by Emma Foehringer Merchant
December 04, 2020

Which is the better path to decarbonizing the power grid: focusing on low-cost utility-scale solar and wind, or building out the policies and technology to also allow distributed clean energy to thrive?

That persistent debate has taken on a new urgency over the past few years in the United States. More than a dozen states have now committed to 100 percent renewables or clean energy. Utilities such as Xcel Energy and Duke Energy announced goals to reach net-zero carbon emissions. And the U.S. has elected Joe Biden, who campaigned on a nationwide 100 percent clean electricity standard, as its next president. 

But these successes for renewable energy advocates haven't stilled disagreements over whether it’s best to swap traditional fossil-fuel plants with centralized, large-scale renewables, or to rely on a mix of large-scale and distributed generation.

This week, distributed solar advocates Vote Solar, Sunrun and the Coalition for Community Solar Access released a newly modeled study that makes the case for the latter option. It also calls for utilities and regulators across the country to implement the modeling and planning methods that yielded its results. 

The modeling from renewables forecasting firm Vibrant Clean Energy analyzes both capacity expansion and dispatch requirements for the nationwide grid. Using the firm's "WIS:dom-P" modeling software allows this forecast to reach a level of granularity down to the kilowatt and five-minute-interval scale across 3-square-kilometer sections of the country.

The results indicate that building out distributed solar and energy storage resources in combination with large-scale renewables projects yields a clean-powered grid that's $88 billion cheaper than business-as-usual electricity planning through midcentury. Focusing on distribution-level assets also has the capacity to reduce peak demand 16 percent by 2050, according to the model. 

In terms of the debate over large-scale versus distributed resources, “this study really persuasively makes the case that it’s not either/or — we need both,” said Brad Klein, a senior attorney at the Environmental Law and Policy Center. “By doing both, and by co-optimizing those local resources and larger resources, we can save a lot of money in the long run and in the meantime create a whole lot of jobs and economic opportunity directly in communities.”

Utilities, which have lined up in favor of large renewables that they can build and get paid for, are more skeptical. Katie Carey, a spokesperson at Consumers Energy, a Michigan utility working to cut coal from its portfolio and reach net-zero carbon emissions by 2040, told Greentech Media that the utility does not rely on one model to identify decarbonization solutions.

Regulatory efforts to quantify the true value of distributed assets are relatively nascent. Advocates are still working to convince utility commissions in states across the nation to evaluate distributed resources more holistically than traditional docket proceedings allow.

“There’s value to these resources at a grid level at scale,” said Jeff Cramer, executive director at the Coalition for Community Solar Access. But, he acknowledged, “any model is only as useful as the efforts to implement it.”

Defining the value of solar

Conflicts over the value of distributed generation have played out in numerous states, largely in the context of solar advocates and utilities squabbling over the price at which customer-sited solar should be compensated. That disagreement has become more pronounced as policymakers in certain states consider moving beyond net metering to more complex rate structures.

In states such as Utah, Michigan and Wisconsin, renewables groups have argued the wide range of benefits solar provides to the grid should be embedded in the price paid to customers who export power to the grid.

“When we break down both the locational, temporal and performance characteristics with solar, we do see a lot of value streams,” said Sachu Constantine, Vote Solar’s regulatory managing director.

Some investor-owned utilities, on the other hand, have asserted that solar customers cause wear and tear on the overall system while pushing costs onto non-solar-equipped customers, framing distributed resources as a burden rather than a boon.

In a recent Utah decision, commissioners lowered the export rate offered to solar but settled on a price in between the rate proposed by utility Rocky Mountain Power and the higher rate suggested by pro-solar organizations.

Rocky Mountain Power told Greentech Media that alternatives to its compensation program must “be the lowest-cost option and not shift costs to other customers.” Vote Solar has asked the commission to reconsider its order.

The Utah Public Service Commission noted the “highest and best use” of customer generation is avoiding electricity purchases, suggesting appreciation of the grid benefits of distributed solar. But regulators also argued that considering “carbon policy, economic development and public health” was outside the scope of its assessment for compensation.

Notably, Vibrant Clean Energy's proprietary model doesn't consider those external benefits either, instead relying only on “monetary grid costs and benefits." Authors of the new report say including the external benefits would show that distributed solar is even more economically sensible.

Organizations that often participate in regulatory proceedings on distributed solar policies, such as Vote Solar and the Environmental Law and Policy Center (ELPC), said the model should help commissioners see the benefits of a distributed grid when used in such proceedings.  

“A tool like this can be helpful in…pushing the utilities to fully consider distributed resources as an actual utility resource,” said ELPC’s Klein. “To date, that’s really been ignored in the resource-planning process.”

Modernizing the grid

As distributed resources join the grid at more significant levels, however, these questions are getting harder to ignore. How to compensate and regulate small-scale solar has resulted in utility dockets across the U.S., from states with significant distributed solar like California to those where the resource is only beginning to grow, like Iowa.

Regulators, utilities and third-party installers need to work on holistic planning to understand the local and grid-scale impact of these resources, said Elta Kolo, content lead for Wood Mackenzie’s grid edge research.

“How do you get ahead of what’s coming? It’s coming fast,” she said.

At the same time, making those decisions can be tricky in an environment where grid stakeholders are still quantifying all of the functions that distributed resources can offer.

“There’s no reason to rush the transition from a very simple and transparent policy, like retail net metering, in states that still have low levels of [distributed generation] penetration,” said Klein. “We [don't] have a lot of data yet, we don’t have a lot of market experience yet, we don't have a lot of regulator expertise yet, and we don't have the stakeholders in place that are really necessary to come up with a robust, complex, next-generation policy for [distributed energy resource] compensation.”

Many states, including California and Iowa, are already considering what’s to follow solar net metering, though.

“We are moving into a post-[net metering] world,” said Vote Solar’s Constantine.

At the same time, companies such as Sunrun are experimenting with aggregating distributed resources to form virtual power plants. Utility Green Mountain Power is using Tesla Powerwalls to modulate demand on the grid. More utilities are experimenting with owning and managing electric vehicle charging infrastructure.

“There are tremendous amounts of demand flexibility that we have yet to tap,” said Jon Wellinghoff, a former chair of the Federal Energy Regulatory Commission and now CEO at consulting firm GridPolicy.

Changing the dynamic

One reason that disagreements over distributed solar persist is because of a difference in mission. While solar organizations and companies want to encourage widespread uptake of renewables (and, for some of them, make money in the process), the main goal for utilities is to provide electricity while turning a profit.

Utilities make money by rate-basing investments. Those companies need to put steel in the ground in order to put money in shareholders’ pockets. One reason why large-scale renewables have become more popular with utilities, even as they oppose distributed resources, is because many can build and own those large-scale resources themselves.

“The financial model of almost every monopoly utility in the country is one where they make additional profit by investing more money. They don’t make any additional profit by opening their platform to other competitive providers,” Wellinghoff told GTM.

Unless electricity systems are significantly altered, getting utilities on board is an essential step to opening up the market to more distributed energy participation. Regulated utilities are powerful players in local politics with significant sway in utility commission decisions.

“That’s one of the fundamental public policy challenges we’re facing, is to overcome the utility bias against third-party-owned resources in a way that is really preventing, I think, the optimal development and evolution of some of these policies,” said ELPC’s Klein.

One solution to that opposition is changing the existing incentive structures.

“You’ve got to change what you pay them for. You can’t pay them for simply investing money; you have to pay them instead for making the platform open, transparent and accessible,” said Wellinghoff. “If you pay them for the right things, they’ll do the right thing. If you pay them for the wrong thing, they’ll do the wrong thing. We've got to make it profitable for them to do the right thing.”

Nitty-gritty energy policy decisions often happen at the state level. That’s where advocates like Vote Solar and ELPC concentrate, participating in utility dockets that often don’t get much attention.

But recent developments including FERC Order 2222, which allows distributed resources to compete in all wholesale markets, and President-elect Joe Biden’s interest in a federal 100 percent clean energy standard, suggest that renewables planning may also begin popping up in federal energy policy debates more frequently.

“A Biden administration, and especially in light of FERC Order 2222, has a real opportunity to reset the floor to reframe this whole argument,” said Vote Solar’s Constantine.

Advocates said adjustments to incentives will have to happen both locally and federally.

Even with apparent federal support for such a shift in the incentives framework, Constantine acknowledges the powerful role utilities have as gatekeepers to changing the grid.

“It is really important to change the utility incentives. So long as the utility is [incentivized] to build the big gas plant in order to get its guaranteed rate of return, there’s always going to be conflict, there’s always going to be resistance to building out more [distributed energy resources]," said Constantine. “In light of this disruptive technology, we should probably think about how we need to change and disrupt our traditional business models.”