utilities, regulators & distributed solar generation rethinking utility business plans
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Utilities, Regulators & Distributed Solar Generation: Rethinking Utility
Business Plans October 9, 2013
America’s Power Plan Utility and Regulatory Models for the Modern Era
Vote Solar Webinar October 9, 2013 Ronald L. Lehr
Changing Business Models AMERICA’S POWER PLAN Transforming Utility Regulation
Thesis: Pressures on utilities to change – Aging plant
• Brattle Group: $2 trillion investment over next 20 years
– Tougher environmental requirements
• Criteria pollutants • Greenhouse gases • Coal ash • Water restrictions
– Flat to declining sales of electricity
Changing Business Models AMERICA’S POWER PLAN Transforming Utility Regulation
Thesis: Pressures on utilities to change ▫ New technologies � Smarter grid � Distributed generation: solar, CHP, micro turbines � Electric vehicles � Low cost wind—Xcel example ▫ Changing consumer requirements � Disintermediation by third parties ▫ Weakened industry financial metrics
• Pressures leading to “restructuring 2.0?”
Changing Business Models AMERICA’S POWER PLAN Transforming Utility Regulation
• CEOs want a clearer, more consistent direction from state energy policies
• Utilities have inadequate incentives for innovation, firm level efficiency
• Commissions need a better understanding of the utility business and its needs
• Utilities want certainty on climate policy • Utilities want healthier working relationships with
commissioners and staff
What we’ve heard from utility CEOs:
Changing Business Models AMERICA’S POWER PLAN Transforming Utility Regulation
• A primary concern is with increasing utility rates • Regulators are open to modifying the regulatory
model; looking for ideas • Some commissioners are dissatisfied with the
adversarial process • Many commissioners face severe barriers to
communications with stakeholders, and even fellow commissioners
• Commissions have inadequate resources
What we’ve heard from commissioners:
Changing Business Models AMERICA’S POWER PLAN Transforming Utility Regulation
Three Possible Utility Roles
• Minimum: markets provide power and services, utilities manage wires
• Moderate: “orchestrator” “smart integrator” ▫ Risk aware planning; regulated “make or
buy” decisions; consumer service packages • Maximum: Nebraska, Moorland Commission ▫ Disaster recovery ▫ Climate adaptation
Changing Business Models AMERICA’S POWER PLAN Transforming Utility Regulation
Three Potential Regulatory Models
• The UK “RIIO” model ▫ Price cap built on RPI-X, with decoupling ▫ Output regulation � Reliability, Environmental, Innovation, Price,
Efficiency, Social Responsibility
• The “Iowa Model” ▫ Seventeen years of constant rates, settlements,
diminished focus on earnings levels
• The “Grand Bargain” ▫ Comprehensive multi-year output-oriented deal ▫ Regulator led
Changing Business Models AMERICA’S POWER PLAN Transforming Utility Regulation
Utility Business Opportunities? Functions supporting distributed generation • customer segmentation • information, planning • integration • quality assurance • reliability • damage recovery • interconnection • integration
Changing Business Models AMERICA’S POWER PLAN Transforming Utility Regulation
Utility value, costing and pricing If utilities provide value to DG, then: • What value propositions? • To whom are values proposed? • Can utilities market these values? • What costs lead to prices? • Are utility tariffs required? • What profits can a utility expect?
Can a utility’s clean energy strategy become its most profitable course of action?
Changing Business Models AMERICA’S POWER PLAN Transforming Utility Regulation
Thanks for inviting me.
I look forward to our discussion. Ron Lehr [email protected] 303 504 0940 AmericasPowerPlan.org
New Business Models for the Distribution Edge������
James Newcomb October 8, 2013
Maintain Expands electricity system like that of today. Largely based on business-as-usual projections (BAU) from EIA's 2010 AEO.
Renew Examines a future in which centralized renewables like solar, wind, geothermal, biomass and small (plus existing large) hydro provide 80% of US 2050 electricity.
Transform Examines 80% renewable future in which 50% originates from distributed sources.
Migrate Assumes lingering threat of legislation to reduce GHG emissions drives switch from coal and gas to more nuclear power and new coal plants equipped with CCS.
four potential futures for the u.s. electricity system Reinventing Fire Scenarios: Electricity Supply Mix
Declining Solar PV Module Costs…
Source: PV Technology and Cost Outlook, 2013-2017, GTM, June 2013
Best-in-class Chinese Module Manufacturing Cost: Q42013E-Q42017E
$-
$2.00
$4.00
$6.00
Solar PV Soft Costs in the United States
Residential Solar PV Prices and Costs: Current State and Future Potential
$5.21
$3.34
Source: GTM/SEIA Q3 2012 Solar Market Insight Report Executive Summary; Goodrich et al. Residential, Commercial, and Utility Scale Photovoltaic System Prices in the U.S.: Current Drivers and Cost-Reduction Opportunities. NREL. February, 2012; Ardani et al. Quantifying Non-Hardware Balance of System Costs for PV installations in the U.S. NREL. December, 2012; Seel et al. Why are Residential PV Prices in Germany So Much Lower Than in the United States. Lawrence Berkeley National Labs. February, 2013 (revised publication).
$/W
dc
Current System Price
Soft Costs: U.S. Q3 2012
Soft Costs: Future State U.S. /
Germany 2012
$0.62
Soft Costs
Inverter Hardware
Module
…and Balance of System Costs
• Shift from value chain to network of interconnected business models
• Create a new platform for economic and operational integration of distributed resources
• Reduce transactions costs and increase transparency to increase shared value
Three Opportunities…
• Managing large numbers of interactions among agents
• Responding to issues related to equity, fairness, and social impacts
• Engaging customers in new ways
…Three Challenges
New Business Models: Independent Distribution Network Operator
• Distribution wires company with performance-based incentives for cost reliability, and resource integration, reliability, and cost reduction
• Market and operational platforms support a transactive grid and enable customer aggregation and virtual power plants
• DNO invests in distributed assets such as microgrids, control systems, distributed storage
• Unregulated affiliates deliver competitive services
New Business Model: Distributed Resource Manager
• Integrated utility provides a portfolio of distributed solutions under performance-based regulatory incentives
• Integrated distribution system planning enables increased transparency into distribution system costs and opportunities for cost reduction
• Utility can provide incentives, contract for services, invest directly, or serve as a financial intermediary to support distributed resource investments
New Business Model: DER FinanceCo
• An integration cost ($7.50/MWh) is included.
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Fort Collins’ electricity supply portfolio could shift significantly
Solar deployment relative to leaders
Assessing the costs: Fort Collins