Smart Grid technology roadmaps help utilities plan for grid modernization. At the recent Grid ComForum conference, senior utility executives noted that their roadmaps are adjusting to address organizational realignments – particularly in managing the convergence of Information Technologies (IT – including communications) with Operations Technologies (OT – such as systems that manage the flow of electricity in transmission and distribution grids.) But Smart Grid roadmaps also must address changes in utility cultures, particularly the investor-owned utilities (IOUs), and these changes will require support in the form of new regulatory policies.
Why does the corporate culture of the IOU need to change? Because the Smart Grid, (Grid 2.0) won’t look or operate like the current grid. Grid 1.0 is a complex machine that manages to deliver electricity from centralized sources across the supply chain in a “just-in-time” format to meters. It mostly relies on fossil fuels. Utilities have been marvelously adept at running this machine. Unfortunately, Grid 1.0 has reached its limits. Grid 2.0 will have electricity flows back and forth across the distribution grid. Grid 2.0 will have new participants in the electricity supply chain. Fundamental shifts in thinking as well as in regulatory policy need to occur so that utilities and ratepayers can gain the most out of their Smart Grid investments. We all benefit when IOUs can adapt and evolve as the Smart Grid becomes reality.
Here are three corporate culture and accompanying policy changes that will help IOUs thrive in Grid 2.0:
Support decoupling policies. The Smart Grid Dictionary defines decoupling as a regulatory and market strategy that allows utilities to invest in and profit from efficiency-based capacity by assuring them a return that is equivalent to sales of electricity. Decoupling allows utilities to actually encourage consumers to use less electricity without taking a financial hit. After all, what business would ever spend money to encourage you to use less of their product or service. But with decoupling, there is no penalty for utilities to have successful energy efficiency programs (which reduce bills for consumers). Decoupling frees utilities to become trusted advisors to their customer base, and that sets the stage for new programs such as residential demand response. There are 30 states that do not have decoupling in place for electricity and/or gas. Utilities and state regulators should create sensible decoupling policies as soon as possible to spur energy savings for their ratepayers.
Embrace Distributed Energy Resource (DER) strategies and programs. DER includes customer-owned generation (like rooftop solar) and energy storage (like EVs or stationary batteries) that can substitute or supplement the traditional utility assets that deliver electricity to end users. Microgrids play a similar role. Utilities can leverage DER as cooperative, not competitive resources, and offer services to help customers manage DER assets. IOUs do have one challenge about DER that needs to be addressed with policy changes. Today’s regulatory policies reward utility investment in assets. We need to consider a form of “asset decoupling” to help utilities be rewarded for successful participation in DER programs using customer-owned assets.
Redefine consumer relationships. Consumers are evolving to prosumers or producing consumers who can produce or store electricity that can offset any distribution grid’s electricity needs during periods of intensive use (also known as peak demand). Prosumers can help utilities avoid investment in expensive peak power plants or peak power purchases. However, prosumers are not just limited to people or businesses with the right equipment to make or store kilowatts of electricity. Any participant in a demand response (DR) program is a prosumer – they are producing negawatts of electricity. Acceleration of net metering and Feed in Tariffs (FiTs) policies, as well as deployment of residential DR programs promote this relationship redefinition.
These three substantive shifts in thinking and in regulatory policies will have meaningful impacts on utility cultures. It will also have impacts on the rest of us too as electricity consumers. New business models that are encouraged by changes described here can help accelerate adoption of new product and services innovations. In turn, these innovations can reduce electricity costs, reduce greenhouse gas emissions, and improve our energy security.