The large-scale rollouts of smart meters heralded one of the first noticeable machine to machine (M2M) communications deployments. It also launched a series of conversations about safety and privacy concerns, which will continue to play out in many other M2M applications. DOE ARPA-E funding jumpstarted an interesting array of technologies that will shape grid modernization – particularly in renewables and energy storage. The ongoing IT/OT convergence will continue to influence utility operations and consumer interactions.
So what will be the most influential Smart Grid trends in 2013? There’s always the potential for technology breakthroughs – particularly in fixed and mobile energy storage. However, we’re well overdue for gamechanging policies, because the current practice of applying technology innovations within existing utility business models is akin to pouring new wine into old wineskins. Something’s gotta give.
Here are four policy trends that will gain momentum in 2013:
- Industry attention will focus on transactive energy, which conceptualizes the impacts of widely distributed energy resources on utility business models, technologies/services, markets, and consumers. Organized as peer-based energy grids, this concept would revolutionize the electricity grid by enabling massive integration of renewable energy sources into the grid, and “democratizing” the energy marketplace by allowing prosumers producing relatively small amounts of kilowatts or negawatts (via demand response) to participate in the market. The GridWise® Architecture Council is already at work on the metaconcept.
- Forward-thinking regulators will consider how to influence utilities to act as distribution grid load controllers to accommodate new sources of kilowatts or negawatts without detriments to grid reliability and resiliency. Managers of wholesale energy markets will continue to plan and experiment with programs that incorporate distribution grid participants into the bulk power grid. PJM has made the most progress in expanding market participation, but CAISO is also actively engaged here.
- The energy/water nexus will become a more dominant part of project and technology conversations. While the extremely synergistic relationship between energy and water has been publicized by many organizations, it hasn’t achieved critical mass in the minds of policy makers or the general public. But that’s changing in the USA and around the globe. Large water projects for desalinization and water transport often use significant amounts of energy to support pumps and treatment. These infrastructure projects will be weighed not only on their overall public costs versus benefits, but also from the perspectives of how their energy loads impact local grids. Funded projects and selected technologies may be the ones that are the most energy-frugal. Natural gas fracking technologies will come under greater scrutiny in terms of the impacts of drilling fluids and practices to the purity of ground and underground water supplies.
- In a rare show of bipartisanship, Congress will allow Master Limited Partnerships (MLPs) for renewable energy, which are currently limited to oil and gas investments. MLPs are taxed like partnerships, but owned like stock. This financing mechanism has been quite successfully used to organize funding of large infrastructure projects with lower costs and reduced risks for investors. It also allows for a greater range of participation in investments. This website provides an excellent description of how MLPs work. Leveling the playing field for renewables via MLPs will accelerate projects across the many states that have Renewable Portfolio Standards (RPS), despite efforts by fossil fuel industry groups to weaken or eliminate these standards.
Policy changes won’t happen overnight, but these trends are worth watching to understand the evolution of the Smart Grid across the entire value chain from generation to consumption.
We often read the lament that the USA has no energy policy. Of course it does. It’s what we have today – a policy which favors fossil fuels through permanent subsidies and special financial treatments written into the federal tax code. And perhaps it will take an act of Congress to make them stop picking the most environmentally-costly winners over all the sustainable, indigenous and clean energy sources. But there are other ways we can change our energy direction. One organization that takes a pragmatic, business-based approach is ACORE, the American Council on Renewable Energy. This nonprofit association is focused on building a secure and prosperous America with clean, renewable energy. It provides thought leadership through technology, policy, and finance lenses and fosters industry partnerships that promote adoption of renewable energy in public and private enterprises.
I recently spent time in conversation with Vice Admiral Dennis McGinn, (USN, ret.), president of ACORE since April of 2011. Our conversation is summarized here, but you can hear more insights from Admiral McGinn in his keynote address and Fireside Chat at the Savannah International Clean Energy Conference on November 12-13.
ACORE focuses on three strategic initiatives – National Defense and Security, Power Generation and Infrastructure, and Transportation. There are cross-over themes amongst these three initiatives – such as reducing costs in labor, materials, and finance. Of these three, reducing the investment costs of renewable projects is the greatest challenge. For instance, oil, gas, and coal companies enjoy an important tax break known as the Master Limited Partnership (MLP). MLPs are taxed like partnerships, but owned like stock. It is a popular structure to organize financing with lower costs and reduced risks for investors. But MLPs are not allowed for renewable energy projects. The Senate and House now have bipartisan legislation that extends the MLP tax break to renewables – S3275 and HR6437. But unless and until this legislation passes Congress, renewables do not enjoy a level playing field in financing options. That’s a shame, because a recent study released by the US Partnership for Renewable Finance (US PREF), an ACORE program, revealed that U.S. taxpayers can get a 10% internal rate of return on the initial government investment in solar projects via the solar investment tax credit or ITC.
Green banks are also an interesting workaround to today’s financing impediments. These entities can focus investment solely in renewables and energy efficiency projects. Admiral McGinn noted that renewables and energy efficiency are “partners to improve sustainability and the bottom lines for businesses, in fact, energy efficiency can be a key enabler for renewable energy.” Green banks, like the one recently instituted in Connecticut, can produce appealing returns and market certainty for institutional investors while delivering low-cost financing products aimed at small business or residential households.
ACORE also advocates for advanced biofuels and maintaining the Renewable Fuels Standard (RFS) as part of its technology and policy focus. While the initial feedstocks spurred a food versus fuel debate, the latest array of feedstocks, particularly cellulosic, coupled with biochemical innovations in enzymes are promising developments that can help wean the USA off of fossil fuels. There are more than 10 commercial-scale cellulosic plants under construction now that will help “provide much greater consumer choice at the gas pump and get us off the petroleum monopoly train,” noted the Admiral.
No conversation about renewables is complete without considerations of natural gas. Admiral McGinn doesn’t see natural gas and renewables as mutually exclusive. From a utility perspective, natural gas has fast firming capabilities for renewables, and a good percentage of renewables serves as an excellent long term hedge against the price instabilities of natural gas. And price instability is key. “Over time, with greatly increased demand,” he said, “the price of natural gas will go up. The factors impacting price increases could be potential increases in the export of liquefied natural gas, the replacement of aging coal-fired power plants and home heating with natural gas, the buildout and maintenance of gas pipeline and storage infrastructure, and the increased costs of responsible oversight and regulation to protect water and air from increased natural gas extraction.”
ACORE is in the thick of things – helping governmental agencies like the Department of Defense, electric utilities, and institutional investors to meaningfully contribute to grid modernization and energy supply transformations through technology, policy, and finance decisions. At a macro level, their initiatives can be hugely influential in helping integrate clean, indigenous, and sustainable renewable energy sources into the Smart Grid and our transportation infrastructure.