The power system's growing need for flexible load and customers' rising demand for backup power are driving new partnerships between utilities and providers of customer-sited resources across the Northeast.
Vermont's Green Mountain Power (GMP) is leading this transition toward distributed energy resources (DER) as grid assets. But others are right behind. And instead of the usual market battle, DER providers and utilities are becoming enthusiastic collaborators.
The objective is "a home-, business- and community-based energy system," GMP CEO Mary Powell told Utility Dive.
"We envision a future in which the distribution system is primary [and] the distribution utility is the symphony conductor of many different DER devices, with battery storage leading," she said. "And the devices are an almost living, breathing system that inhale when costs go down and exhale as prices go up."
New bring-your-own-device (BYOD) programs, which target peak demand reductions, are just the beginning, stakeholders told Utility Dive. Synergies among utilities, DER providers and customers can deliver a range of cost-effective advanced grid services. The key, they said, is standardized pay-for-performance and shared savings provisions to protect ratepayers.
Bring your own where?
There are BYOD programs or proposals in Vermont, New Hampshire, Massachusetts, Connecticut, Rhode Island, Maine and New York. But four states are leading.
GMP's DER programs have attracted over 2,700 customers, Powell said. The utility now has 11 MW of DER assets, including customer-owned batteries, EV chargers, water heaters and heat pumps. Battery programs have generated over $800,000 of net value in grid services since 2018 while maintaining customer access to the batteries for backup power.
In a new BYOD proposal, private sector providers will aggregate customer-owned devices and "be compensated for reducing kWs over the peak hour each month and each year," she said.
"[I]t is an incentive to the utility to forecast the peak accurately and dispatch the signal to aggregators effectively."
Director for Policy and Storage Market Strategy, Sunrun
The amount of compensation to DER providers and their customers depends on whether DER is used to avoid annual transmission system peak charges or monthly system peak costs, and may be higher in more congested locations. "The key is matching compensation to the value the DER delivers," Powell said.
GMP's primary value has been reducing the New England Independent System Operator's (ISO-NE) annual peak usage charges, she said, which created a $750,000 value within one hour of a hot summer day last year. DER also produced revenue for GMP in the ISO-NE capacity and ancillary services markets.
Shared savings give "aggregators an incentive to maximize the use of customers' batteries," Sunrun Director for Policy and Storage Market Strategy Chris Rauscher told Utility Dive. "And it is an incentive to the utility to forecast the peak accurately and dispatch the signal to aggregators effectively."
To produce savings, utilities and aggregators must work together "to make sure the storage and other DER devices are inhaling and exhaling at the right times," Powell said.
Massachusetts and New Hampshire
Massachusetts' BYOD programs are "a phase change" in DER use by utilities, Rauscher said. Regulators "shifted the traditional energy efficiency mindset of reducing volumetric sales to the forward-looking mindset of energy optimization that reduces peak costs and peak emissions."
Eversource's BYOD program will help the utility "maximize the value of customer-sited assets on our system," its Manager of Energy Efficiency Planning and Regulation Michael Goldman told Utility Dive.
The program "is designed to integrate every asset type possible, but only for a certain number of hours per year," Goldman said.
Aggregators are compensated by utilities and share the returns with DER owners and Eversource is "the aggregator of aggregators, managing its peak load issues without owning or operating assets."
Eversource will first focus on using behind-the-meter assets to reduce ISO-NE transmission charges, he said, which could lead to reduced expenditures for new capacity.
"This combination of aggregated customer- and utility-owned resources may also act as a non-wires alternative to new utility infrastructure."
Manager of Energy Efficiency Planning and Regulation, Eversource
The program includes battery storage, smart thermostats, EV chargers and traditional direct-control demand response, that the utility envisions as being "dispatched through a software platform with a single point of control" to manage peak demand, Goldman said.
Eversource also provides services across Connecticut and New Hampshire, and is planning to deploy a hybrid pilot to address a high number of outages in the transmission-constrained load pocket of Westmoreland, New Hampshire, by pairing behind-the-meter devices with front-of-the-meter storage.
In an outage, DER owners will "reduce their own load, magnifying the impact of the utility-owned front-of-the-meter storage," said Goldman. "This combination of aggregated customer- and utility-owned resources may also act as a non-wires alternative (NWA) to new utility infrastructure."
Programs like BYOD that provide access to DER can "achieve operational objectives with economic and environmental benefits if there is enough aggregated DER," Goldman said.
The Public Service Electric and Gas, Long Island (PSEG-LI) BYOD offering is similar to those in Massachusetts and New Hampshire. The utility compensates DER providers and their customers for reducing system peaks. But New York's program offers a long-term guarantee of compensation to drive investment.
Through an existing tariff, aggregators are compensated for reducing PSEG-LI's New York Independent System Operator (NYISO) peak demand charges. Compensating DER owners is left to aggregators.
The program is available for all utility customers, but marketing will focus on the fast-growing suburbs of South Fork and North Bellmore on Long Island, where electricity demand is outgrowing transmission and distribution capacity, PSEG-LI Director of Energy Efficiency and Renewables Mike Voltz told Utility Dive. Like Westmoreland, aggregated assets may act as an NWA and relieve the need for utility expenditures on new infrastructure.
"We're not paying these customers any more than we would pay a generator for producing the same amount of capacity during peak demand. This prevents an inappropriate shift of costs to other customers."
Director of Energy Efficiency and Renewables, PSEG-LI
PSEG-LI hopes to have 90 aggregators delivering a minimum reduction of 50 kW each by the end of 2019, Voltz said. A feature added to the existing tariff is a 10-year commitment to customers and aggregators who invest in DER "to provide assurance they will continue earning a reasonable return."
The feature of BYOD programs most stressed by the utilities was that they are performance- and cost-based, meaning all customers benefit equally from utility investments, unlike DER incentive programs such as net metering.
PSEG-LI program participants "will not be paid automatically for 10 years, but they will be paid at the rate they reduce demand each year over the next 10 years," Voltz said.
Utilities have technologies capable of accurately measuring how effectively usage is curtailed by aggregators. Compensation rates then match the cost of purchasing comparable peak demand capacity.
"We're not paying these customers any more than we would pay a generator for producing the same amount of capacity during peak demand," Voltz said. "This prevents an inappropriate shift of costs to other customers."
Everybody loves pay-for-performance
Private sector aggregators and other stakeholders also endorsed cost-based pay-for-performance provisions of BYOD programs that assure compensation matches a utility's cost of obtaining peak reductions from other resources, and that only peak reductions delivered to the utility are compensated.
"With pay-for-performance, the actual cost of meeting peak demand is still covered in rates, but the risk is moved from the utility and its ratepayers to aggregators," Keyes Fox attorney Melissa Birchard, formerly a stakeholder in Northeastern regulatory proceedings on DER, told Utility Dive.
GMP's newest proposal could be a template for future programs "because it is pure pay-for-performance," Sunrun's Rauscher said. "The utility pays only for savings from aggregated DER, which means no risk to the utility rate base. The utility splits the savings with the aggregator, and the aggregator shares that return with the customer."
"Every utility investment has the potential to be good or bad for customers over the long term."
Co-founder Revision Energy
The key feature of Massachusetts' programs is that the devices are under the control of aggregators, but combining that with risk protections for ratepayers makes for a win on both sides, New England DER provider Avid Solar's CEO Russ Aney told Utility Dive in an email.
"Every utility investment has the potential to be good or bad for customers over the long term," Revision Energy Co-founder and managing partner Fortunat Mueller told Utility Dive. BYOD programs require investments that should be based on "the value they will generate."
Compensation arrangements vary based on the program, the utility, the aggregator and the market. GMP shares savings with aggregators for reduction of the ISO-NE forward capacity market's yearly single peak hour of usage and its monthly peak hour regional transmission cost.
At the ISO-utility, utility-aggregator and aggregator-customer levels, "the goal is standardized agreements with clear performance requirements and price signals grounded in the reality of the system's avoided costs," Lon Huber, head of Navigant's North American retail regulatory offering, told Utility Dive.
For all participants' costs to continue to go down, "the ISOs may have to evolve planning and pricing as these flexible resources become a bigger part of member utilities' portfolios," he added.
"If, over time, others transition to a more efficient grid, the ISOs would have to rethink spending on the bulk system and that would be a beautiful thing."
CEO, Green Mountain Power
Utilities are staying away from aggregator-customer arrangements. In Vermont, GMP passes 80% of its savings from peak reductions produced by Sunrun customers with rooftop solar and behind-the-meter batteries to Sunrun. Savings are divided 70%-30% for reductions from Sunrun's battery-only customers.
Because utilities have the most access to system data, it should be their responsibility to predict peaks and dispatch signals, and "they should be compensated for doing it," he added. "Aggregators can manage and optimize DER for grid services like peak reductions, and guarantee that storage owners always have battery capacity for backup power."
The emergence throughout the Northeast of BYOD programs is "a bridge into the future," Rauscher said. DER now can provide benefits to every customer through "different solutions to different problems in different ways."
Rethinking ISOs to maximize DER value
"BYOD is part of a larger strategy of using these devices to crush and flatten the peak and create significant savings," GMP's Powell said. "ISO-NE for the first time reduced its capacity forecasts by over a GW, saving money for everybody. If, over time, others transition to a more efficient grid, the ISOs would have to rethink spending on the bulk system and that would be a beautiful thing."
Rethinking ISO policy is also needed, Navigant's Huber said. In BYOD programs, utilities use DER in "load reducer mode" rather than as traditional market participants. "That is a sign that ISOs may need to help build a bridge between the two worlds to maximize the value of DER and minimize any undue cost shifting."
"The ultimate vision is a suite of distributed solutions that serve as non-wires and non-natural gas alternatives to meet power sector needs."
Attorney, Keyes Fox
A "standardized agreement" could allow DER "to provide more wholesale system services" without incurring burdensome hardware costs and "market complexity," he added. "With the right price signals, DER could be brought into the markets and scale."
The power sector will need more services like peak demand reduction, flexibility, voltage control and resiliency, Keyes Fox's Birchard said. "But now they can come from customers' investments instead of traditional capital investments."
These new DER programs represent "the cusp of a customer-sited energy revolution," she said. "The ultimate vision is a suite of distributed solutions that serve as non-wires and non-natural gas alternatives to meet power sector needs."
BYOD programs are a huge opportunity because customers are willing to pay for them "to keep the lights on when the power goes out," Revision's Mueller added.
"If you can leverage private investments to lower grid costs for everybody, it's an awesome win-win. But it is too soon to know how programs should be structured. For now, just create enough certainty to give the market a chance to grow."
Correction: The Energy & Resources Solutions and DNV-GL report found that batteries and technologies performed as expected, but manual curtailment still made up the majority of demand reduction. An earlier version of this story misrepresented the study's findings. This article has also been updated to clarify that Energy & Resources Solutions and DNV-GL prepared the March report for Eversource.