It is typically a costly, capital-intensive challenge to expand traditional transmission and distribution (T&D) grid infrastructure to meet new and existing demand for electricity.
Can distributed energy resources – such as solar and wind installations on residential or commercial sites – complement traditional T&D grid infrastructure in cost-effective ways? A new white paper from SolarCity Grid Engineering, “A Pathway to the Distributed Grid: Evaluating the Economics of Distributed Energy Resources and Outlining a Pathway to Capturing their Potential Value,” says so.
Deploying distributed energy strategically may help control the long-term costs of maintaining and expanding traditional electrical grids.
“In situations where the utility has a decision to make traditional infrastructure upgrade investments, they should also be considering distributed energy resources as an alternative,” said Brian Warshay, coauthor of the white paper and a lead analyst on SolarCity’s Grid Engineering Solutions team.
In certain situations, Warshay said, distributed energy can be used to provide the same access to energy that traditional grids do at lower costs rather than acting as outright replacements for the grid.
Adding It up
The white paper uses a cost-benefit framework developed by Electric Power Research Institute in 2015 to count the net benefits of a hypothetical deployment in California.
Across an analysis period of 2016-2020, the white paper finds that total net benefits of a proposed deployment in California would deliver $1.416 billion in annual net benefits to ratepayers.
Warshay said previous analyses of distributed energy integration have not typically included the full scope of benefits that DERs can provide to the grid. “[Distributed energy resources] deployed downstream of distribution infrastructure provide extra value in addition to energy and avoided line losses.”
The white paper counts a broader scope of benefits beyond simple avoided cost of transmission equipment. These benefits include equipment life extension, peak price suppression, and freed-up transmission capacity. Costs are calculated as the total cost of program management, resource integration, and system procurement.
Using a recently filed 2017 rate case from Pacific Gas & Electric (PG&E), the white paper presents a short-term case study of the benefits distributed energy can provide relative to traditional grid-scale T&D investments.
Based on PG&E's projected needs, SolarCity’s analysis found benefits of $104 million in net present value from deploying distributed energy to attain the same level of service PG&E proposed in the rate case.
Planning for Grid Expansion
Building traditional T&D infrastructure generally requires a long-term and complex planning exercise: utilities and public service commissions must carefully account for future changes in demand profiles, consider the opening and retirement of power plants, and prioritize costly capital expenditures.
"Bulky utility solutions with long equipment lifetimes present a lumpiness challenge for planners," the white paper's authors wrote.
Incorporating distributed energy into the transmission planning process can allow planning to be "driven at the margin," according to the authors. Distributed energy resources allow for smaller, more incremental investments in transmission and generation in a case-by-case fashion. This is an alternative to coordinating large T&D investments that must meet demand over a much longer planning horizon.
Warshay explained that the incremental, distributed-energy-led approach to distribution planning allows utilities to realize numerous benefits, including shorter time intervals to correct load forecasting errors and the ability to delay investments to preserve the time value of ratepayer capital investment.
Getting the Incentives Right
A close look at the incentives utility business models use reveals barriers to DER deployment. In most markets, the profit that utilities are allowed to make is a function of the size of the "rate base.” That is the capital value of all of the utility's transmission, distribution and generation assets.
This creates an incentive for utilities to undertake large and expensive upgrades to increase profits.
"[Utilities] need to be able to make money off of not just capital investments, which is how utilities earn a return today, but they need to be able to earn a return on operational and maintenance investments," Warshay said.
SolarCity proposes "infrastructure as a service," where utilities would be compensated based on the delivery of electrical services, rather than on the capital investment in the underlying infrastructure, as a way to resolve the incentive imbalance that impedes consideration of distributed energy.
But such a model requires that utilities decouple revenues from retail energy sales, which has been known to shift costs from distributed-energy-equipped customers to those without these technologies.
There are limits to how far deployment can go before such solutions become too costly and sacrifice reliability.
In a 2013 report titled, "Value of the Grid to DG Customers," Lisa Wood, vice president of The Edison Foundation and Robert Borlick of Borlick Associates describe the tangible advantages and value that traditional grids provide to customers.
These benefits include maintaining stable voltage and frequency, providing energy when solar and wind power sources are inoperable, and providing a route to resell locally-generated electricity back to the grid.
Wood and Borlick compared the costs a typical customer could expect to pay for grid services with the cost required to size a distributed energy system large enough to provide the same level of service. They found that maintaining a grid connection is substantially less expensive.
Instead of replacing the grid, Warshay said, SolarCity views distributed energy as providing a cost-effective complement to the services that grids provide. "The grid will continue to be a critical source of cost effective, safe, reliable electricity, but will need to evolve as technology continues to innovate."
Public access to utility data can facilitate this transformation of the grid.
“The more data that utilities can make public… the easier it is for us and others to properly capture the value,” Warshay said.