GTM Research defines a “non-wires alternative," or NWA, as any "nontraditional measure aimed at deferring, mitigating or eliminating the need for traditional utility transmission and distribution investments." That can include anything from getting a lot of people to turn their air conditioners down a little bit when the grid is hitting its peak demand, to combining solar PV with batteries to ease loads on specific distribution transformers -- as long as it comes with a way to monetize that value.
No markets today exist to allow NWAs to earn their money providing this kind of service. Still, in a handful of states, led by New York and California, mandates are driving a pipeline of projects that could widen the possibilities for DERs to get paid as an integral part of the grid.
According to the recent GTM Research report Non-Wires Alternative Projects: Emerging Utility Revenue Sources for the Distributed Energy Market, the United States had 133 NWA projects implemented or in the pipeline as of mid-2016, adding up to 1,960 megawatts of capacity. Projects in advanced stages dominate the pipeline, with 1,150 megawatts of capacity in post-identification stages, compared to 490 megawatts of earlier-stage “identified NWA opportunities.”
That’s a huge boost in a category of grid investment that has only come into being within the past few years. “With pilots dating back to 1991, NWAs certainly are not new in the U.S. electricity sector,” said GTM Research analyst Daniel Muñoz-Álvarez. But those early pilots faltered without sustained support.
Today’s big boost started in 2015 with regulatory initiatives that planned for a future beyond pilots -- primarily New York’s Reforming the Energy Vision initiative and California’s Distribution Resources Plan proceeding, which have forced big investor-owned utilities to open up a share of their “black-box” grid investment planning process to distributed energy resource (DER) alternatives.
This drive by the country’s two most populous states led to a 200 percent increase in NWA installed base and pipeline, from 876 megawatts in 2015 to 1,771 megawatts in 2016. Most of this has come from good, old-fashioned efficiency improvements, by the way, not high-tech solar-storage-microgrid type projects.
“More specified NWA capacity has been scheduled or deployed through energy efficiency measures than from all other technologies combined,” Muñoz-Álvarez noted -- 274 megawatts of it in projects that have specified the source of their capacity, followed by 56 megawatts of demand response, 8 megawatts of solar PV and 5 megawatts of energy storage.
Meanwhile, front-of-meter resources that are being developed include 90 megawatts of wind power, 41 megawatts of energy storage and 11 megawatts of conservation voltage reduction -- one of the few NWA implementations that’s under direct utility control.
Today, New York is the clear leader in NWAs, with 956 megawatts in the pipeline, just under 60 percent of the country’s total capacity. It also has the biggest distributed NWA project to date, the Brooklyn Queens Demand Management (BQDM) project, which has tapped 46 megawatts as of the fourth quarter of 2016. Utility Con Edison wants to replace a $1 billion substation upgrade project with a cleaner and more cost-effective mix of efficiency, demand response, energy storage and other outside-the-box alternatives.
Con Edison has also selected vendors for two more NWA projects in midtown Manhattan, and has identified another 60 megawatts of potential over the next five years. In the past six months, the state’s other big utilities, Iberdrola, National Grid and Central Hudson Gas & Electric, have published their own list of NWA opportunities, adding up to more than 200 megawatts over the coming decade. (Greentech Media will be getting into the details of New York’s energy transformation at our New York REV Future 2017 conference next month in Brooklyn.)
Other states of note on the NWA map include Oregon, where the federal Bonneville Power Administration has launched one of only two NWA projects aimed primarily transmission grid investment deferral -- the other is being considered by the Long Island Power Authority.
Otherwise, nearly all NWA projects have been led by distribution utilities, albeit under very different state-by-state regulatory constructs. Vermont was one of the first states to open the NWA market back in 2007 and has allowed utility Green Mountain Power to offer its customers monthly payment plans for Nest smart thermostats, Tesla Powerwall batteries and Aquanta smart water heater controls to help it shave peak loads and defer capacity costs. Washington, Michigan, Massachusetts and Nevada have smaller-scale projects underway.
California has 5 percent of the country’s NWA capacity, in the form of the handful of pilot projects being overseen by the state’s big investor-owned utilities. Southern California Edison’s Preferred Resources Pilot has gathered 125 megawatts and counting of efficiency, solar, demand response and energy storage in Orange County, to help it solve grid supply and stability challenges in the wake of the closure of its San Onofre nuclear power plant. Last year's shutdown of the Aliso Canyon natural-gas storage site has driven a lightning round of local capacity procurements involving 50 megawatts of batteries and another 50 megawatts of peak load shaving and shifting from some 50,000 homes already equipped with Nest thermostats.
The main challenge for NWAs -- and the reason they’ve been driven by mandates, not economics -- is that they're a money-loser for utilities under traditional rate-of-return regulation. Utilities get to pass on capital costs, like grid improvements, to their ratepayers. Asking them to replace those guaranteed rates of return with a smaller investment, and one that’s at least partly under someone else’s control, is a tough sell.
Different states are working with different methods for overcoming this obstacle. New York is allowing its utilities to try a number of methods, including rate of return on total expenditures, a return on equity adder, or as a share of the savings that the NWA delivers over its lifespan. California is looking at giving utilities a percentage of the payments it makes to NWA providers, and both states have built in “clawback” provisions to give utilities a share of the savings compared to the traditional grid alternative.
Most utilities are seeking portfolios of contracts with multiple DER providers, as Con Edison has done with BQDM. But a few are working with a single aggregator, as with Central Hudson and Comverge in New York and CMP and GridSolar in Maine.
Finally, there’s an important push for more openness in how utilities identify and value DERs in lieu of grid investments. New York’s Public Service Commission has told utilities that it wants them to move beyond issuing RFPs to resolve its identified system needs, and to “consider the procurement process earlier and more broadly incorporate system design into NWA solutions.” The California Public Utilities Commission has mandated that utilities share some share of the data they’re collecting on the capacity for, and locational marginal value of, DERs on their distribution circuits.