Electricity system optimization means making the most effective use of a portfolio of electricity resources to maximize top public policy goals, delivering a system that is affordable, reliable, and clean. This presentation highlights technologies that can help optimize the grid, barriers to system optimization (an how to overcome them), and what State Energy Office can do to address and overcome these barriers.

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PUTTING POLICY TO WORK:
OPTIMIZING THE
ELECTRICITY
SYSTEM
SONIA AGGARWAL
FEBRUARY 2015

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www.americaspowerplan.com

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WHAT IS SYSTEM OPTIMIZATION?
Electricity system optimization means
making the most effective use of a
portfolio of electricity resources to
maximize top public policy goals…
…delivering a system that is:
Reliable
Affordable
Clean

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WHAT ARE OUR OPTIONS TO OPTIMIZE?
I. What technologies can help optimize the grid?
II. What are the barriers to system optimization and how can we overcome them?
III. What can State Energy Offices do to address and overcome these barriers?

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I. What technologies can help optimize the grid?

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OPTIMIZING THE RESOURCE MIX
SUPPLY-SIDE TECHNOLOGIES
Utility-scale
wind and
solar are
now cost-
competitive
with
conventional
generation

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OPTIMIZING THE RESOURCE MIX
SUPPLY-SIDE TECHNOLOGIES
…but
variable
resources
come with
integration
costs
CAISO

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OPTIMIZING THE RESOURCE MIX
DEMAND-SIDE TECHNOLOGIES
Lawrence Berkeley National Lab
Demand-side resources
 Efficiency
 Demand-response
 Peak-coincident distributed generation
Rolph Disch

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OPTIMIZING THE RESOURCE MIX
EFFICIENT GRID MANAGEMENT
• Advanced Metering & Data Mgmt.
• Smart Thermostats
• Automated Demand Response
• In-line Voltage Regulation
• Thermal/Chemical Storage
• Smart Charging
• Load-shaping Energy Efficiency

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SYSTEM OPTIMIZATION IN PRACTICE
DEALING WITH VARIABILITY
CAISO

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SYSTEM OPTIMIZATION IN PRACTICE
DEALING WITH VARIABILITY
 Infrastructure
 Demand response
 Load-shaping EE
 Encourage West-
facing solar
CAISO
“Flatten the head’

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SYSTEM OPTIMIZATION IN PRACTICE
DEALING WITH VARIABILITY
 Infrastructure
 Demand response
 Load-shaping EE
 Encourage West-
facing solar
 Fast-ramping natural
gas
 Storage technologies
 Smart EV Charging
CAISO
“Shrink the belly”
…SYSTEM OPTIMIZATION

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WE CAN TEACH THE DUCK TO FLY!!
Jim Lazar, Regulatory Assistance Project, “Teaching the Duck to Fly,” 2014

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II. What are the barriers to system optimization,
and how can we overcome them?

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BARRIERS TO SYSTEM OPTIMIZATION
CURRENT
REGULATORY
MODELS
POWER
MARKET
DESIGNS
POLICIES

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BARRIERS TO SYSTEM OPTIMIZATION
Example: Cost of Service Regulation
Revenue =
Operating Costs + (Capital Spend)*(ROR)
As utility
investment
increases . . .
Revenue
increases

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OVERCOMING BARRIERS
CHANGING INCENTIVES
ALIGN FINANCIAL INCENTIVES…
Utilities
Customers
IPPs
3rd party service providers
$
Reliable
Affordable
Clean
…WITH GOALS

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FROM: “Did we pay the right amount for
what we got?”
TO: “Are we paying for what we want?”
Utility and
Regulatory Models
for the Modern Era
by Ron Lehr
Change the central question…
OVERCOMING BARRIERS
PERFORMANCE-BASED REGULATION

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Example: Performance-Based Ratemaking
Revenue = Operating Costs + (Capital Spend)*(ROR)
± Performance Incentive
OVERCOMING BARRIERS
PERFORMANCE-BASED REGULATION

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Example: Performance-Based Ratemaking
Revenue = Operating Costs + (Capital Spend)*(ROR)
± Performance Incentive
Revenue
Increases
As utility
investment
increases . . .
Performance
improves…
OVERCOMING BARRIERS
PERFORMANCE-BASED REGULATION

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Regulators
Set quantitative
performance goals
Establish reward &
penalty structure
Utilities
Meet goals
Receive rewards
and/or penalties
• Reliable service
• Customer satisfaction
• Equity
• Innovative third-party
services
• System-wide least cost
• Resource diversity
• Effective facilitation of
open access
• Environmental perf.
• Innovation
Retail Level, e.g.:
Wholesale Level, e.g.:
Outcomes
Already a
standards
driven
industry
Policymakers
Establish policy
priorities
Work with
regulators
OVERCOMING BARRIERS
PERFORMANCE-BASED REGULATION

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 All resources should compete as
equals to provide:
 Energy
 Capacity (if traded)
 Ancillary Services
 Begin trading important services like:
 Flexibility
 Ramping
OVERCOMING BARRIERS
MARKET DESIGN FOR OPTIMIZATION
Michael S. Gordon / The Republican File

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 A state could choose to create a
“distribution system optimizer”
 This entity could be:
 A properly incented utility
 A nonprofit similar to the ISO/RTO
 Either way, an Integrated
Distribution Plan can help
OVERCOMING BARRIERS
DISTRIBUTION SYSTEM OPTIMIZATION

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III. What can State Energy Offices do to promote
technology and policy solutions?

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PLANNING-BASED OPTIMIZATION POLICIES
TRANSFORMATIVE
 Build system optimization into the core of state energy
plans and attendant state energy policies.
 Create a roadmap for regulators and utilities to move
toward performance-based regulation tied to overall
societal goals for the power system.

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EVERY STATE IS DIFFERENT…

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State Energy
Offices
Markets
Planning
State Energy Offices can use a handful of important tools in different market
structures to enable the resources needed to optimize the system.
POLICIES FOR SYSTEM OPTIMIZATION

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PLANNING-BASED OPTIMIZATION POLICIES
INITIAL STEPS
 Encourage—or host—dialogue among utilities, commissioners,
legislators, governors’ offices, and stakeholders about how to take
advantage of new technological opportunities.
 Promote adequate budget and support for the PUC to explore these
issues.
 Fund pilot programs for new technologies (consider partnering with
national labs or DOE). Take advantage of state-owned buildings as
testing grounds.

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MARKET-BASED OPTIMIZATION POLICIES
INITIAL STEPS
 Study the costs and benefits of improving market product definitions,
including local job creation, energy affordability, reliability, and
environmental performance.
 Study the costs and benefits of expanding or linking existing markets
with neighboring markets – perhaps first through an energy imbalance
market.
 Open bidding for small amounts of new grid capabilities like “flexibility,”
and see what bids in.
 Engage with other State Energy Offices to increase regional
coordination and trading.

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MARKET-BASED OPTIMIZATION POLICIES
TRANSFORMATIVE
 Join new markets and/or consolidate balancing areas.
 Create an actionable roadmap for improving market
structure and transparency in the state.

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GET INVOLVED: NGA STATE LEARNING NETWORK ON
NEW UTILITY BUSINESS MODELS
Later this month, NGA will release an RFP for interested states to apply for:
 Tailored briefings and technical assistance
 Funding for an in-state summit
 A three-day workshop including state team time
 Quarterly webinars and monthly team calls
 The latest research on utility business models
 Access to advisors from America’s Power Plan, LBNL, RAP, NARUC
Contact: Aliza Wasserman: awasserman@nga.org

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THANK YOU
sonia@energyinnovation.org
@cleantechsonia
www.americaspowerplan.com
@USPowerPlan