Ulity of the Future - NARUC

U"lityoftheFuture

December15th2016WashingtonDC

#U"lityOfTheFuture

TheMITU"lityoftheFutureStudy…

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…examineshowdistributedenergyresources(DERs)arechangingtheprovisionofelectricityservices,withafocusontheUSA&Europeoverthenextdecade&beyond

…&makespolicy,regulatoryandmarketrecommenda"ons…

…tofacilitateanefficient,lowcarbonemissionenergysystemthatencouragesop"malu"liza"onofresourceswhethercentralizedordecentralized.

“Asforthefuture,yourroleisnottoforesee,buttoenableit”

AntoinedeSaintÉxupéry

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•  Thestudypresentsaframeworkforproac"veregulatory,policy&marketreformsthatis:•  robusttotheuncertainchangesnowunderway•  andcapableoffacilitaLngtheemergenceofanefficientporPolioofresources,bothdistributedandcentralized

•  ThereportdisLllsresultsandfindingsfrommorethantwoyearsofprimaryresearch,areviewofthestateoftheart,andquan"ta"vemodeling&analysis

Predic"ngthefuture?Ratheratoolkit

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StudyContributors

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PrincipalInves"gatorsIgnacioPérez-Arriaga,Professor,ElectricalEngineering,InsLtuteforResearchinTechnologyComillasPonLficalUniversity;VisiLngProfessor,MITEnergyIniLaLveChristopherKniXel,GeorgeP.ShultzProfessorofAppliedEconomics,SloanSchoolofManagement,MIT;Director,CenterforEnergyandEnvironmentalPolicyResearch,MIT

ProjectDirectorsRaananMiller,ExecuLveDirector,ULlityoftheFutureStudy,MITEnergyIniLaLveRichardTabors,VisiLngScholar,MITEnergyIniLaLve

ResearchTeamAshwiniBharatkumar,PhDStudent,InsLtuteforData,Systems,andSociety,MITMichaelBirk,SM,TechnologyandPolicyProgram(’16),MITScoXBurger,PhDStudent,InsLtuteforData,Systems,andSociety,MITJoséPabloChaves,ResearchScienLst,InsLtuteforResearchinTechnology,ComillasPonLficalUniversity

ResearchTeam(con"nued)PabloDuenas-Mar"nez,PostdoctoralAssociate,MITEnergyIniLaLveIgnacioHerrero,ResearchAssistant,InsLtuteforResearchinTechnologyComillasPonLficalUniversitySamHun"ngton,SM,TechnologyandPolicyProgram(’16),MITJesseJenkins,PhDCandidate,InsLtuteforData,SystemsandSociety,MITMaxLuke,SM,TechnologyandPolicyProgram(’16),MITRaananMiller,ExecuLveDirector,ULlityoftheFutureStudyMITEnergyIniLaLvePabloRodilla,ResearchScienLst,InsLtuteforResearchinTechnologyComillasPonLficalUniversityRichardTabors,VisiLngScholar,MITEnergyIniLaLveKarenTapia-Ahumada,ResearchScienLst,MITEnergyIniLaLveClaudioVergara,PostdoctoralAssociate,MITEnergyIniLaLveNoraXu,SM,TechnologyandPolicyProgram(’16),MIT

TheMITU"lityoftheFutureStudyTeam

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RobertArmstrong,Director,MITEnergyIniLaLve

CarlosBatlle,ResearchScholar,MITEnergyIniLaLve;Professor,InsLtuteforResearchinTechnology,ComillasPonLficalUniversity

MichaelCaramanis,ProfessorofMechanicalEngineeringandSystemsEngineering,CollegeofEngineering,BostonUniversity

JohnDeutch,InsLtuteProfessor,DepartmentofChemistry,MIT

TomásGómez,Professor,DirectoroftheInsLtuteforResearchinTechnology,ComillasPonLficalUniversityWilliamHogan,RaymondPlankProfessorofGlobalEnergyPolicy,JohnF.KennedySchoolofGovernment,HarvardUniversity

StevenLeeb,Professor,ElectricalEngineering&ComputerScienceandMechanicalEngineering,MITRichardLester,AssociateProvostandJapanSteelIndustryProfessorofNuclearScienceandEngineering,OfficeoftheProvost,MITLeslieNorford,Professor,DepartmentofArchitecture,MITJohnParsons,SeniorLecturer,SloanSchoolofManagement,MITRichardSchmalensee,HowardW.JohnsonProfessorofEconomicsandManagement,EmeritusDean,Emeritus,SloanSchoolofManagement,MIT

FacultyCommiXee

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LouCarranza,AssociateDirector,MITEnergyIniLaLve

StephenConnors,Director,AnalysisGroupforRegionalEnergyAlternaLves,MITEnergyIniLaLve

CyrilDraffin,ProjectAdvisor,MITEnergyIniLaLve

PaulMcManus,MasterLecturer,QuestromSchoolofBusiness,BostonUniversity

ÁlvaroSánchezMiralles,SeniorAssociateProfessor,InsLtuteforResearchinTechnology,ComillasPonLficalUniversity

FrancisO’Sullivan,ResearchDirector,MITEnergyIniLaLve

RobertStoner,DeputyDirectorforScienceandTechnology,MITEnergyIniLaLve

ResearchandProjectAdvisors

Chair:PhilSharp,President,ResourcesfortheFuture

ViceChair:RichardO’Neill,ChiefEconomicAdvisor,FERC

JanetGailBesser,ExecuLveVicePresidentNortheastCleanEnergyCouncil

AlainBur"n,Director,EnergyManagement,EDFR&D

PaulCentolella,President,PaulCentolella&AssociatesLC,SeniorConsultant,TaborsCaramanisRudkevich

Mar"nCrouch,HeadofProfessionforEconomistsandSeniorPartner,ImprovingRegulaLon,Ofgem

ElizabethEndler,ResearchProgramManager,ShellInternaLonalExploraLon&ProducLon(US)Inc.

PhilGiuidice,CEO,President,andBoardMember,AmbriInc.

TimothyHealy,CEO,ChairmanandCo-founder,EnerNOC

MarianaHeinrich,Manager,Climate&Energy,WorldBusinessCouncilforSustainableDevelopment

PaulJoskow,PresidentandCEO,AlfredP.SloanFoundaLon,MITProfessorEmeritus

MelanieKenderdine,DirectoroftheOfficeofEnergyPolicyandSystemsAnalysisandEnergyCounselortotheSecretary,U.S.DepartmentofEnergy

Chris"naLaMarca,HeadofInnovaLon,GlobalThermalGeneraLon,Enel

AlexLaskey,President&Founder,Opower

AndrewLeviX,Sr.MarketStrategist,PJMInterconnecLon

LucaLoSchiavoDeputyDirector,InfrastructureRegulaLon,ItalianRegulatoryAuthorityforElectricity,GasandWater(AEEGSI)

GaryRahl,ExecuLveVicePresident,BoozAllenHamilton

MarkRuth,PrincipalProjectLead,StrategicEnergyAnalysisCenter,NaLonalRenewableEnergyLaboratory

MiguelSánchez-Fornie,Director,GlobalSmartGrids,Iberdrola

ManuelSánchez-Jiménez,TeamLeader,SmartGrids,EuropeanCommission

LaurentYana,DirectorAdvisorofGlobalBus,GroupStrategyDivision,Engie

AudreyZibelman,Chair,NewYorkStatePublicServiceCommission

AdvisoryCommiXee

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Paul & Matthew Mashikian

Consor"umMembers

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EU COMMISSION NOVEMBER 30

NARUC NOVEMBER 10

Thepowersectorischanging…

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Consumershaveunprecedentedchoiceregardinghowtheymanage

theirpowersupply

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TheU.S.installed4,143MWdcofsolarPVinQ32016,increasing99%overQ22016and191%overQ32015.

ThisisthelargestquartereverfortheU.S.solarindustry.

Customersrespondtopricesignals–andcanactveryfast!

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

200X growth in 6 years

Growth in the Italian PV Market, MW

DERscoulddeliverlargesavingsbyimprovingtheu"liza"onofelectricityinfrastructure

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“Overthelastthreeyearsfrom2013–2015onaverage,thetop1%mostexpensivehoursaccountedfor8%($680million)of

MassachuseEsratepayers’annualspendonelectricity.Thetop10%ofhoursduring

theseyears,onaverage,accountedfor40%ofannualelectricityspend,over$3billion.”

Source:“StateofCharge:MassachuseosEnergyStorageIniLaLve,”MADOERandMassCEC

November2016

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ConEdisdeferringa$1.2BsubstaLoninvestmentfor$200MwithaporrolioofDERs

Lackacomprehensivesystemofefficientprices&regulatedcharges

forelectricityservices

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Manyopportuni"estodelivergreatervaluearelepuntapped

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Flexibledemand&smartthermostatsareonlyusefulifabletorespondtochangingsystemcondi"ons

Ourkeyrecommenda"ons

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1“Createacomprehensive&efficient

systemofprices&charges”

Theonlywaytoputallresources–centralized&distributed–onalevelplayingfieldandachieveefficient

operaLonandplanninginthepowersystemistodrama"callyimprovepricesandregulatedchargesforelectricity

services.23

2“EnhancedistribuNonregulaNon”

Theregula"onofdistribu"onu"li"esmustbeimprovedtoenablethedevelopmentofmoreefficient&

innovaLvedistribuLonuLlitybusinessmodels

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3“Rethinkindustrystructuretominimize

conflictsofinterest”

Thestructureoftheelectricityindustryshouldbecarefullyevaluatedtominimize

potenLalconflictsofinterest

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“AllowDERsparNcipateinwholesalemarkets”

Wholesalemarketdesignshouldbeimprovedtobeoerintegratedistributedresources,rewardgreaterflexibility,and

createalevelplayingfieldforalltechnologies

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“CarefullyevaluatetheeconomicopportuniNesandcostsofDERs”

BeoeruLlizaLonofexis"ngassetsandsmarterenergyconsumpLonholdgreatpotenLalfor

costsavings.EconomiesofscalesLllmaoer,andthe

distributeddeploymentofsolarPVorenergystorageisnotcost-effecLveinallcontextsand

locaLons27

Howtodoit?

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Createacomprehensive&efficientsystemofprices&charges

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Createacomprehensive&efficientsystemofprices&charges(Likeanervoussystem,reachingeverycornerofthepowersystem)

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Anycost-reflec"vecomponentofprices&chargesshouldbeexclusivelybasedontheindividualinjec"on&withdrawalprofilesatthenetworkconnecLonpoint

&shouldbesymmetrical.

Thisrequirestheuseofadvancedmeters

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Power Flows

Meter DERs and Loads

•  Reflect"medifferen"a"onintheenergycharges

Let’sdoitonestepata"me…

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0

10

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30

40

50

60

70

1 49 97 145 193 241 289 337 385 433 481 529 577 625

cents/kW

h

15-minuteinterval

LMP

E.g.capturethewholesaleenergypriceevoluLoninLme

(oneweekinJuly2015inAusLn,ERCOT)

0

10

20

30

40

50

60

70

1 49 97 145 193 241 289 337 385 433 481 529 577 625

cents/kW

h

15-minuteinterval

LMP

… comparedtotheusualconstantrate…


0

10

20

30

40

50

60

70

1 49 97 145 193 241 289 337 385 433 481 529 577 625

cents/kW

h

15-minuteinterval

LMP TOU

… ortoTimeofUse(ToU)pricing(oneweekinJuly2015inAusLn,ERCOT)



•  Applyforward-lookingpeak-coincidentcapacitychargesfornetworks&firmgeneraLoncapacity(ifthisisthecase)


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Examplecost-reflecLvetariffforWestchester,NewYork;FourdaysinJuly.Source:HunLngton&Jenkins,MITUNlityoftheFuturestudy.

Addpeak-coincidentconsumpLonandinjecLoncapacitychargesfornetwork&firmgenera"on

Energyprice

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

1 7 13 19 25 31 37 43 49 55 61 67

Pricepe

rkWh

Hour

LMP+Distr.Losses

12am 12pm 12am 12pm 12am 12pm 12am



Energyprice+genera"oncapacitycharge

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

1 7 13 19 25 31 37 43 49 55 61 67

Pricepe

rkWh

Hour

LMP+Distr.Losses GeneraLonCapacityCharge




Energyprice+Genera"on&Networkcapacitycharges

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

1 7 13 19 25 31 37 43 49 55 61 67

Pricepe

rkWh

Hour

LMP+Distr.Losses GeneraLonCapacityCharge NetworkCapacityCharge




•  Progressivelyincreasetheloca"onalcomponentofprices&charges


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BiddingzonesinEuropeanmarketcoupling

Energypricesattransmissionlevelmayvarysignificantlyiftherearebindingnetworkconstraints

WholesaleLMPvaria"onacrossmorethan11,000PJMnodesonJuly19,2015,at4:05pm

GewngdeepintodistribuLon(justlosses)

GewngdeepintodistribuLon(losses&networkconstraints)

Andthemostimportantone…

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•  Policy&residualnetworkcostsshouldbechargedminimizingdistor"onofcost-reflecLvesignals


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Breakdown of residential electricity bills in different jurisdictions in 2014-2015

Policycosts&residualnetworkcostsshouldnotberecoveredwithvolumetriccharges($/kWh).Werecommendafixed

annualchargedistributedinmonthlyinstallments.

Andasaconsequence…

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•  Policy&residualnetworkcostsshouldbechargedminimizingdistor"onofcost-reflecLvesignals

•  Reconsiderwhichcostsareincludedintheelectricitytariffifinefficientgriddefec"onisaseriousthreat


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Dependingontheseriousnessofthethreatofgriddefec"on,whichcostsareincludedinthe

electricitytariffmustbecarefullyconsidered

Howimportantistoincreasetemporal&spa"al“granularity”?

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GranularitymaXers:progressivelyimprovingtariffscanunlockefficientconsumpLon,value

DERs,andlowercostofpowersystems.

AcasestudyofaresidenLalhouseholdinWestchester,NYwithflexibleaircondiLoningrespondingtodifferenttariffschedules…

GranularitymaXers:progressivelyimprovingtariffscanunlockefficientconsumpLon,value

DERs,andlowercostofpowersystems.

AcasestudyofaresidenLalhouseholdinWestchester,NYwithflexibleaircondiLoningrespondingtodifferenttariffschedules…

Toomuchcomplexityforthesmall&mediumcustomers?

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Howmuchshouldthetoasterknow?Isitworthsendingprices&chargestoit?

2Enhancedistribu"onregula"on

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FromtheMIT“FutureofSolarStudy”

•  Forward-looking,mul"-yearrevenuetrajectorywithprofitsharingmechanisms

Anenhanceddistribu"onbusinessmodel

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•  “Stateoftheart”regulatorytoolstomanageuncertainty


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•  Outcomes-basedperformanceincenLves


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•  Outcomes-basedperformanceincenLves

•  IncenLvesforlong-terminnova"on


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WidespreadconnecLonofdistributedenergyresources,smartappliances,&morecomplexelectricitymarkets

increasetheimportanceofcybersecurity&heightensprivacy

concerns

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Thereisnosilverbulletbutseveralusefulpro-ac"vemeasuresshouldbeadopted

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•  Developriskmanagementculture•  Shareinforma"onaboutcyberthreats•  Deployskilledteamstodetectandrespond

toanomalouscyberacLvity•  Increasesystemresilience•  Adoptadvancedcybersecuritytechnologies

3Rethinkelectricityindustrystructure

tominimizeconflictsofinterest

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“Marketpla<orms,networkproviders,andsystemoperatorsperformthreecriNcalfuncNonsthatsitatthecenterofalltransacNonsinelectricitymarkets.”

“AdatahubordataexchangemayconsNtuteafourthcriNcalpowersystem

funcNon…”

EstablishindependencebetweentheDSO&agentsperformingac"vi"esin

marketsandifindependenceislegalorfunc"onal,

applysignificantregulatoryoversightandtransparentmechanismstoprovide

services

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4

AllowDERspar"cipateinwholesalemarkets

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•  Wholesalemarketsshouldenabletransac"onstobemadeclosertoreal"me

Howtoremoveinefficientbarriers?

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•  Wholesalemarketrules(suchasbiddingformats)shouldbeupdatedtoreflecttheoperaLonalconstraintsofnewresources


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•  Aligningreserves&energymarkets&establishtheflexibilityrequirementsforparLcipaLon


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•  Aligningreserves&energymarkets&establishtheflexibilityrequirementsforparLcipaLon

•  Minimizetheinterferenceofsupportmechanismsforcleantechnologiesinelectricitymarkets


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5UnlocktheindividualvalueofeachDER&beawareoftheirloca"onalcomponent&economiesofscale

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Understandtheloca"onalvalueofservicesprovidedbyDERs

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4

Locational Non-locational

Energy?

Electricityservicesvalues

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•  Energy

Firm generation capacity?


4


•  Energy •  Firm generation capacity

Network constraint mitigation?


4


•  Energy

•  Network constraint mitigation

•  Firm generation capacity

Operating reserves?


4


•  Energy •  Network capacity margin •  Network constraint mitigation •  Power quality •  Reliability and resiliency •  Black-start

•  Firm generation capacity •  Operating reserves •  Price hedging

•  Land use •  Employment •  Premium values*

•  Emissions mitigation •  Energy security

* Private values; do not need to be reflected in prices and charges


$0

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$100

LocaLonalenergyvalue:transmission

LocaLonalenergyvalue:distribuLon

losses

ConservaLonvoltagereducLon

Networkinvestmentdeferral

GeneraLoncapacitypremium

Reliability TotallocaLonalvalue

Averagevaluepe

rMWhprod

uced

24.05.6

11.1

41.2 2.9 0.0 84.7

LocaLonalValueofDistributedSolarPV:LongIsland,NewYorkExample,HighValueCase

$0

$20

$40

$60

$80

$100

LocaLonalenergyvalue:transmission

LocaLonalenergyvalue:distribuLon

losses

ConservaLonvoltagereducLon

Networkinvestmentdeferral

GeneraLoncapacitypremium

Reliability TotallocaLonalvalue

Averagevaluepe

rMWhprod

uced

2.3 3.1 1.7 0.0 0.9 0.0 7.9

LocaLonalValueofDistributedSolarPV:MohawkValley,NewYorkExample,Avg.ValueCase

ForDERsthatcanbedeployedatdifferentscales(e.g.solarPV,storage)…

Loca"onalvaluecompeteswitheconomiesofscale

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EsLmatedEconomiesofUnitScaleforFixed-LltSolarPVSystems

$0

$50

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10-1

00 M

W

1-2

MW

1-10

kW

Cap

ital a

nnui

ty a

nd fi

xed

O&

M

($1,

000/

MW

-yr)

Incremental unit cost relative to 10-100 MW system

2015 annual costs Source: Author’s estimates, forthcoming (part of MIT Utility of the Future Study)

Source: Author’s estimates, forthcoming (part of MIT Utility of the Future Study)

$0

$100

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25 M

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2 M

W

100

kW

5 kW

Cap

ital a

nnui

ty a

nd fi

xed

O&

M

($1,

000/

MW

-yr)

Incremental unit cost relative to 25 MW system

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EsLmatedEconomiesofUnitScaleforLithiumIonEnergyStorageSystems

1:2 power/energy ratio; 2015 annual costs

-$10

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LMP Locational Premium

Distr. loss reduction

CVR Network invest. deferral

Generation deferral

Reliability Total locational

value

1.5 MW 1.0 MW 5.0 kW

Aver

age

valu

e pe

r MW

h pr

oduc

ed

84.7

48.0

98.0

229.0

Incremental Unit Costs Locational Value 14

LocaLonalValueandIncrementalUnitCostofDistributedSolarPV:LongIsland,NewYork

-$10

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LMP Locational Premium

Distr. loss reduction

CVR Network invest. deferral

Generation deferral

Reliability Total locational

value

1.5 MW 1.0 MW 5.0 kW

Aver

age

valu

e pe

r MW

h pr

oduc

ed

7.9

48.0

98.0

229.0

Locational Value 15

LocaLonalValueandIncrementalUnitCostofDistributedSolarPV:MohawkValley,NewYork

Incremental Unit Costs

•  canbeimplementedwithexisLngtechnology&reasonableregulatorymeasures,

•  createsthecondiLonsforcentralizedanddistributedresourcestocompeteandcollaborateonalevelplayingfield

•  &providesaframeworkthatwillenableanefficientoutcomeregardlessofhowtechnologiesorpolicyobjec"vesdevelopinthefuture.

Insummary,whatthestudyproposes…

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Thankyou

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Thereporthasbeenreleasedtoday(Dec-15)hop://energy.mit.edu/uof

Orjustbrowse“MITEIuLlityofthefuture”

Ulity of the Future - NARUC

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