More than two years ago, the Massachusetts Institute of Technology’s Energy Initiative started researching the changes afoot in the global electricity sector.
In just a few years, there have been monumental changes in the provision and consumption of energy services -- including the emergence of distributed energy technologies -- that could alter the evolution of power systems in the years to come. MITEI continued its research on a moving target, and recently released its massive Utility of the Future report.
The report is novel in its comprehensive approach; in its 300+ pages, it digs into the details of a transition to distributed energy resources (DERs) over the next decade and beyond.
“A lot of the challenges really crystallized in this period,” Jesse Jenkins, MIT doctoral student and a researcher on the MITEI study, said of the changes being driven by distributed energy resources and increased use of intermittent renewables. “This is on the radar everywhere.”
The report does not try to predict the future, but rather enable it, said Scott Burger, another MIT doctoral student and researcher on the MITEI study. The results are meant to educate and inform stakeholders, and regulators in particular. Enabling the future means taking a proactive approach to reform for the changes that are already happening across the electric sector.
“The task facing those responsible for the reliable and cost-effective planning, regulation and operation of future power systems is daunting,” the study authors acknowledge. “The sheer length and weight of this study seem to confirm that.”
MITEI offered dozens of recommendations throughout the report. Here are eight of the top insights for regulators and power companies that want to get ahead of the challenges at the distribution level.
Ditch customer classes. MITEI recommends ditching the idea of customer classes and instead focusing on the injections of withdrawals of power on the system at any given place and time.
Get granular. Many of MITEI’s 30 top recommendations in Chapter 9 focus on locational pricing, rather than technology-specific or system-wide pricing. “The value of each DER depends on the value of the specific services it provides at a specific time and a specific location,” the study states. Many utilities do not have the visibility into their systems to offer this type of pricing today, which means significant investment will need to come before this is even a possibility.
AMI everywhere. The first step to location-based rates, argues MITEI, is the ubiquitous deployment of advanced metering infrastructure. Without it, “it is impossible to meaningfully develop a comprehensive system of prices and charges and accurately meter, compensate and charge a diversity of electricity resources.”
Simplify volumetric rates. Before overhauling rates all together, MITEI also recommends that regulators remove any policy costs, such as efficiency programs, taxes, and residual network costs from volumetric rates. Essentially, anything that’s not directly affected by changes in electricity consumption should not be part of the volumetric rate. Those costs should instead be a lump sum divided into monthly installments.
Focus on reactive power. The study authors suggest that utilities and regulators pay more attention to reactive power and how that impacts network constraints. To deal with the constraints, DERs may be a cheaper alternative to traditional grid investments. This is one area where many utilities and regulators are already working, by focusing on non-wires alternatives to deal with pinpointed areas of constraint instead of just building out the grid further.
Institute profit sharing and multi-year rate plans. A more nuanced way to incentivize efficiency in the system is to institute profit sharing, according to MITEI. Under profit sharing, utilities are given multi-year revenue trajectories that allow the utility to “share potential profits from efficiency gains and distribute risks between utilities and ratepayers,” according to MITEI. This approach retails utility incentives for cost reduction and improved performance, but does not fully decouple allowed revenues from realized utility costs.
Performance-based regulation. But even sophisticated profit sharing may not be enough, the study warns. Utilities should be incentivized to look beyond capital or operational expenditures with new performance-based models, such as the U.K.'s total expenditure or TOTEX-based approach.
Build a DSO. The study also calls for distribution system operators that serve as market platforms for distributed energy services and can coordinate with markets at the wholesale level. The DSO could be the distribution utility that does not also participate in the market, as New York is trying to do, or it could be an entirely new entity. Along with other functions, the DSO should also be the hub for customer and grid data to ensure access is fair and that privacy concerns are addressed.
It is possible to build a model that supports the utility of the future with incremental steps, but those steps must start right away, according to MITEI experts. “We caution regulators that we do need to begin today, really yesterday, for proactive reform ahead of what’s happening on the technology side,” said Jenkins. “We hope this [report] is well timed to provide a toolkit.”