Electric utilities from the US, the Netherlands and Belgium discuss their changing role in the energy transition as policymakers, citizen groups and local politicians ask how distributed energy will disrupt current business models. Some view the changes with eager anticipation, some with a sense of dread.
A common question on both sides of the Atlantic is whether incumbent utilities will own the energy transition or whether control will pass into the hands of customers and third parties. A fact-finding tour that a delegation of 30 American utility executives, regulators and clean-tech company representatives made to the Netherlands and Belgium uncovered some critical differences in how incumbent utilities are facing the challenge of distributed energy technologies — and the role that policy is playing in guiding their actions. While some European companies, like the Dutch grid company Alliander, are working with cities on low-carbon demonstration projects, American electric utilities tend to be digging in their heels against distributed generation, pushing policies to slow down its development and ensure that utilities remain in control. Those who made the trip across the Atlantic, found their EU counterparts were more on message and in tune with each other in terms of the move away from fossil fuels and utility ownership of power supply than their colleagues in the US. In particular, they noticed a consensus around, what Tanuj Deora, head of the Smart Electric Power Alliance (SEPA), calls the three Ds, namely decarbonisation, decentralisation and digitalisation. The three Ds describe the simultaneous trends toward reducing carbon emissions from fossil power plants, moving toward distributed energy sources and relying on web-enabled devices to provide demand response, greater transparency to customers and other grid services. “We don’t have that consensus in the US,” Deora said recently when sharing the trip findings with SEPA members. “Executives here know they are important but they are not embedded in the actions companies take. It seemed like a lot of things were resolved [in Europe]. There is more momentum because those three Ds were understood at all levels of the company.”
Smart thinking in Europe
Bram Reinders of Alliander, which owns 40% of the distribution grid in the Netherlands, sees a strong trend toward decentralisation and a growing interest and ability of cities to capitalise on distributed energy resources. “That is the future we see in Europe, where local companies collaborate with citizens to make their own energy solutions, rather than buying them from larger companies.” Alliander is positioning itself to not only survive the transition but to be a central player in it, says Reinders. He points to the company’s role in the EU-funded City-Zen projects in Grenoble and Amsterdam, aimed at exploring distributed and smart grid technologies. We will be the architect and provider of the “end-to-end smartification” of the grid for the City-Zen project, he says.
Source: http://www.cityzen-smartcity.eu/home/about-city-zen/kit-communication/
The American view
Distributed energy is also driving changes in the US, but American utilities have been slow to position themselves to take advantage of them. On the contrary, the most common response has been to fight back, with many utilities pushing for retail rate designs and fees intended to slow the adoption of distributed energy. Customer-owned solar has been attacked in virtually all states, according to the North Carolina Clean Energy Technology Center. The Electric Power Supply Association, a consortium of electric generators, has waged an ongoing battle to prevent grid operators from paying demand response providers (who deliver reductions in consumption) the same as generators for providing reliability services, as stipulated under federal rules. These strategies have been largely rejected by regulators. The push to impose fixed charges on solar customers has failed in most states and the law requiring equal pay for demand response providers and power generators has survived numerous legal challenges, winning ultimately at the US Supreme Court. Now a growing number of US utilities are turning to a new strategy — to deploy distributed energy technologies before their customers do. Southern Company, the giant utility that serves much of the Southeastern US, has built 402 MW of solar in Georgia through its unregulated subsidiary Southern Power. The company vigorously defends the policies that impede customer-owned solar, but Georgia has received a failing grade on its policies from the Interstate Renewable Energy Council, which produces a scorecard based on net metering, interconnection and other policies.
Electrification advocates
Another emerging strategy is to advocate for electrification as a way to build load. Electricity demand has remained flat, despite steady population growth. Southern California Edison received permission from regulators late last year for four pilot programmes to electrify transit buses, ports and other applications. A recent strategy paper from the company says that one million away-from-home charging stations will be needed to serve seven million electric vehicles in the state. The state’s push to decarbonise transportation, the largest source of carbon emissions, could mean a major growth opportunity for Edison. But the growth of local control, known as community choice aggregation (CCA), is seen by some as throwing a spanner in the works. Under a 2002 law, communities can band together to choose their own power supplier. A handful of smaller communities have pioneered the effort in Marin and Sonoma counties, just north of San Francisco, and bigger cities are now moving ahead with their plans. San Francisco has been phasing in service since 2016. Oakland and other East Bay cities, such as San Jose, suburban Los Angeles and San Diego have either set timelines or are seriously debating their own CCAs. In all, as much as 80% of utility load could migrate, disrupting future planning and turning the three big investor-owned utilities into just distribution companies. Caroline Choi, Edison’s senior vice president of regulatory affairs and chair of the SEPA board, says that losing load to aggregation programmes is only the beginning. “We have CCA here but we see it happening to a more significant degree, down to the neighbourhood level,” she says. “It makes it more difficult to provide power.” Indeed, the move to CCAs is currently slowing the growth of renewable energy as incumbent utilities are afraid to sign new power purchase contracts with producers in order to supply customers that may be leaving soon. The lull, however, is likely to be temporary given that legislators are debating a 100% clean energy mandate, which will drive more renewables procurement that will benefit all players.
Clear policies drive action
Choi credited progress in Europe to strong policies that gives power companies the courage to innovate. “They are moving forward with innovations without knowing what is financially viable,” she remarks. “That drove home to me the importance of market structures and financing, sound regulatory process and clear policies.” Reinders attributes much of this clarity to the “big debate” that happened across Europe from 2005 to 2010 about how to restructure the ownership and regulation of transmission and distribution grids to foster more competition. The result was a move to complete unbundling with the aim of splitting all vertically integrated companies into retail, generation, transmission and distribution companies. Transmission and distribution firms in the Netherlands were put in the hands of government companies and the rest was privatised. “That helped Europe a lot,” he says. In the US, a mixture of federal rules and individual state laws have driven the move toward restructuring and competition, with a wide variety of results. Some states, like Texas, have a fully restructured market, with vigorous competition, but others still have vertically integrated monopolies. Reinders looks at the US and sees a mess. “It’s difficult, because the US has different models, like municipal utilities and investor owned utilities,” he said in his debriefing.“That is what we streamlined in Europe. We changed legal structures and enforced them at the EU level.”
TEXT: Bentham Paulos
This article is part of the Nordic Clean Energy Series
, published by FORESIGHT Climate & Energy to support Nordic Clean Energy Week. A week where energy leaders from around the globe gather in Copenhagen and Malmö to discuss the policies, business and technological solutions and challenges involved in tackling climate change.
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