A Trade War Over Cheap Chinese Solar Panels: Protecting American Ingenuity or Needlessly Raising Prices?

By Nick Lawton, Staff Attorney

On December 31, 2014, the U.S. Department of Commerce issued a preliminary finding that some Chinese solar panel manufacturers would become eligible for a reduction in trade tariffs. This finding is the latest volley in a trade war between the American and Chinese solar industries that began in 2011. SolarWorld Americas, the largest U.S. solar panel manufacturer, filed a trade case with the U.S. International Trade Administration, alleging that Chinese subsidies of solar panels were giving imported solar panels an unfair advantage and threatening the viability of the U.S. solar industry. SolarWorld won that round of the trade dispute. In May 2012, the Commerce Department initially imposed “anti-dumping” tariffs on imported Chinese solar panels. These “anti-dumping” tariffs aimed to offset the effect of Chinese subsidies that allowed the sale of Chinese solar panels in the United States at prices below actual manufacturing costs.

The next round of the dispute involved international industrial espionage, which led to the indictment of five Chinese military hackers and ignited a diplomatic conflict between the United States and China. According to the U.S. Department of Justice, at “about the same time” the Commerce Department imposed anti-dumping tariffs, a Chinese hacker stole “thousands of files” from SolarWorld, including confidential technical information and privileged attorney-client communications about the ongoing trade litigation. A spokesperson for the Chinese Foreign Ministry argued that the charges were “purely ungrounded and absurd” and based on “fabricated facts.” Additionally, the Washington Post reports that China noted similar NSA spying on Chinese companies, as revealed by leaks from Edward Snowden.

It is difficult to quantify the impacts of either espionage or allegedly unfair subsidies. A spokesperson for SolarWorld stated in May 2014 that there were “too many unknowables” preventing an exact estimate of the company’s financial losses from espionage. The New York Times quoted the president of a security technology and services company as stating that the value to Chinese companies “from these thefts of intellectual property is in the billions of dollars.”

As for the anti-dumping tariffs, the Commerce Department has attempted to impose different tariff rates on different manufacturers’ products to account for their actual behavior. Those tariff rates ranged as high as 165%, but the Commerce Department has lowered tariff rates for different manufacturers several times. For example, in July 2014, the tariff rate for Motech Industries was 44.18%, but the Commerce Department lowered that rate to 20.86% a month later. The latest reduction in tariff rates reflects a finding that actual solar panel “dumping,” or sale at prices below manufacturing costs, occurred at significantly lower rates than the Commerce Department had initially thought. The Commerce Department recommended lowering the tariff rate from 31% to roughly 18%. The President of SolarWorld, Mukesh Dulani, argues that the Commerce Department erred by failing to account for the behavior of the largest Chinese solar manufacturers. As a result, he argues that the proposed tariff rates “do not reflect the actual amount of dumping by Chinese producers.”

The trade dispute and its consequent tariffs have divided renewable energy advocates in the United States. Critics of the tariffs claim that they will result in higher prices for solar power, which runs counter to the U.S. goal of cost-competitive solar power and deters solar installations. Jigar Shah, president of the Coalition for Affordable Solar Energy, argues that the tariffs are “unproductive” and “will undercut the growth of American solar jobs and hurt our domestic solar industry.” The Solar Energy Industries Association (SEIA) contends that “the worsening solar dispute … threatens the future progress of solar energy in America.” SEIA’s opposition to the trade dispute led PetersenDean, a roofing and solar power company, to call for the resignation of SEIA’s president and entire board. Meanwhile, U.S. officials seem to side with SolarWorld. For example, U.S. Representative Rock Nolan (D.-MN) has stated that “the U.S. solar manufacturing industry has been devastated by China’s buildup of massive amounts of state-sponsored solar activity.” Senator Ron Wyden (D.-OR) has backed SolarWorld’s trade case since 2013 and testified in support of tariffs in December 2014. SolarWorld has won nine out of ten trade cases in this ongoing dispute.

The trade dispute over solar panels is almost certain to continue as both the United States and China seek to expand their solar industries. Both nations offer significant subsidies for solar power, including significant tax credits and grants for technological research and development. China has recently become one of the largest consumers of solar power and hosts many of the largest manufacturers of solar panels. The United States, meanwhile, is poised to become the world’s largest solar market, according to Jigar Shah. Because solar panels and other electrical components of solar arrays are globally traded commodities, the pace of the solar industry’s growth is likely to be influenced by ongoing trade disputes.

Xcel’s Proactive Resource Plan: Moving Towards a Clean Energy Future

By Amelia Schlusser, Staff Attorney

On January 2, 2015, Xcel Energy submitted its 2016–2030 Upper Midwest Resource Plan to the Minnesota PUC. Xcel’s Preferred Plan aims to reduce the utility’s carbon emissions 40% below 2005 levels by 2030, primarily through increased deployment of renewable energy resources. The utility’s proposed renewable additions are impressive: the Preferred Plan would add approximately 1,800 MW of new wind resources by 2027, nearly 1,900 MW of utility-scale solar by 2030, and approximately 500 MW of distributed solar power by 2030. These additions would more than double the company’s current renewable energy portfolio.

Responding to a Changing Energy Landscape

Xcel’s Resource Plan represents a forward-looking response to fundamental changes in the electricity sector. The utility recognized that technological advancements, evolving public policies, and shifting customer preferences created both challenges and opportunities for utility resource planning. In response, Xcel chose to take a proactive approach and adapt to the evolving electricity sector of the 21^st Century.

While the utility acknowledged that the form of future federal environmental regulations, most notably EPA’s proposed Clean Power Plan, were highly uncertain, the utility’s planning process followed a balanced approach to manage this uncertainty. Under this approach, Xcel’s Plan focused on investing in clean energy sources while maintaining the utility’s ability to comply with a range of potential environmental regulations.

Xcel also recognized that the needs and preferences of their customer base had shifted in recent years. Consumers expressed growing interest in managing and customizing their energy mixes, and increases in distributed generation forced the utility industry to adapt its business model. In response to these considerations and to existing federal and state energy policies, Xcel chose to dramatically expand its distributed solar program. The utility also predicted that energy technologies would continue to advance over the planning horizon, and that these advancements would create new opportunities for modernizing the electricity grid.

Finally, Xcel determined that due to planned retirements and contract expirations, it would lose significant baseload capacity over the planning horizon. The utility concluded that its Preferred Plan must include sufficient resource additions to meet consumer demand, reduce carbon emissions, and maintain flexibility and fuel diversity. Xcel determined that a mix of renewables and natural gas combined cycle units was the best option for replacing its retiring baseload energy and capacity.

Shifting Objectives Promote Renewable Energy

Xcel’s proactive planning approach was motivated in large part by the utility’s shifting planning objectives. According to Xcel’s Resource Plan, the utility’s traditional planning objective was “to identify the least-cost approach to provide reliable service and meet growing demand.” In the 2016–2030 Plan, however, Xcel began to move beyond this narrow focus and incorporate additional considerations into the planning process. To better position the company to respond to evolving future conditions, Xcel developed its Plan around a series of key considerations. These considerations included increasing the utility’s deployment of renewable resources to reduce emissions, maintain flexibility, and achieve policy objectives. While Xcel was already on track to meet its Renewable Energy Standard (RES) obligations, it concluded that additional renewable resources would help it minimize its reliance on natural gas and position itself to meet future greenhouse gas requirements.

Xcel’s Preferred Plan proposes to add approximately 4,200 MW of new renewable resources by 2030, while maintaining a reliable, flexible energy system. These resource additions would enable the utility to reduce its carbon dioxide emissions by 40% below 2005 levels. Furthermore, these renewable additions would reduce the utility’s need to invest in additional fossil fuel resources, and thus mitigate ratepayer exposure to risks associated with fuel price volatility and emissions regulations. And perhaps most significantly, Xcel estimated that it could implement the Preferred Plan at a reasonable cost to its customers.

Xcel’s Resource Plan is indicative of changing tides within the electric utility sector. Advancements in renewable energy technologies and increased demand for clean, sustainable energy supplies are driving public policy shifts around the country. Minnesota is at the forefront of these regulatory advancements; the state’s RPS mandates that utilities procure a minimum of 25% of their electricity from renewable sources by 2025, and Xcel is required to procure 31.5% of its electricity from renewables by 2020. In addition, Minnesota has set a goal of reducing carbon emissions 80% below 2005 levels by 2050. Rather than reject or challenge these policies, Xcel’s Preferred Plan meets these goals head-on. In doing so, the utility appears prepared to adapt to a wide variety of future scenarios, and the company’s customers will be the ultimate beneficiaries of Xcel’s proactive planning.

California Governor Jerry Brown Proposes Significant RPS Expansion

By Nick Lawton, Staff Attorney

During his inaugural address on January 5, 2015, California Governor Jerry Brown announced three important goals for the state’s energy portfolio. Governor Brown framed these goals as part of an effort to mitigate climate change and quoted famed biologist E.O. Wilson’s description of the fight against climate change as a “moral precept we can agree on.” Governor Brown noted California’s existing leadership on climate policies, asserting that California has “the most integrated policy to deal with climate change of any political jurisdiction in the Western Hemisphere.” However, Governor Brown was not content to rest on these laurels, noting that “[t]hese efforts, impressive though they are, are not enough.” Setting his sights on progress to be made in the next fifteen years, Governor Brown announced these three goals:

Increase from one-third to 50 percent our electricity derived from renewable sources;

Reduce today’s petroleum use in cars and trucks by up to 50 percent;

Double the efficiency of existing buildings and make heating fuels cleaner.

Although each goal is important and laudable, this post focuses on the proposal to expand California’s Renewable Portfolio Standard (RPS), because this proposal poises California to demonstrate the viability of expanding this type of affordable, effective renewable energy policy.

Many states have Renewable Portfolio Standards, but few are as ambitious as California’s current requirement of obtaining 33% of its energy from renewable resources by 2020. Most states require less renewable energy and provide more time to develop it. Governor Brown’s proposal would give California the most ambitious RPS in the nation, surpassing Hawaii’s current target of 40% renewable energy by 2030.

Governor Brown’s proposal to expand California’s RPS into the nation’s most ambitious renewable energy policy is a good idea because it will likely prove attainable and affordable. California is already on-track to meeting its current RPS targets, as Governor Brown noted in his address. Most other states are also meeting their RPS targets as well, demonstrating that achieving substantial renewable energy development is within reach. Moreover, as the National Renewable Energy Laboratory reported in 2012, current renewable energy technologies are sufficient to meet 80% of U.S. energy demand by 2050 without compromising grid reliability. This study and the history of successful RPS implementation throughout the nation suggest that California can achieve Governor Brown’s goal of 50% renewable energy by 2050.

Second, Governor Brown’s proposal will likely prove affordable. Lawrence Berkeley National Laboratory reported in late 2013 that Renewable Portfolio Standards have generally had modest impacts on electricity rates, seldom raising rates more than 2%. In contrast, the U.S. Energy Information Administration expects residential electricity rates to rise roughly 3% in 2015. Similarly, Brennan Louw at Renewable Energy World reported in late 2011 that the five states with the highest levels of solar and wind power had actually seen their electricity rates increase more slowly than the U.S. average or than states with the least renewable energy. All these facts suggest that expanding California’s Renewable Portfolio Standard will prove a sound investment.

Finally, Governor Brown’s proposal is important because it provides a counterpoint to efforts to freeze or repeal Renewable Portfolio Standards in several states. The American Legislative Exchange Council, a radically conservative advocacy group funded by the Koch Brothers and large corporations, has been spearheading this effort since 2012, when it developed a template for repealing renewable energy standards. The effort has had only limited success. Although Ohio froze its RPS requirements last year, the repeal movement largely failed in 2013 and 2014. Clare Foran at the National Journal has written an excellent article explaining the RPS repeal movement and the reasons for its general lack of success. Ms. Foran attributes the failure of the RPS repeal movement largely to Republican state legislators who support RPSs because they create jobs. This is likely true. Renewable Portfolio Standards do create large numbers of jobs, as the Natural Resources Defense Council and Mindy Lubber at Forbes both report.

But the broader point is that Renewable Portfolio Standards are good policy for the economy and the environment. Critics attack RPSs with misinformation (such as false claims about their impacts on electricity rates) and outright vitriol (including characterizing RPSs as “the crack cocaine of subsidies”), but in reality RPSs have proven effective and economically efficient. Governor Brown’s proposal to expand California’s RPS is precisely the kind of pragmatic, realistic policy that the U.S. energy market needs. It prepares California to continue its strong history of leadership in renewable energy development and to show other states that RPSs are viable policies to promote abundant and affordable renewable energy. 

States Can Implement the Clean Power Plan Without Compromising Grid Reliability

By Amelia Schlusser, Staff Attorney

On December 9, the Federal Energy Regulatory Commission (FERC) announced that it will convene a series of technical conferences early next year to discuss whether EPA’s Clean Power Plan, as proposed, will threaten the reliability of the electricity grid. According to Energywire, FERC’s announcement was in response to electric industry stakeholder concerns that the proposed 111(d) rule will negatively impact grid reliability and wholesale electricity markets.

In November, the North American Electric Reliability Corporation (NERC) released a report addressing potential reliability implications associated with the proposed rule’s implementation. The report, which did not represent a “final and conclusive reliability assessment” of the proposed rule, called for a thorough analysis of the rule’s potential impacts on grid reliability. Unsurprisingly, NERC’s report triggered extensive outcry from industry groups and conservative lawmakers, opposing the rule’s implementation. The U.S. House of Representative’s Energy and Commerce Committee website claimed that NERC’s report “warned that the Obama administration’s power plant proposal would threaten the nation’s electric reliability.”

FERC subsequently decided to get involved to help ensure that state implementation of the Clean Power Plan’s requirements maintain grid reliability. FERC Chairman Cheryl LaFleur promoted the opportunity these technical conferences will provide to bring diverse stakeholders together, stating, “[FERC] clearly has a role to play in ensuring that the nation’s energy markets and infrastructure adapt to support compliance with the proposed Clean Power Plan.”

The concerns over the Clean Power Plan’s implications on grid reliability are both real and justified. The rule’s potential reliability impacts, however, are entirely surmountable. While the final rule will almost certainly encourage extensive retirements of inefficient coal-fired power plants, these retirements need not result in the “reliability crisis” many of the rule’s critics anticipate. Coal-fired power is not an essential component of a reliable electricity system. NREL’s Renewable Electricity Futures study concluded that we can feasibly integrate high levels of renewable energy onto the grid and could obtain 80% or more of our electricity from renewable sources by 2050. By investing in transmission system upgrades and optimizing grid flexibility, we can build a reliable, sustainable energy system devoid of coal-fired generation.

EPA’s proposed Clean Power Plan provides states with sufficient flexibility to upgrade their electricity systems without compromising grid reliability. The proposed rule encourages states to replace aging coal generation with renewable energy resources. While renewable energy sources such as wind or solar are variable, and thus not ideal baseload energy resources, states can implement a number of programs and policies to integrate this energy onto the grid without compromising reliability. For example, states can implement robust energy efficiency, energy storage, and demand response programs to offset electricity demand and alleviate reliability constraints. States can also improve grid operations by implementing intra-hour transmission scheduling and enabling dynamic transfers of variable generation between balancing areas. These practices enable states to obtain renewable energy from a broader geographic area and mitigate the impacts from localized weather events. For example, if a state confines all of its solar energy resources into one area, cloud cover in that area could threaten grid reliability. If the state instead develops solar energy resources in a variety of areas, cloud cover in one area would have minimal impact on the grid. The proposed Clean Power Plan’s flexible approach thus enables states to replace coal-fired power with renewable energy without compromising grid reliability.

Unfortunately, a number of states are independently limiting the flexibility the proposed rule would provide. According to ClimateWire, six states have already passed laws limiting regulators from implementing the final 111(d) rule “beyond the fence line” of their coal-fired power plants. In other words, these states can now only achieve compliance with their final 111(d) requirements by improving efficiency and decreasing emissions at their existing coal plants. These laws reflect the states’ opposition to the Clean Power Plan, but they also constrain their ability to implement the final rule without threatening grid reliability. Ultimately, if EPA finalizes a rule that sets emissions standards based on the beyond-the-fence-line approach and these states refuse to revise their new laws, these states may find themselves operating pursuant to a federal implementation plan that gives them even less flexibility.

The Clean Power Plan represents an important step in transitioning our national electricity system away from polluting fossil fuels. The proposed rule gives states flexibility to reduce emissions without compromising the reliability of the grid, and states should take full advantage of the flexibility the final rule may provide.

Utility Business Models Evolve Around Renewable Energy

By Nick Lawton, Staff Attorney

Two recent business developments on opposite sides of the world confirm that electric utilities are shaking up their business models in response to the rapid rise of renewable energy. Hawaii’s electric utility, the Hawaiian Electric Industries, recently struck a deal, estimated at $4.3 billion, to merge with NextEra Energy, Inc., a prominent, Florida-based renewable energy developer. Half a world away, German utility E.ON recently announced that it was splitting in two, forming one company to focus on renewable energy and another to continue managing fossil-fuel assets (primarily lignite, the dirtiest form of coal). Despite great physical distance between the electric utilities, there are strong parallels between their business developments. Each company has touted its development as a clear victory for renewable energy and a blow against climate change, but the reality for both is cloudier.

Bold Benefits for Renewable Energy?

Coverage of the utility moves has played up potential benefits for renewable energy development and climate change mitigation. For example, E&E News quotes Jim Robo, NextEra’s CEO, as saying that its merger with the Hawaiian utility is “about two leaders in clean and renewable energy joining forces to build a more affordable clean energy future.” Meanwhile, Eric Wesoff at Greentech Media writes of the merger as a “brilliant idea” that could transform the Hawaiian utility into a “renewable energy powerhouse.”  As for E.ON’s split into fossil fuel and renewable energy companies, Stefan Nicola at Bloomberg News writes that it “marks a watershed moment in Germany’s renewables effort that will likely bolster the country’s already leading position in clean energy.”

There is likely some merit to these claims. NextEra is purchasing a Hawaiian utility just as the state is considering a very broad transition away from fossil fuels and toward renewable energy, as my colleague Nate Larsen has discussed on this blog. Meanwhile, E.ON’s split is set against the backdrop of the German Energiewende, that nation’s ambitious transition from nuclear power to renewable energy. Both NextEra and E.ON’s new renewable energy arm should bring some valuable expertise toward managing these transitions. For example, NextEra claims to be the nation’s largest owner and operator of wind energy facilities and one of the largest generators of solar power as well. Proven experience making renewable energy work as a viable business could indeed help both Hawaii and Germany make a sustainable, affordable transition to renewable energy.

Or Business as Usual?

However, it is important to remember that utilities are capitalists, not environmentalists. Both companies are likely making these moves because they benefit corporate bottom lines, not because they benefit the global climate. For example, E&E News quotes the president of a Hawaiian solar company as noting that “NextEra would be buying HEI with the idea of making money, not doing the right thing to make this state some kind of renewable energy paradise.” The fact that NextEra is also the parent company of Florida Power and Light, a utility that has recently and successfully opposed energy efficiency and distributed solar power in Florida, provides a solid foundation for that suspicion. NextEra is likely pursuing new options in Hawaii because the market for renewable energy there is quite competitive with the high cost of importing fossil fuels. In short, NextEra is likely moving into Hawaii because it stands to make money there.

Meanwhile, E.ON is struggling to adapt to the fact that the German Energiewende has hit that nation’s utilities hard, with the price of shares in E.ON having fallen by 75% since 2010 and the utility’s revenues from fossil fuels dropping by a third. As Damian Khaya at Greenpeace reports, E.ON’s split likely has more to do with minimizing risks to its renewable energy efforts while simultaneously continuing its fossil fuel business. In fact, Mr. Khaya reports that E.ON’s new renewable energy arm will carry all the debt from the utility’s prior fossil-fuel activities, essentially subsidizing the new fossil-fuel arm’s reach into new territories (including a plan to build a new coal-fired power plant in Turkey). In short, E.ON’s split is a way to adapt to Germany’s new regulations while still making money from fossil fuels.

Renewable Energy as Utility Business Model

Nevertheless, despite my cynical look at the financial engines under the utilities’ hoods, I find some cause for optimism in the news about NextEra and E.ON. The world of regulated electric utilities has been in an uproar about renewable energy for some time now. At least six legal challenges have been raised against renewable portfolio standards, and more are looming on the political front, and U.S. utilities have been fretting about rooftop solar power throwing them into a death spiral. However, the recent moves by NextEra and E.ON. demonstrate that some utilities are starting to look toward renewable energy as a viable business model. As the purely economic case for renewable energy continues to become stronger, we should expect more utilities to move in this direction as well. And that, for me, is reason to hope.

We Can and Should Obtain 30% of Our Electricity from Wind Power by 2030

By Amelia Schlusser, Staff Attorney

A new report released by Environment Oregon’s Research and Policy Center calls for the U.S. to obtain 30% of our electricity from wind power by 2030. The report, titled More Wind, Less Warming: How American Wind Energy’s Rapid Growth Can Help Solve Global Warming, highlights wind power’s potential to reduce U.S. carbon emissions and help mitigate global climate change. According to Environment Oregon’s report, wind energy prevented 132 million metric tons of carbon dioxide from entering the atmosphere in 2013. If we succeed in procuring 30% of our electricity from wind power, Americans could prevent 705 million tons of CO₂ emissions per year by 2025 and 968 million tons per year by 2030. These reductions are equivalent to eliminating emissions from 254 coal-fired power plants in 2030, which represents a 40% reduction in power-sector emissions below 2005 levels.

Wind power has experienced tremendous growth over the past decade, and currently provides 4% of electricity in the United States. While we’ve made impressive progress in recent years, the deployment potential for new wind resources is incredible. Environment Oregon’s report emphasizes that it is both economically and technologically feasible to obtain 30% of our electricity from wind power by 2030. From an economic standpoint, wind power is currently cost competitive with natural gas-fired power in many parts of the country. As wind development has increased, costs have decreased—the levelized cost of new wind facilities decreased by 58% over the past five years. Wind power is also immune from potential price increases associated with fuel price volatility or emissions regulation, so wind power should become increasingly cost competitive over time. 

From a technical standpoint, the grid can support substantially more wind power than we currently transmit. Rapid wind energy deployment in parts of the country has shown that the grid is capable of integrating large quantities of wind power, and Iowa and South Dakota currently obtain more than 25% of their electricity from wind. According to NREL, there currently are no technical barriers to integrating 35% wind and solar power onto the grid. In a separate report, NREL determined that if we improve the performance, capacity, and flexibility of our existing electrical grid, we could obtain 80% of our electricity from renewable resources by 2050.

So what do we need to do to make the 30% wind power by 2030 goal a reality? Environment Oregon recommends that 1) EPA should strengthen and finalize its Clean Power Plan, and state implementation plans should maximize the use of renewable energy resources, such as wind power, to comply with their emission goals; 2) states should adopt ambitious renewable electricity standards mandating increased procurement of wind power; 3) state and federal agencies should work together to facilitate offshore wind power development; and 4) the federal government should renew and extend the Production Tax Credit (PTC) and Investment Tax Credit (ITC) to incentivize wind power development.

These policies would have a dramatic impact on wind power development in the United States. EPA’s proposed Clean Power Plan would encourage states to retire aging, inefficient coal plants, and replace these facilities with clean energy resources. State renewable electricity standards or renewable portfolio standards (RPSs) have already had a massive impact on wind development in a number of states, and a number of utilities cite their state RPS obligations as the primary driver of their planned wind capacity additions (see, for example, PacifiCorp’s 2013 IRP). Twenty-nine states currently have RPSs, but only California, Colorado, and Hawaii have set mandates of 30% or more. Many RPS requirements have already been met, and NREL doesn’t expect these standards to support more than one to three gigawatts (GW) of new wind development per year through 2020. Considering that nine states only have renewable energy goals and twelve states have neither renewable energy standards nor goals, there is room for significant policy advancement in this area. California, for example, already has one of the most ambitious RPSs in the nation, mandating that 33% of the state’s electricity come from renewable sources by 2020. Yet the California PUC will consider increasing this percentage through a rulemaking early next year. 

Finally, the federal PTC has provided a critical incentive for wind energy development and deployment in the U.S., and the tax credit’s 2013 expiration may prove devastating for the American wind energy industry (the House of Representatives is currently considering extending the PTC, but only for the remaining few weeks of 2014). NREL recently evaluated scenarios in which the PTC was either extended or allowed to expire, and found that if the PTC is not renewed, wind deployment will average between three and five GW per year through 2020, but if the tax credits are renewed, deployment will average between five and fifteen GW per year through 2020. 

Adopting and implementing these policy recommendations will put us on track to meet Environment Oregon’s goal of obtaining 30% of our electricity from wind power by 2030. This goal is realistic and achievable, and will help set us on a course towards a clean, sustainable energy future.

New York’s Proposal to Enhance Customer Engagement

By Nate Larsen, Energy Fellow

New York’s Department of Public Service (DPS) issued a straw proposal on April 24, 2014, detailing regulators’ recommendations for comprehensive electric industry reforms. The report, Reforming the Energy Vision (REV), described a number of measures that the state is considering, including the creation of Distributed System Platform Providers (DSPPs) to manage a distribution grid that will be expected to integrate increasing levels of distributed energy resources (DERs)—discussed in a previous post. The REV guidance also addresses the flip side of that issue, which is identifying opportunities to enhance customer engagement in the modern electric grid.

Customer participation is integral to the successful operation of New York’s model for the integrated grid of the future, both from a generation and a demand-side perspective. This post will address some of the DPS proposals to promote customer engagement outlined in the REV guidance.

Barriers to Customer Engagement

The REV identified six categories of barriers to the deployment of DERs, including 1) barriers to demand response; 2) barriers to distributed generation; 3) customer awareness; 4) access to data; 5) economic considerations; and 6) customer behavior patterns.

1.     Barriers to Demand Response

With regards to demand response (DR)—which allows certain loads to be curtailed during periods of peak demand—DPS found that customer-side incentives, bidding requirements, and customer aversion towards the risks inherent in adopting unfamiliar technologies were limiting factors in customer adoption of DR resources. The REV identified several other customer concerns that inhibit more widespread DR deployment, including the noncompliance penalty, the level of curtailment payments, short notice, an unclear value proposition for the customer, and a lack of information or understanding.

To overcome those obstacles, the REV suggested a review of the rates paid to DR resources to better reflect the value those resources provide to the grid. The guidance also recommended that DPS consider the implementation of a variable rate structure to better reflect the actual cost of power. DPS also notes that advancements in automated building systems have addressed some of those concerns.

2.     Barriers to Distributed Generation

The REV highlights a number of barriers to distributed generation (DG) deployment in New York, including 1) the fact that DG is not economically competitive with traditional utility service; 2) the onerous interconnection standards that potential DG customers face; 3) standby tariffs that unfavorably impact the customer value proposition; 4) a failure to account for all the benefits of DG to the grid; 5) the difficulty of obtaining financing for DG projects; 6) the responsibility of owning and maintaining equipment; 7) potential emissions restriction for combined heat and power resources; and 8) local code restrictions relating to some DG technologies.

3.     Customer Awareness

A lack of customer awareness regarding the potential value of DER is another obstacle identified by the DPS. The REV concluded that energy services providers typically targeted industrial and large commercial customers, resulting in limited opportunities for residential and small commercial customers to pursue demand-side management options. The report also identified customer confusion and lack of information as impacting potential customer engagement in DER development.

4.     Access to Data

Data access is important to the modern integrated distribution system to the extent that it allows electricity customers to manage their usage. The distribution model advanced by the DPS relies on the ability of customers to have access to their energy use data, understand the value of the data, and take advantage of goods and services that allow them to extract value from that data. Calling for an expansion of the availability of customer electricity usage, DPS was careful to note that such need for data access should be balanced against privacy protections, critical infrastructure information, trade secret protections and confidentiality requirements.

5.     Economic Considerations

Non-price economic factors represent another barrier to the widespread deployment of DERs. The high capital outlay, long payback period, and difficulty finding financing for DER projects make development unattractive for customers for whom those resources would otherwise be cost-effective. Those considerations are particularly limiting for low-income customers.

6.     Customer Behavior Patterns

Assuming that DERs are capable of presenting favorable economics, customers will only begin to adopt those technologies to the extent that they are easy to understand and use. DPS notes that programs designed to incentivize DERs should avoid requiring customers to make affirmative decisions to participate.

Opportunities to Facilitate Customer Engagement

Without going into many specifics, the REV also identified opportunities to promote DER deployment, including customer outreach regarding the benefits of DERs, regulations that encourage innovative business models, and the development of community resources. DPS also identified additional strategies to promote DER by resolving issues relating to data access, enabling DER technologies and removing financing barriers.

The guidance document additionally identified the potential for customer aggregation as an opportunity for DER development. DPS envisions that energy services companies (ESCOs) could play the role of aggregators, interfacing with both the DER-customers and the DSPPs. Those ESCOs would calculate the value of DER and compensate DER-customers for the services and product that they provide, while simultaneously marketing those products and services to the DSPPs.

In order to play the role envisioned by the DPS, ESCOs would need to move beyond their role as aggregators and develop new products and services to suit a new portfolio of varied customer requirements. Those products and services would range from traditional electricity service to demand management programs, dynamic pricing programs and ancillary services. The REV noted that many industrial customers are already taking advantage of a similar array of products and services.

DPS also addressed barriers to the role of ESCOs as proposed by REV, including the cost of acquiring new customers, current utility billing systems, access to customer energy usage information, access to distribution system constraints, and issues relating to servicing customers with small loads. To encourage the development of ESCOs as envisioned by the REV, DPS suggested that it would consider precluding utilities from offering energy commodity, instead requiring all customers to receive their energy services from an ESCO. DPS also noted that it would have to work to develop standards to ensure the reliability of the distribution system as ESCOs proliferate.

Conclusion

The REV reforms relating to customer engagement represent a significant departure from the passive electricity consumer model. While customers may continue to receive traditional bundled electricity service under the proposed reforms, they would also have access to an array of products and services that would encourage them to take advantage of distributed generation and demand-side management opportunities. Increased customer participation in the electricity system is an important component of the REV integrated grid model, and the success of the proposal will depend on the specific reforms that New York’s DPS ultimately promulgates.