Democratizing DERs: What role should utilities play in spreading clean energy to all?
Regulators are leery of utility proposals to rate base investments in distributed energy technologies
One common criticism of rooftop solar and other distributed energy resources is that they remain luxury items — niche technologies made available to only a small subset of customers.
Creative financing solutions, like solar leasing models, have helped cut upfront costs for rooftop solar and opened the market to a wider audience. Those models are increasingly applied to home batteries and other DERs, but the financing relies on consumer credit scores, and providers have an incentive to target wealthier consumers.
As distributed resources of all types become more commonplace, a key question facing the sector is how to ensure that all customers have access to them and their benefits.
Utilities, eager to leverage potential new value streams, often emphasize their ability to promote universal access to DERs through rate-based investments or their unregulated subsidiaries. That raises concerns among developers, who are typically eager to expand access to DERs through utility partnerships, but view direct investments from power providers as anticompetitive.
Utilities often tout community solar and energy efficiency programs as current examples of how they can help expand DER access. But beyond these familiar examples, sector agreement on how to further democratize distributed energy appears elusive, with utilities, third-party providers and regulators each outlining different concerns.
“[DERs are] a way to give customers a way to control choice,” Val Jensen, senior vice president of customer operations for Commonwealth Edison said at the Smart Electric Power Alliance’s National Town Meeting this week in Washington. “I think any utility is not going to survive unless it gets on the right side of its customers in regards of the choices they want to make.”
Debating the utility role
Utilities themselves have not settled on a particular role to play in distributed energy.
In Utility Dive’s annual survey of sector executives, 60% of utility respondents said they would like to partner with third-party developers to provide customers with DERs. Respondents were allowed to choose multiple options, however, and nearly the same amount (59%) said they would like to own and operate DERs through rate-based investments.
The overlap illustrates a sector that is still coming to terms with the distributed energy transition. For ComEd, which provides power to Chicago, Jensen said the role of the utility involves a combination of multiple strategies.
“There are lots of pieces to it,” Jensen said. “On the one hand, if this is a technology the customer is showing no interest in, it’s not clear I should be forcing them to learn about it. So as a customer, you need to show some kind of interest for me to take some sort of action.”
One way to open the resource to the customer base, especially low-income communities, is a pre-pay option, Jensen said. Customers often need capital and good credit to purchase or lease DERs such as smart thermostats or rooftop solar. Pre-pay options, while carrying a lot of baggage, would help the low income group “budget better … a lot of energy has to go in how to help low income customers manage their bill.”
Another option is community-based solar, which can be utility-owned asset, privately owned or a hybrid of the two. For an established subscription, customers can source part of their energy from renewables without owning a suitable rooftop for distributed solar.
For utilities and regulators, shared renewables have been a popular and relatively simple option to expand access to clean energy on the distribution system, but increasingly, some in the sector are calling for regulators to allow utility investments behind the meter as well.
It’s an approach Ralph Izzo, CEO and President of PSEG, advocated in a recent Utility Dive interview.
“The reality is for most people electricity and gas consumption are not core issues — they are enablers that are in the background,” Izzo said. “Therefore, many investments in these areas where the investor is the consumer are never going to get the priority that they deserve.”
Izzo’ solution is to allow regulated utilities to provide efficiency and DER solutions for customers who not make the investment themselves and, subsequently, leverage the utility’s investment power for behind-the-meter resources.
Already, some utilities are testing the idea in pilots. Arizona Public Service and Tucson Electric Power are both operating small utility-owned rooftop solar programs, and ComEd is pushing for legislative approval to install microgrids at critical infrastructure locations. In the case of the Arizona pilots, however, regulators imposed strict size caps on the program in response to competitive concerns from private installers, a worry regulators in other states appear to share.
Keeping competition open
Maryland Commissioner Anne Hoskins just oversaw implementation Maryland’s new community solar pilot program last month. Under the pilot, part of the output is allocated to low income communities.
Hoskins said Maryland utilities approached the Public Service Commission with a desire to participate in community solar programs, but wanted to rate base it, allowing the opportunity to earn a rate of return on the project. Regulators refused.
“One of the things we’ve tried to be very cognizant of in Maryland, because we do have competitive providers, we want to make sure we don’t take actions that preclude economic developments,” Hoskins told Utility Dive. “On this initial go around in our rules, we are not allowing [them] to rate base it. I do want to see utilities continue and reach out and participate in these activities, but it has to be done in a way to recognize that other players can participate.”
Jensen told Utility Dive he does see a need for third party partnerships, but said incentivizing a utility to create programs designed for wider DER access can have an even bigger effect.
Earlier this year, ComEd backed legislation allowing the utility to earn a regulated rate of return for investments in energy efficiency technology, microgrids and other non-traditional power infrastructure. The legislation, which also included nuclear energy supports and reforms to the state renewables mandate, stalled in the Illinois legislature.
In New York, the much-watched Reforming the Energy Vision initiative aims to expand the role of third-party providers, removing disincentives to utility deployment of their resources. Regulators recently unveiled new revenue models under REV, allowing utilities to earn a rate of return when they deploy DERs and efficiency from private developers rather than building their own power infrastructure.
The REV model doesn’t completely prohibit utility DER investments. Regulators have sought to preserve the option for rate-based DER deployment if and when utilities can prove the private market is not providing adequate access for customers.
The details on how that will happen are still being worked out in the marathon proceeding, but Hoskins said the general idea of REV is a similar model to what she’d like to see in Maryland.
“I see the utility as an enabler,” she said. “Only as a last resort should they be allowed to provide these [distributed energy resources] services to customers and if so, they should be allowed to rate base it.”
(Hoskins's comments on utility engagement and DERs do not extend to Maryland's traditional energy efficiency programs, she later wrote to Utility Dive.)
Even REV has earned criticism for what some see as its failure to broaden access to DERs for all customers.
Gov. Cuomo this year took steps to address the complaints by announcing a new Affordability Energy Policy designed to give credits to 2 million low income customers in the state for clean energy.
Another option could be community solar programs aimed at moderate to low income communities, similar to Maryland’s new program. The three-year pilot will allow renters to contract for solar energy, and allocates about 60 MW for projects focused on low and moderate income customers out of a statewide 200 MW cap.
While the details are still up for debate, there appears to be agreement among stakeholders that utilities will play at least some role in expanding the DER market to all customers.
“It’s a huge mistake by thinking customers don’t have a choice,” Jensen said. “It is not possible for us to be a monopoly; technology is going to take that away. Ultimately, if we can’t create value for customers we cannot keep business.”
This post has been updated to reflect clarifying comments from Maryland regulator Anne Hoskins.
Correction: an earlier version of this post called SEPA the Smart Electric Power Association and its event, the National Town Hall meeting. Both are incorrect, and the post has been updated to reflect the correct information.