Hello Local Energy, Bye Old Power Industry
New York, where the power industry began over a century ago, might be where it ends too. At least the power industry as we know it today.
The state’s electric regulators made that clear February 26 when they took a key vote creating an electricity marketplace that elevates new, local energy over big central power plants and long transmission lines.
The New York Public Service Commission approved the framework for its Reforming the Energy Vision, or REV, a dramatic reworking of roles in the electricity business. Customers, innovators and competitive companies gain new stature, while utilities act as a more subservient platform for the new offerings.
The decision opens the door wide for disruptive energy technologies, such as microgrids, energy efficiency, solar, electric vehicles, energy storage and demand response.
Audrey Zibelman, the PSC chair who is widely credited for the new direction, described REV as a way to make the grid “more nimble, flexible and accommodating” for the new technologies.
She expects the new paradigm to increase system efficiency, lower costs, reduce emissions, increase system reliability and make the grid less vulnerable to attack.
New York is one of the first states to create such sweeping regulation, which lets consumers, businesses and communities gain control over their energy supply. As a result, the proceeding has attracted national attention over the last year as the commission formulated the plan.
About 300 local and national players weighed in and the commission received more than 1,000 written comments, most supporting the industry shift.
“It’s been overwhelming seeing the engagement,” Zibelman said, during Thursday’s commission meeting.
The new distributed energy marketplace will operate on what New York calls a distributed system platform (DSP). This is both a “market maker and system coordinator,” according to the commission’s written decision.
The DSP plays a role somewhat akin to an independent system operator for wholesale markets. The DSP will plan, balance markets, oversee auctions and offer price transparency.
By way of example, the commission said products that use the platform might include microgrids, community solar, storage, fixed commodity pricing, demand response, energy efficiency programs and contracts for distributed energy maintenance and operations.
The DSP also will provide, or sell, a set of products and services of its own for those that use the platform. The products might include transaction or usage fees, platform access, analytic services, interconnection services, pricing and billing, metering information services and data sharing and maintenance, operation, and financing.
Why the Big Changes
A whole host of industry shifts led New York to create REV. Among them was the realization that the grid cannot efficiently meet today’s demand.
Because of economic changes and increased use of air conditioning, costly system peaks keep occurring. The state typically needs only about 18,000 MW. But to meet system peaks just a few hours a year, it must maintain 26,000 MW of capacity, Zibelman said.
By just operating more efficiently and reducing peak demand, the system could spare customers $1.5 to $2 billion per year, she said.
Further, the state’s power grid is aging, and it will cost a tremendous amount of money for New York to rebuild — about $30 billion over the next decade, almost double the investment of the last decade.
At the same time demand is slowing, meaning electricity sales are down. This creates a smaller base from which the electric industry can collect money for the new infrastructure. The bottom line is that rates will go up, if the state simply continues with business as usual.
“If we can manage the demand, manage the peak, we can avoid that investment,” Zibelman said.
Praise and Concerns
The REV concept has received widespread praise from companies promoting disruptive energy tech, energy entrepreneurs, investors, environmentalists and other stakeholders.
“There is so much potential, it is extraordinary,” said Mike Gordon, CEO of Joule Assets, which offers financing for energy efficiency and demand response. “The opportunity for private companies, for towns and villages, for government entities, it is just so rich. And the opportunity for consumers is so powerful.”
Kit Kennedy, director of the energy & transportation program at the Natural Resources Defense Council, described REV as “a bold step toward creating a cleaner and more efficient electric grid in New York state.”
“The decision paves the way to ramp up clean energy and energy efficiency, put more clean vehicles on the road, and make our electric grid more reliable than ever. On top of that, it will help lower energy bills for consumers, especially for low-income New Yorkers who need it most,” Kennedy said.
A key worry, however, has been that even as New York makes these changes, utilities will use their market clout to squash the many new competitors expected to emerge.
Anticipating this issue, the state set up rules to keep utility dominance in check. REV places limits on utility market plays. To own or develop distributed energy resources, a utility must prove that its investment:
- Meets needs that the competitive market has been unable to fill
- Includes energy storage integrated into the utility distribution system
- Helps low or moderate income residential customers to benefit from distributed energy where markets cannot do so, or
- Serves demonstration purposes
Joule Assets’ Gordon said he believes the competitive market will ramp up quickly, taking away the need for utilities to provide even these services.
The REV changes aren’t going to happen overnight, but will occur over several steps likely to take years.
With the REV framework now in place, the New York commission will move onto what it calls Track II in the REV proceeding. Track II will focus on the financial nitty-gritty: changes in how utilities are paid for their services — now that they will operate differently. The key is to avoid what is referred to as the “utility death spiral,” the financial degradation of a utility as it loses conventional customers.
Zibel said that REV spares utility financial harm because it gives them a new role managing the distributed platform. And bulk power — large central power plants — do not go away; their role is simply no longer as dominant. Management and exchange will be needed between the two sides of the system: wholesale power and distributed energy. So utilities also will act as interface with the state’s grid operator, the New York ISO,
As a next step, utilities must solicit and develop demonstration projects that fit the REV framework. Projects are due to the commission by July 15.
By May 15 utilities must identify potential non-wire alternatives for their systems.
And by December 15, they must file DSP implementation plans that include interconnection improvements.
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