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Two Paths to Grid Modernization: The Market and the Monopoly

“As I read the @NHPUC grid mod document, I find myself wondering if the whole paradigm isn’t too utility-centric – focused on ‘what can we encourage the utilities to put into rate base?’ rather than ‘how can we transform utilities into platform providers?’”

–D. Maurice Kreis, The Consumer Advocate


The new Public Utilities Commission report on electric grid modernization envisions a 21st century energy grid designed around distributed energy resources (e.g., solar, storage, electric vehicles, load management, smart meters, and synchronization of these and other technologies). The question remains: will the market or the monopoly be the path taken into the distributed energy future?


Electric grid modernization is essential to ensuring the grid meets 21st century needs


While the report calls for broad stakeholder input from customers and energy service providers, much of the framework offered revolves around integrating elements of grid modernization into existing five- and ten-year distribution system plans which are utility focused, lead, and driven. The report gives less attention to the potential for market forces, enabled by smart rate design and time-based price signals, to stimulate competitive investment of private capital to achieve the goals of grid modernization.


There are two schools of thought on the best approach to grid modernization:


1. Customer-Centric: the Competitive Market Approach

2. Utility-Centric: the Central Planning Approach


In the end, both of these paths will have a role to play in modernizing our electric system. That being said, thus far in New Hampshire, the competitive market has been responsible for nearly all distributed energy resource deployment. Over the past decade, market forces have succeeded in establishing a robust and growing distributed solar industry, which is already delivering benefits to more than 12,000 homes, businesses, and municipalities.


Customer-Centric Grid Mod: The Competitive Market Approach

The success of the solar industry is a result of the simple but effective price signal established by net metering, the policy that allows owners of distributed generation to receive credit from their utility for electricity fed into the electric grid. Net metering has been invaluable in developing New Hampshire’s local energy economy, but the realization of a fully modern electric grid will require a more sophisticated form of net metering.


Distributed energy generated during the late afternoon is more valuable than distributed energy produced mid-morning. This is because overall demand for electricity, and stress on the electric grid, is generally greater in the late afternoon. Despite these differing values, current net metering compensates distributed generation (e.g., rooftop solar) at the same rate regardless of the time of production.


Innovative rate design is one critical component of leveraging competitive markets to modernize the electric grid. For example, net metering can be modernized to compensate distributed generation based on how valuable that electricity is given the time of production, a practice known as “time-variant” or “time-of-use” rate design. Offering customers time-based rates for both for consumption of electricity, and as compensation for distributed generation, will allow market forces to better deploy distributed energy resources to the benefit of the individual user and the ratepayer generally. For example, time-based rates can motivate customers to pair their solar with energy storage, which would enable them to strategically discharge stored solar energy when the grid needs it most.


Beyond time-variant rates, peer-to-peer energy trading, Non-Wires Alternatives (utilizing distributed energy resources to avoid traditional utility investments in sub-stations and the like), and data access and transparency are all necessary components of a modern electric grid.


Utility-Centric Grid Mod: The Central Planning Approach

The new Public Utilities Commission Staff report on grid modernization acknowledges that competitive markets, guided by time-based price signals, have a role to play in bringing our electric grid into the 21st century. However, the lengthy report exhausts most of its focus exploring the central-planning approach to grid modernization.


The report recommends utilities submit Integrated Distribution System plans that include 10-year roadmaps of how the utility plans to achieve grid modernization objectives and 5-year capital investment/operational expense plans. These Integrated Distribution Plans will be added to an existing planning process known as Least Cost Integrated Resource Plans. The plans will address a series of complex forecasts and analyses including distributed energy resource forecasting, load forecasting, hosting capacity analysis, and locational value analysis. The plans will address distributed energy resource interconnection and strategic electrification. The plans will include performance metrics, opportunities for utilities to earn revenue based upon their successful implementation of grid modernization objectives.


Conclusion

Markets tend to move faster than regulators, which is why for the most part, competitive businesses are deploying modern grid solutions at a faster rate than utilities. This is not to say utilities will not play a critical role in modernizing the grid. They most certainly will. The risk is that in the quagmire of the slow-moving regulatory arena, the opportunity of market approaches to grid modernization will be overshadowed by an approach that relies too heavily on utility-led initiatives. Clean Energy NH favors a balanced approach to grid modernization, one that empowers utilities to implement new technologies while also creating opportunities for businesses and residents to invest their private capital in innovative energy solutions.

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