services might include frequency and voltage quality,
backup service, a higher-reliability of service. Related to DERs there may be
services for installation, repair, maintenance, and upgrade of PV panels,
microgrids, storage equipment, vehicle plug-in equipment, and other equipment.
Many providers may wish to get into the whole building energy management
system including energy efficiency, a possible CHP operation, smart meters,
among others. For many of these areas pricing is based on services delivered.
Traditional utility cost recovery based on investment and generation assets and
energy kilowatt hours used may not entirely go away, but it will be less and less a
part of the utility business as demand goes down with energy efficient buildings,
demand response, time of use, and most important distributed generation from
many local sources grow. Again, transmission and related infrastructure may look
more like the traditional model based on use and sales, in addition new fees for
limited users versus large industrial users, while traditional distribution services
will go more to the service model. Finally, some policy may need to be designed
for low income homes in terms of either a subsidy for joining something like a
community solar project to have self-generation or subscribing to a more basic
level of energy service coming from a utility or other provider.
The marketplace in the dynamic distribution system would have careful oversight
from distribution systems operator, in collaboration with existing federal agencies
cited above, and the ISO/DTO. Keeping transactions transparent and accessible
to the public is critical for success. Market participants would likely have
service/performance contracts with some type of service and delivery aggregator,
and the DSO would oversee contract compliance. Since it is anticipated that the
local distribution areas could be cooperatives, community solar sites, local
government oversight would be logical. While the dynamic marketplace creates
opportunities for strong market self-regulation, the rules of the market still will
16 need to be spelled out to avoid the “free-for-all” scenario versus “free market”
and the 51st state will have state and local regulations.
An opportunity exists to require a robust utility strategic planning process in the
51st state to require large utilities, independent service or third-party businesses,
the cooperative and community organizations in local distribution areas, to all
provide input on statewide and local infrastructure investments in shared
architecture needs and policy to govern the marketplace. Citizens would be
encouraged to participate in local and state meetings feeding into the 51st energy
planning process. Ideas and metrics for performance-based rates could be
reviewed in five year increments to adjust as necessary the marketplace changes
or incorporation of new technologies. Access to energy market data can be
managed by the 51st state to both protect privacy and still allow for transparent
transactions.
It will take transitional steps for most of the 50 states to complete the energy
market transformation found in the proposed dynamic distribution system. The
51st State energy market could be a national model for other states to observer
during their transitional or evolutionary period. The key is to create adaptive and
flexible policies, including experimental rate structures and performance-based
rates, recognizing evolutionary change may require learning from some design
mistakes along the way and making changes as necessary. Most importantly,
creating policies empowering the new energy citizen and energy prosumer to be
an active participant in the energy system makes our democracy stronger.
17 References
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Authors:
Bruce Beihoff, Technical Director of Industry Relations, Wisconsin Energy
Institute
Tom Jahns, Grainger Professor of Power Electronics and Electrical Machines,
University of Wisconsin-Madison
Robert Lasseter, Emeritus Professor, Electrical and Computer Engineering,
University of Wisconsin-Madison
Gary Radloff, Director of Midwest Energy Policy Analysis, Wisconsin Energy
Institute
Authors Note:
The authors wish to thank Dr. Lorenzo Kristov, California Independent System
Operation (CAISO) for his input and critique of this paper.
19