20
Wed, Sep

Grid Planning Must be Modernized in Order to Capture DER Benefits

Analysis
Typography

A second structural impediment to fully realizing DER benefits is the current grid planning approach, which biases grid design toward traditional infrastructure rather than distributed alternatives, even if distributed solutions better meet grid needs. Outdated planning approaches rely on static assumptions about DER capabilities and focus primarily on mitigating potential DER integration challenges, rather than proactively harnessing these flexible assets.

A. Adopt Integrated Distribution Planning 

Grid planning can be modernized by utilizing an approach to meeting grid needs while at the same time expanding customer choice to utilize DERs to manage their own energy. We call this holistic process Integrated Distribution Planning. 

Integrated Distribution Planning encourages the incorporation of DERs into every aspect of grid planning. The framework, as depicted in the adjacent figure, expedites DER interconnections, integrates DERs into grid planning, sources DER portfolios to meet grid needs, and ensures data transparency for key planning and grid information. Ultimately, the approach reduces overall system costs, increases grid reliability and resiliency, and fosters customer engagement. 

If grid planning decisions are made before consideration of customers’ decisions to adopt DERs, – which is frequently the case today – grid investments will underutilize the potential of DERs to provide grid services, ultimately resulting in lower overall system utilization and higher societal costs of the collective grid assets. In contrast, prudent planners who proactively plan for customer adoption of DERs may avoid making unnecessary and redundant grid investments, while also enabling the use of customer DERs to meet additional grid needs. Ultimately, planning processes must ensure that DERs are effectively counted on by grid planners and leveraged by grid operators. For more details on integrated distribution planning, see the “Integrated Distribution Planning” white paper overviewing the framework at www.solarcity.com/gridx.

B. Grid Planning Data Must be Transparent and Accessible 

The first step in grid planning is to identify the underlying grid needs. As discussed throughout this paper, the use of alternative solutions such as DERs should be included in the portfolio of solutions that are considered to meet these grid needs. While utilities could ostensibly assess these alternative solutions within their existing process, opening up the planning process by sharing the underlying grid data would drive increased competition and innovation in both assessing and meeting grid needs. Any concerns from sharing such data – such as customer privacy, security, data quality, and qualified access – can be mitigated through data sharing practices already common in other industries. In fact, stakeholder engagement and access to planning data is already a central tenet in electric transmission planning across the country. The challenges of ushering a new industry norm of data transparency are far outweighed by the potential that broader data access can drive in increased stakeholder engagement and industry competition.

Data transparency efforts should first focus on communicating the exhaustive list of grid needs that utilities already identify in their planning process. While utilities may claim that such needs are already communicated within general rate cases, the information contained in those filings are incomplete. A standard set of comprehensive data should be shared about each grid need and planned investment so that stakeholders can proactively propose and develop innovative solutions to those needs. This proactive data access broadens the set of innovative solutions made available to utilities and guards against an insular approach to deploying grid investments. The table below is an initial set of minimally-required data to foster adequate stakeholder engagement in regards to specific, utility-identified grid needs.

While data on specific utility-identified grid needs is critical to assessing innovative solutions in place of traditional investments, underlying grid data should also be made available to foster broader engagement in grid design and operations. Access to underlying grid data allows third parties to improve grid design and operation by proactively identifying and developing solutions to meet grid needs, even before they are identified by utilities. The following data should be made available and kept current by utilities in order to encourage broad engagement in grid design.

Share Standardized, Machine-Readable Data Sets 

Data that is made available on grid needs and planned investments is rarely provided in an accessible format. Often, information is provided in the form of photocopied images of spreadsheet tables within utility GRC filings, hardly a format the enables streamlined analysis. This data communication approach requires stakeholders to manually recreate entire data sets into electronic version in order to carry out any meaningful analysis, a time-intensive and needless exercise. Other potential stakeholders never attempt to engage due to the barrier of data access. 

The use of standard, machine-readable data formats is prevalent in many industries and within the utility industry itself; organizations like the Energy Information Agency (EIA) foster such broad access to electronic, standardized data sets. Distribution grid needs and planned investments should follow suit. To illustrate a potential path forward, below is an example of traditional grid capacity needs and corresponding capacity investments as communicated via PG&E’s 2017 GRC Phase 1 filing; the image of the text file on the right shows how those same grid needs and planned investments could be translated into a machine-readable format.

C. Benefits of Integrated Distribution Planning 

Opening the door to DER solutions in grid planning provides the obvious benefit of a new suite of technological options for grid planners. In some cases, DERs may simply be lower cost on a $/kW basis or more effective at meeting the identified grid need than the conventional solution, making them an obvious choice. DERs, however, also offer an advantage over convertional options due to their targeted and flexible nature, which fundamentally changes the paradigm of grid planning. 

Status quo grid planning relies on deploying bulky, traditional infrastructure solutions to address forecasts of incremental, near-term grid needs. In many cases, conventional solutions are 15X larger than the near-term grid need that is driving the actual deployment of the infrastructure. This fundamental reality of grid planning creates two major opportunities for DERs to deliver better value to ratepayers than conventional solutions: 1) utilizing small and targeted solutions, and 2) utilizing the flexibility of DER portfolios. 

Value of Small & Targeted Solutions in Modern Distribution Planning 

The first source of value is the result of more incremental and targeted investment, which captures the benefit of time value of money. Bulky utility solutions with long equipment lifetimes present a lumpiness challenge for planners. Needs for new resources are driven at the margin, but the available solutions are only cost-effecive when sized to match their long lifetimes, often resulting in low lifetime utilization rates. The significantly smaller building blocks that modern DERs offer planners effectively overcome this historical problem. The figures below compare the deployment timeline of a traditional bulky solution installed to meet demand growth long in the future, relative to a targeted DER solution deployed in small batches to meet continuous demand growth, and the corresponding expectation of idle capacity over time. 

Option 1 meets every year’s capacity requirement by deploying large solutions infrequently, whereas Option 2 meets annual needs through smaller and more continuous deployments. While the infrastructure deployed with Option 1 will continue to meet the required planning reserve margins decades into the future, it requires a significant upfront investment. Option 2 targets the near-term required planning reserve margins on a continuous basis. Both options ensure that the planning reserve margin for reliability purposes is met, but Option 1 results in higher idle capacity rates over the lifetime of the infrastructure in aggregate when compared to Option 2. 

Extending the basic financial idea of the time value of money, paying for capacity today is more expensive than paying for capacity tomorrow – even before considering any cost decreases resulting from technological advancements. DER solutions that can preserve reliability, while delaying capital investments for new capacity until future periods, are inherently valuable to ratepayers. This value driver means that solutions that may look more expensive on a per unit of nameplate capacity basis are actually more cost effective on a net present value basis. 

Value of Increased Flexibility in Modern Distribution Planning 

The second source of value to be realized from modernizing planning stems from a related but separate challenge that grid planners face: the risk of suboptimal decisions arising from forecast error. This risk is primarily driven by two dynamics: 

1. Long lead times are necessary to deploy traditional infrastructure. 

2. Long depreciation lifetimes are allowed by regulators for those assets. 

As a result, grid planners commonly make investment decisions many years into the uncertain future, and then charge customers for the maintenance, depreciation, profit and taxes associated with those assets over 20 to 30 years or more. Investment under uncertainty imposes risks, which, if not managed properly, create unforeseen ratepayer costs. Among other sources of uncertainty, grid planning and expansion using traditional bulky infrastructure is subject to demand growth uncertainty and technology uncertainty. Both of these forecast errors can be large and expensive. 

Over-forecasting demand can result in an overbuilt system for which ratepayers must bear the full burden, even if the infrastructure was not needed. Under-forecasting demand can require the installation of suboptimal, expensive patchwork solutions, or threaten reliability if solutions cannot be provided in time. Similarly, on the technology side, inaccurately forecasting the future costs and capabilities of technologies may result in premature obsolescence as technological advancement dramatically reduces equipment costs or increases equipment efficiency. While private firms typically bear these investment risks in other industries, utility ratepayers bear 100% of these forecast error risks in the electric industry unless the utility regulator acts to disallow cost recovery. 

Due to these risks, DERs with shorter lead times can offer real-option value (ROV) by delaying deployment until forecast uncertainty is smaller, effectively buying time for planners and reducing the probability of a mistake. While the value of real options can be significant, it is difficult to quantify without the requisite data, including historical loading data, historical forecasts, and current long-term project forecasts. These data needs are further elaborated on in the subsequent section.

Policy Considerations 

The additional sources of value, including time value of money and real option value, associated with a transition towards integrated distribution planning that fully leverages DER deployments were explored above, but are not explicitly quantified due to the limited data publically available. Ongoing proceedings in California, such as the Distribution Resource Plan (DRPs) and Integrated Distributed Energy Resources (IDER), create important vehicles to share information between parties in order to explore these important but less conventional sources of value that are not yet well quantified.

Source: SolarCity Grids Engineering