Mowat Research #137 | December 2016
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MOWAT RESEARCH #137 | DECEMBER 2016 Future Drivers and Trends Affecting Energy Development in Ontario LESSONS LEARNED FROM THE U.S. MowatENERGY MOWAT’S ENERGY POLICY RESEARCH HUB MowatENERGY MOWAT’S ENERGY POLICY RESEARCH HUB Mowat Energy’s Emerging Energy Trends is a comprehensive study of how technological and consumer disruptions in the energy sector could affect Ontario and beyond. This paper is part of a series of background reports informing the final report. Initial funding for this research was in part provided by the Ministry of Energy of Ontario. The final report and all other background reports are available at mowatcentre.ca/emerging-energy-trends. The Mowat Energy research hub provides independent, evidence-based research and analysis on systemic energy policy issues facing Ontario and Canada. With its strong relationship with the energy sector, Mowat Energy has provided thought leadership to stakeholders, decision-makers and the public to help advance discussions on the challenges that energy is facing in Ontario. Authors This paper produced by National Regulatory Research Rajnish Barua Institute (NRRI) . Ken Costello Kathryn Kline Dan Phelan Tom Stanton MOWATCENTRE.CA @MOWATCENTRE 439 UNIVERSITY AVENUE SUITE 2200, TORONTO, ON M5G 1Y8 CANADA DECEMBER 2016 ©2016 ISBN 978-1-77259-025-8 Executive Summary Mowat Centre’s Energy Hub (Mowat) contracted with the National Regulatory Research Institute (NRRI) for a study and report on emerging trends facing the energy sector in the United States, with a particular focus on distributed energy resources (DER) and their potential role in the electric utility of the future. This research focused on four different major portfolios and three future scenarios. The four portfolios are: (i) The New Energy Consumer; (ii) Meeting Energy Demand Behind the Meter; (iii) Grid Modernization and the Utility of the Future; and, (iv) The Future of Centralized Supply. The three future scenarios, focusing on the year 2050, are: (a) “Business As Usual” characterized by only the minimal necessary steps to begin the process of integrating distributed energy resources; (b) “Focus on Short-Term Cost-Effectiveness” where the role of DER would be limited to fully cost-effective technologies; and, (c) “Focus on Innovation” modeled as a fully realized, flexible, decentralized energy system, offering a range of options to customers. As this research shows, a new literature on DER capabilities is just beginning to address all of the industry changes needed to capitalize on all of the values that DER can produce and deliver to customers and to the system as a whole. The essence of emerging research is that the combination of technically and economically available DER is more than capable of producing and delivering essential grid services cost-effectively, compared to the otherwise-required central station power and transmission alternatives, at least in particular grid locations in practically every utility service territory. Some early examples are showing great promise, but extensive work remains before a full transition to a DER-optimized grid might become a practical reality. Looking at the future for energy consumers, this review shows a major bifurcation between active and passive customers. Active customers are already imposing new demands on utilities, and are demonstrating growing diversity of wants and needs, creating new challenges for utilities and regulators. One possibility is that the future will bring much greater unbundling of services and rates, with customers selecting choices from a broad menu of options, some provided by utilities and others by competitive suppliers. That future will be very different from the long-standing kind of one-size-fits-all utility offerings that basically differentiated only between residential, commercial, and industrial customers offering few if any choices beyond basic service at standard prices. This creates many new challenges for utilities and their regulators, as discussed in Section 2 of this report. The opportunities for meeting customer demand behind the meter are expanding rapidly as new technologies are starting to change the utility industry: The lines between the utility and customer sides of the meter are already starting to blur. Technological progress in these areas is already substantial and rapid. Every week brings new announcements about progress towards (iii) higher efficiency and clean energy production and use, and each new trade show is full of examples of manufactured goods of all kinds that continue to do more and more with less and less material and energy inputs. In the not-too-distant future, zero-energy buildings could become the norm and smart appliances could be capable of interacting with the grid of the future in a dozen new ways, providing combinations of grid services and cost savings for their owners and operators. Solar photovoltaic (PV) systems, in particular, are already poised to disrupt the century-old electric utility industry model, as it is becoming fully cost-effective for larger number of customers to produce at least some of their own energy. In one plausible future, cost- effective DER might prove capable of overwhelming central station power supplies and transmission, so that much if not all new utility investment will take place on the distribution system, gradually supplanting the previous centralized infrastructure. Behind the meter challenges are reviewed in Section 3 of this report. Utility grid modernization components generally include sensors and controls for the utility system, combined with sensing and monitoring capabilities and advanced communications systems, designed to help optimize operations and control of all major infrastructure components –generation, transmission, and distribution. The primary missions for grid modernization for utility companies include: increasing the efficiency of utility operations; increasing system reliability and resilience; reducing fossil fuel use and emissions; and, improving utility planning. The major components utilities are beginning to incorporate into the electricity grid, in order to achieve those missions, include: transmission system enhancements; distribution system enhancements, including distributed automation and distribution management systems; advanced capabilities for integrating distributed resources; advanced meter infrastructure (AMI); system-wide communications and information integration; and, mechanisms for helping to shape consumer demands to produce system benefits. Some of the most important challenges with grid modernization that are facing utilities and utility regulators include: managing the growing quantities of data that flows from AMI and other grid sensing, monitoring, and controlling technologies; determining which smart grid activities are best suited for implementation by monopoly utility companies and which by competitive product and service providers; addressing how integrated resource planning can evolve to incorporate novel DER applications; learning about all of the behavioral aspects of customer responses to rate designs, education, and energy use information; and, (iv) addressing how all of those challenges might best be addressed for small utilities, that will be hard-pressed to develop and implement in-house the required suites of new capabilities. These issues are discussed in Section 4 of this report. Looking to the future, there are many uncertainties and unknowns about central-station resources. This report briefly reviews current prospects for central station thermal power plants fueled by nuclear, natural gas or oil, concentrating solar power, coal, and biomass, and alternative technologies for hydroelectric and hydrokinetic power, wind power, and solar PV. The report identifies a need for detailed scenario planning that involves all relevant stakeholders and communities in decision making about future utility infrastructure. That discussion is presented in Section 5 of this report. The report, on the whole, finds that perhaps the best that can be said about U.S. policies towards DER in mid-2016 is that this policy arena is looking like a major work in progress. Several states are actively engaged in proceedings to explore what changes might be necessary for utilities to fully accept cost-effective DER. Demand response and dynamic pricing are making serious inroads in some jurisdictions. Energy storage is starting to find profitable niches in some areas. And, researchers are developing protocols for enabling microgrids, non-wires alternatives, and eventually perhaps transactive-energy. However, there is nothing yet in the U.S. like a coherent single vision of the utility of the future. For the future, the NRRI research team suggests that Ontario might usefully focus its attention on undertaking all no-regrets policies. Fundamentally, that means using market forces as much as practical with limited taxpayer or ratepayer incentives, to achieve all cost-effective DER. A touchpoint would be to try to identify all the actions that make sense irrespective of likely changes in fuel prices, global energy markets, future environmental regulations, and the like. If guided by sufficiently robust, broadly-inclusive community integrated resource planning modeling, many DER technologies will prove to be fully cost-effective already, and in the coming decades more are sure to become available. Ontario could easily play a leadership role in understanding and applying DER technology. A conscious move towards