Editor's Note: This article is part of a series on the key issues driving the utility sector today. All stories in this series can be found here.
"Grid modernization" is a broad term that captures a big chunk of the utility zeitgeist right now, with efforts underway in almost every state. It's a transformative phrase — and moment — that will help define the sector in a new era.
Technology innovations of the past decade are coming to bear at the same time, combining a host of influences: the maturity of renewables and the falling cost of batteries, data-driven demand side management systems, the growth of electric vehicles, and a better understanding of energy efficiency.
"The opportunity for utilities is tremendous," Michael Storch, the head of Enel X North America, told Utility Dive. "It is really about embracing technology."
Fully embracing new technology is not a straightforward proposition for utilities, however. They must prove this new brand of resources can be integrated in a cost-effective and secure manner and convince regulators.
While the grid of the future may be efficient, distributed and transactive, the process of developing it has been less elegant.
"In the past, grid mod was really to replace aging infrastructure. There were a lot of like-for-like replacements going on."
Senior Vice President of Commercial Energy Practice, ICF
Patty Cook, a senior vice president with ICF’s commercial energy practice, likens the grid of today to a Rube Goldberg machine patched with “layer after layer of duct tape. The grid wasn't really built with this future in mind,” Cook told Utility Dive.
New trends in grid modernization
"Grid modernization has always been something utilities have done, but it's been changing lately," Cook said. "In the past, grid mod was really to replace aging infrastructure. There were a lot of like-for-like replacements going on."
But this began to change about a decade ago, around the time of Southern California Edison's first advanced metering infrastructure (AMI) rollout, Cook said. "Since AMI has come along and the grid has become more decentralized, utilities are moving away from replacing aging infrastructure to improving the grid so it can be, in some cases, a plug-and-play grid."
In the second quarter of this year, more than 40 states undertook some form of modernization action. But rather than a holistic and integrated approach, what has emerged are several dozen plans that share many similarities. The chart below — from a report by the North Carolina Clean Energy Technology Center — shows the geographically widespread legislative and regulatory actions on grid modernization.
Some states are developing new business models, others are focused on discrete solutions or rate reform. New technologies include anything from smart grids and advanced metering, to energy storage, demand response, electric vehicle charging ... the list goes on.
But while the near term results may be jumbled, experts say the process will ultimately show results. Looking out a decade, there will be a "huge number of opportunities to operate the grid more flexibly and dynamically," Sonia Aggarwal, vice president of Energy Innovation, told Utility Dive.
"I think within the next 10 years, we'll see a lot more integration, and integration across the transmission-distribution interface," Aggarwal said. "All of this dispatching of resources across the grid will result in a much lower-cost system for same or better value."
"In a world where we are trying to optimize across large-scale resources and distribution-level level resources, we'll have to overcome some jurisdictional questions in order to figure out how to operate the system optimally."
Vice President, Energy Innovation
But that prediction comes with a caveat: "If we can get over our regulatory barriers," Aggarwal said.
"Historically, distribution level resources have been regulated by state public utilities commissions and cross-state bulk system resources are regulated by the federal government," Aggarwal said. "In a world where we are trying to optimize across large-scale resources and distribution-level level resources, we'll have to overcome some jurisdictional questions in order to figure out how to operate the system optimally."
Predictions about the utility sector often come with caveats, it seems. Enel X's Storch offered up his own: Utilities will need to get out of their comfort zones and embrace the technological changes. The sector, however, has never been known for its rapid adaptation.
"Utility companies are not known for leading the charge," he said.
The new grid-edge resources
But the embrace of new technology has already begun, driven in many ways by the decline in battery storage costs. The ability to store cheap renewable energy for later use is opening up new demand management strategies and opportunities, while cheaper batteries underpin the expected growth in electric vehicles.
Capital costs for storage have dropped from $1,000/kWh in 2012 to as low as $200/kWh today, and will go even lower, according to a study from the National Renewable Energy Laboratory. And utilities are already rolling out the resources: the United States connected almost 217 MW / 524 MWh of energy storage capacity to the grid in 2017, according to an analysis by the Smart Electric Power Alliance (SEPA).
That growing energy storage resource is helping to facilitate higher levels of demand response on the grid. According to SEPA, about 10.7 GW of demand response programs were dispatched last year. But the enrolled resource base was much higher, 18.3 GW, based on demand response program offerings from 155 utilities. It's a big resource that can still help keep the lights on in an emergency, but can also be used to soak up more renewables, reduce peak loads and integrate a raft of smaller, distributed resources.
And as more customers embrace electric vehicles, they too are expected to grow as a grid resource. According to the Edison Electric Institute, which represents investor-owned utilities, there will be 7 million of the zero-emissions vehicles on U.S. roads by 2025.
Certainly, they will have an impact on the grid. And if you think of them as electricity-guzzling power hogs, they look like a liability. Utilities, however, can't wait for the electric transportation future to arrive. Experts say EVs have the potential to change how utilities manage their grids, raising utilization rates and lowering costs while also acting as a demand side management resource and boosting the amount of renewable energy integrated into the system.
"EVs really do have the potential to serve as a resource to the grid, as mobile storage and something to regulate loads," Cassie Powers, senior program director at the National Association of State Energy Officials, told Utility Dive. "They hold the promise of transitioning the transportation sector."
"The more enlightened utilities clearly see the opportunity. Utilities all over North America are very focused with how they deal with electric vehicles," Storch said. "It creates dramatic opportunities and changes in how the distribution system is used."
Making the business case
While the technology side of modernization is important, Autumn Proudlove, senior manager of policy research at the North Carolina Clean Energy Technology Center, said it goes further.
"Whenever we talk about grid modernization, things like utility planning procedures and business models are also relevant — and that's where we're seeing a lot of the focus move to," Proudlove told Utility Dive.
Of the 42 states taking grid modernization actions in the second quarter, the most common moves related to policies, studies and investigations, planning and market access. However, two dozen states took steps to actually deploy grid edge technologies, as shown in the table below, and there were a combined 75 actions directed at business models, financial incentives and rate reform.
Studies of energy storage and other distributed resources also make up a significant portion of the actions, said Proudlove, as states and utilities try and move deliberately. The idea, she said, is that when these deployment proposals are actually rolled out, "the incentive structure is such that you're going to get more efficient proposals from utilities that are better aligned with what consumers want."
But state regulators have recently denied a couple of utility-proposed AMI rollouts, causing some in the industry to question how utilities will make the business case for some kinds of new infrastructure.
"Regulators are looking carefully at the cost and benefits of these technologies, to make sure benefits do outweigh the costs and that there are not going to be a lot of stranded costs."
Senior Manager of Policy Research, North Carolina Clean Energy Technology Center
Grid modernization "does require an investment up front, but I think it delivers a lot of value over the longer term," Aggarwal said. "And it's not that costs will go down immediately, but having a more integrated way of dispatching all these resources means we'll be using more of the resources more often, so you don't have to overbuild the system as you have in the past."
AMI is typically considered foundational to a more modern grid, but it is an expensive undertaking. In Massachusetts, the Department of Public Utilities earlier this year rejected National Grid's plan to install smart meters, noting the proposals "revealed weaknesses in the business case for advanced metering functionality."
After the rejection, the utility said it welcomes the chance to make improvements and that market changes during the proposal process played a role in the rejection.
"The growth in municipal aggregation, that was not prevalent when the plans were first developed, generates a reduction in the potential time varying rate participants, which the DPU noted as their biggest concern," National Grid said in a statement to Utility Dive.
"They're definitely having to make the business case for it," Proudlove said. "Regulators are looking carefully at the cost and benefits of these technologies, to make sure benefits do outweigh the costs and that there are not going to be a lot of stranded costs. ... Especially with AMI in several cases, regulators are finding the numbers just don't work and the investments are not justified at this time."
Richard Mroz, senior advisor of state and government relations for Protect Our Power, is also the former president of the New Jersey Board of Public Utilities. He told Utility Dive that under his direction the BPU was reluctant to approve AMI.
"When I got there in 2014, it was clear the companies didn't have the technological backbone, the IT systems, to let AMI talk to the rest of the system," Mroz said. "Some very basic work had to be done on the distribution automation side."
Proudlove said regulators are sometimes taking a more targeted approach, focused on rolling out AMI to customers with distributed generation or that are more engaged. "In some cases, they don't think full deployment of AMI is justified or that the benefits will justify the costs, and they think a more targeted approach is the way to go right now," she said.
Ultimately, AMI will be required for many of the advanced technologies now being discussed and developed: two-way electric vehicle connections; transactive energy environments where neighbors can trade power; smart homes integrated as distribution grid resources; the proliferation of distributed renewables.
"There's a lot of interest in managing the duck curve, but really it's being managed below the substation level. It's actually managing ducklings."
Senior Vice President of Commercial Energy Practice, ICF
In particular, as distributed resources become more common the utility sector's connection to the bulk power system will become less critical, ICF's Cook said. She pointed to California, where the imbalance between solar production and peak demand creates a "duck curve" that must be managed.
"There's a lot of interest in managing the duck curve, but really it's being managed below the substation level. It's actually managing ducklings," Cook said. That interplay between the bulk and distribution systems "will always be there, but it is definitely going to change as distributed resources take more of the load."
Securing a distributed grid
A more connected and distributed grid also comes with risks, and utilities in the United States face wave of attempted hacks that are only becoming more frequent and sophisticated.
Cybersecurity and grid modernization "go hand in hand," said Proudlove.
Proudlove authored a recent analysis of grid modernization efforts across the country, which considered how states are adjusting traditional planning processes to consider new technologies. "It makes sense to address those together," she said. "That's not happening in every case, but it is in at least some of these."
According to Proudlove's research, the most common types of actions taken in the second quarter included advanced metering infrastructure opt-out rules, storage deployments, business model reforms, data access and grid modernization investigations.
At the distribution level and behind-the-meter, the grid is rapidly becoming more distributed. Integrating rooftop solar, storage, smart home technology and utility resources means a lot more connected devices: both a feature and a flaw.
Yes the technology evolves, and it becomes smarter, but it also has more and more potential vulnerabilities."
Senior Advisor, Protect Our Power, and former President, New Jersey Board of Public Utilities
"Every one of those devices is a potential portal to a threat," Protect Our Power's Mroz said. "The IOT numbers are crazy. There are 25 billion devices connected now, and the numbers are expanding exponentially. And all that stuff, as it gets bolted on or integrated into the grid, is another threat."
Mroz aid the industry is grappling with the threat and one solution is to create standards for the manufacture of grid-connected devices.
"There are no standards for the manufacturing of those devices," he said. "Yes the technology evolves, and it becomes smarter, but it also has more and more potential vulnerabilities."
In addition, standards may be a double-edged sword, according to Eddie Habibi, the CEO and founder of PAS.
"Distributing the grid to smaller segments is a mixed blessing," he said in an email. A successful intrusion will have a smaller impact, but "on the other hand, it opens more doors for the bad guys to enter by expanding the attack surface."
Standardization is "generally helpful for the cybersecurity market," Habibi said. "However, standards generally provide guidelines that then must be expanded upon by operating companies."
As the United States' electric grid is modernized, Habibi said the most important point may be to inventory and understand the industrial control systems that are connected and controlling vital equipment.
"We don’t fully understand what systems we have and what vulnerabilities they have," he said. "The existing control systems that manage generation and distribution of power were never designed with security in mind."
The industry is making strides on security standards, and grid modernization is one way improvements are being introduced, Scott Aaronson, vice president of security and preparedness for the Edison Electric Institute, told Utility Dive.
"We're working with the vendor community and our manufacturing partners to build security in, as part of the deployment of these new technologies," Aaronson said. But he cautioned the sector must be wary of the "smart grid paradox."
"On the one hand, you are increasing the attack surface, but you're also increasing visibility into the system," he said. And the modern grid's distributed and varied nature is a piece of built in security.
"The grid's biodiversity makes a single source widespread attack very difficult to perpetrate," he said. "There are not a lot of common vulnerabilities across these systems … to have widespread impact, one would need to develop bespoke malware and deploy it almost simultaneously across a lot of different entities — and that's really hard to do."