Wind Solar Alliance report shows how outdated wholesale market rules prevent price reductions

energy markets

Record low costs and consumer demand are driving growth in American wind and solar energy. However, outdated wholesale market rules are preventing the two technologies from further reducing prices for consumers, according to a new report, Customer-Focused and Clean: Power Markets for the Future.

With major grid operators in PJM and MISO planning fundamental redesigns of their electricity markets and operating procedures, the new analysis proposes reforms to better serve customers’ and regulators’ desire for clean, affordable electricity.

Sweeping changes in the electricity generation mix over the last 10 years are driving fundamental changes in the nation’s electricity grid, with wind and solar generating capacity having increased approximately 500 percent. Yet, market rules designed with other resources in mind fail to take advantage of these new resources’ excellent reliability capabilities.

“The report demonstrates the numerous ways that existing market structures, particularly in PJM and MISO, are biased in favor of older, large, slow-to-react resources,” said John Kostyack, Executive Director of the Wind Solar Alliance (WSA). “Although wind and solar power are beating all other sources on cost in many regions, grid operators limit their deployment by failing to utilize them for reliability services such as ramping and frequency regulation. It’s time for market operators to ensure these clean, low-cost technologies are appropriately recognized and rewarded for the reliability services they can provide.”

Shadow costs: How outdated local processes stifle the true solar market

Where they fall short

Most RTOs’ rules were written before renewables made up a meaningful portion of the generation fleet. Characteristics such as “inertia” and “spinning reserve” reflect attributes of certain generators, and are not actual reliability services. The actual services such as frequency stabilization and regulation, ramping, voltage regulation, disturbance ride-through, and 10- or 30-minute reserves can be provided as well or better by modern wind, solar, storage, and demand response resources.

“This report identifies ways to modernize electricity markets so all technologies can compete to provide the reliability services that keep the lights on and the costs low – that’s a win for innovative resources like wind energy and for consumers,” said Amy Farrell, Senior Vice President, Government & Public Affairs at the American Wind Energy Association.

“This report demonstrates some of the barriers that solar and other clean technologies face in markets designed for older resources, and helps provide a roadmap for future reforms that can both attract and retain sources of flexibility that are beneficial for the grid and consumers,” said Sean Gallagher, Vice President of State Affairs at the Solar Energy Industries Association.

Large industrial energy users and ratepayer advocates were also supportive of the findings in the report.

“This report offers many compelling ideas to make markets more efficient and benefit consumers,” said Devin Hartman, the incoming President and CEO of the Electricity Consumers Resource Council, the national trade association representing large industrial energy users. “Creating markets, in lieu of standards, for energy and balancing services like primary frequency response are especially important for manufacturers. The report also adds value in highlighting the right way to ensure reliability – through proper energy market prices – rather than venturing into prescriptive capacity market endeavors like ‘fuel-secure’ resource carve-outs.”

“Consumers and states in PJM are looking to bring clean, affordable, and reliable energy online, said Erik Heinle, Assistant People’s Counsel, DC’s Office of the People’s Counsel. “The Wind Solar Alliance has developed an important and well thought-out roadmap to achieve these goals by harnessing new low-cost, high-performing wind and solar technologies and successfully integrating them into the grid, while reducing consumers bills and improving reliability.”

— Solar Builder magazine

Poll results show utilities losing ground to third-parties in consumer preference for new energy services

consumer preference

Customer demand for new energy technologies like electric vehicle (EV) charging and solar power has more than doubled since 2017. Utilities across the country, with an eye on creating new revenue streams, are increasingly launching EV charging and solar power offerings to meet this growing demand. While many consumers view utilities as natural providers for these offerings, utilities are quickly losing preferred provider status to non-utility third parties.

Overall customer preference for the utility as a solar power provider among interested customers has fallen from 68% last year to 47%. While preference for utilities as a provider of EV charging offerings remains flat, preference for third-party providers has increased by 66%. If preference for third-party providers continues to increase at this rate, they will overtake utilities in consumer preference in three years.

“Utilities are on the verge of one of the greatest marketing and revenue opportunities they have ever had,” said Chris Oberle, senior vice president at Market Strategies International-Morpace. “If they want to capture significant EV charging and solar power market share, utilities need to quickly build and defend their brands as trusted providers of new energy technologies.”

The energy industry research shows customers with low brand trust in their utility have a very high preference for third-party providers, while the utilities with the strongest preference tend to have higher Brand Trust scores as well as strong support for being “trusted energy advisers.”

Provider Preference by Offering Category and Brand Trust

(Brand Trust is measured on a scale of 1–1,000)

Solar power offerings – prefer utility

  • Low brand trust: 38 percent
  • High brand trust: 47 percent

Solar power offerings – prefer third party

  • Low brand trust: 29 percent
  • High brand trust: 7 percent

Solar power offerings – no preference

  • Low brand trust: 33 percent
  • High brand trust: 46 percent

EV charging – prefer utility

  • Low brand trust: 38 percent
  • High brand trust: 58 percent

EV charging – prefer third party

  • Low brand trust: 28 percent
  • High brand trust: 19 percent

EV charging – no preference

  • Low brand trust: 44 percent
  • High brand trust: 33 percent

Nationwide, 14% of utility customers say that they are likely to adopt rooftop solar, community solar, solar hot water or home battery storage within the next six months. While western states like California and Arizona are perceived to be the hottest solar markets, the greatest demand for solar offerings is actually in the South—stretching from Texas to Virginia. Similarly, customers in the South indicate the greatest interest in home or public EV charging offerings.

The study

These and other findings can be found in the Cogent Reports 2018 Utility Trusted Brand & Customer Engagement: Residential study by Market Strategies International-Morpace. The study measures the market dynamics of over 65 offerings and customer shopping behaviors of 18 customer segments.

Market Strategies-Morpace conducted surveys among 52,486 residential electric, natural gas and combination utility customers of the 130 largest US utility companies (based on residential customer counts). The sample design uses a combination of quotas and weighting based on US census data to ensure a demographically balanced sample of each evaluated utility’s customers based on age, gender, income, race and ethnicity. Utilities within the same region and of the same type (e.g., electric-only providers) are given equal weight in order to balance the influence of each utility’s customers on survey results. Market Strategies-Morpace will supply the exact wording of any survey question upon request.

— Solar Builder magazine

American Electric Power (AEP) to add 8.3 GW of renewable generation by 2030

AEP

Ohio-based American Electric Power says it plans to invest $33 billion in capital from 2019 through 2023, with $2.7 billion of that focused on new renewable generation, including approximately $2.2 billion for competitive, contracted renewable projects.

“Our long-term strategy is built on investments that will benefit our customers and position us for ongoing success and steady earnings growth as our industry transforms. AEP’s capital investments over the next five years will be focused on advanced infrastructure, innovative technologies and cleaner generation resources,” said Nicholas K. Akins, AEP chairman, president and chief executive officer.

Earlier this year, AEP announced a plan to cut its carbon emissions 60 percent from 2000 levels by 2030. To achieve this goal, AEP plans to add more than 8.3 GW of wind and solar generation and more than 2.6 GW of natural gas generation by 2030.

AEP maintains the nation’s largest electricity transmission system and more than 219,000 miles of distribution lines to nearly 5.4 million regulated customers in 11 states. AEP also is one of the nation’s largest electricity producers with approximately 32,000 megawatts of diverse generating capacity, including 4,340 megawatts of renewable energy.

— Solar Builder magazine

Nevada voters want the state to hit 50 percent renewable energy by 2030

nevada voters

The Nevada solar industry got a shot in the arm on Election day with the passing of Question 6 and calling for a stronger economy fueled by clean energy. By putting the state on track to use 50 percent renewable energy by the year 2030 (doubling the previous RPS), Question 6 will generate hundreds of millions of dollars in economic activity and create thousands of new Nevada jobs.

Independently, a broad coalition of supporters argued that Question 6 was the only way to guarantee that Nevada would get more of its power from renewable sources like solar. With this victory, it is clearer than ever that consumers are demanding more affordable clean energy.

“The momentum behind Nevada’s clean energy economy remains strong,” said Sarah Cottrell Propst, the Executive Director of Interwest Energy Alliance, a non-profit trade association that represents the nation’s leading companies in the renewable energy industry. “The passage of Question 6 will spur investment and advance the state’s leadership in one of the nation’s fastest growing industries.”

Check out the 2018 Solar Builder Projects of the Year!

“Investment in renewable energy is an investment in the long-term health of Nevada’s economy. A robust RPS promises to expand Nevada’s economic development and diversify its energy supply,” said Alli Gold Roberts, senior manager of state policy with Ceres, a sustainability nonprofit organization working with influential investors and companies. “Major companies are investing in Nevada because of its rich renewable resources and the state is now poised to continue to attract corporate renewable energy investment.”

“Clean energy is putting Nevadan’s to work, with more than 25,000 strong employed in 2017. By increasing the state’s renewable standard, Nevada has set itself up to continue reaping the economic benefits for years to come,” said Ray Fakhoury, State Policy Manager with the Advanced Energy Economy, a national group of businesses that seek to reduce market barriers to advanced energy investments. “Investing in clean energy resources helps diversify the state’s energy mix, protecting consumers from future energy price volatility.”

To become law, Nevada’s voters will have to pass the initiative again in 2020, but Fakhoury believes consumers will see benefits sooner than that. “Passing with wide support, the Legislature and Governor-elect should move forward in the upcoming legislative session to enact this landmark increase.”

— Solar Builder magazine

New report explores 10 grid reform concepts, case studies for utilities to consider

utility grid modernization

A frequent topic on this site over the last year is the need for more advanced utility business models and a new report from the Advanced Energy Economy and Rocky Mountain Institute echoes this sentiment, noting that advancing efficient and equitable approaches to update the utility business model is crucial to the grid’s transition to a more secure, clean and affordable customer-centric system.

In identifying, evaluating and encouraging innovation in business models, the report, Navigating Utility Business Model Reform: A Practical Guide to Regulatory Design, offers a menu of regulatory options for policymakers, utilities and electric customers to best support and manage the maturation of a 21st-century grid.

Powerful trends are impacting the contours of the electric system, including growing policy demands for improved environmental performance, the increasingly widespread availability of distributed energy resources like rooftop solar and storage, more customer demand for energy choice and the need for strengthened resilience in the face of more extreme weather across the country. Navigating Utility Business Model Reform offers electricity system leaders and stakeholders 10 reform options to best respond to these pressures and support policy and regulatory decision-making.

Check out the 2018 Solar Builder Projects of the Year!

“The grid is experiencing rapid changes in its shift to a 21st-century system, and electric utilities have a fundamental role to play in ensuring this transition strengthens resilience, improves environmental performance and protects the interests of customers while maintaining essential features of affordability and reliability,” Dan Cross-Call, a manager at RMI and one of the report’s authors, said. “This report offers a practical guide to industry leaders—regulators, utilities, grid operators, policymakers and policy influencers—on how to best engage with an increasingly decarbonized and distributed energy system, shepherding and managing this transition to maintain the fundamental role of utilities and achieve new policy objectives.”

The 10 reform options the report examines include revenue decoupling, platform revenues, performance-incentive mechanisms and multiyear rate plans, among others. In addition to Navigating Utility Business Model Reform, the three groups released a set of case studies providing current examples of utility business model reforms and the regulatory constructs that make them work.

The five case studies examine:

• Oklahoma’s Energy Efficiency Incentives—How Public Service Co. of Oklahoma and Oklahoma Gas & Electric are responding to shared savings and lost revenue adjustment mechanisms intended to remove the utilities’ financial disincentive to maximize customer energy efficiency opportunities.

• Maryland’s Behavioral Demand Response Program—How Baltimore Gas & Electric (BGE) lowered summertime demand driven by air-conditioning use through customer rebates for reducing consumption during peak-demand days, with BGE able to sell the energy and peak-demand reductions directly into the PJM wholesale market.

• Regulatory Accounting of Cloud Computing—How Illinois and New York are trying to level the playing field for service-based alternatives to traditional capital investments through the regulatory accounting treatment of software-as-a-service.

• Brooklyn Queens Demand Management Program—How Con Edison is deferring distribution infrastructure upgrades in an area of rising demand by deploying nontraditional methods of customer- and utility-side demand reduction, with the utility rewarded with performance incentives and accelerated depreciation.

• United Kingdom’s RIIO Performance-Based Framework for Driving Innovation and Delivering Value—How the UK’s Office of Gas and Electricity Markets (Ofgem) created RIIO (Revenue = Incentives + Innovation + Outputs), the most comprehensive performance-based regulatory system yet developed to reflect changing market conditions. RIIO allows utilities to take advantage of the growing service economy and rewards utilities for achieving desired outcomes.

“With so many utilities launching new grid modernization initiatives, now is the time to address utility regulation and business model shortcomings. Energy is now extremely cheap if solar and wind power are the backbone of our electricity system,” said Mike O’Boyle, director of America’s Power Plan. “To succeed, utilities must be intrinsically motivated to invest in modern technologies that make the grid more efficient, flexible, affordable and resilient. Navigating Utility Business Model Reformis a toolbox for policymakers, utilities and key stakeholders to do just that.”

— Solar Builder magazine