Utilities, regulators & distributed solar generation rethinking utility business plans

Utilities, Regulators & Distributed Solar Generation: Rethinking Utility

Business Plans October 9, 2013

America’s Power Plan Utility and Regulatory Models for the Modern Era

Vote Solar Webinar October 9, 2013 Ronald L. Lehr

Changing Business Models AMERICA’S POWER PLAN Transforming Utility Regulation

Thesis: Pressures on utilities to change – Aging plant

• Brattle Group: $2 trillion investment over next 20 years

– Tougher environmental requirements

• Criteria pollutants • Greenhouse gases • Coal ash • Water restrictions

– Flat to declining sales of electricity

Changing Business Models AMERICA’S POWER PLAN Transforming Utility Regulation

Thesis: Pressures on utilities to change ▫ New technologies � Smarter grid � Distributed generation: solar, CHP, micro turbines � Electric vehicles � Low cost wind—Xcel example ▫ Changing consumer requirements � Disintermediation by third parties ▫ Weakened industry financial metrics

• Pressures leading to “restructuring 2.0?”

Changing Business Models AMERICA’S POWER PLAN Transforming Utility Regulation

• CEOs want a clearer, more consistent direction from state energy policies

• Utilities have inadequate incentives for innovation, firm level efficiency

• Commissions need a better understanding of the utility business and its needs

• Utilities want certainty on climate policy • Utilities want healthier working relationships with

commissioners and staff

What we’ve heard from utility CEOs:

Changing Business Models AMERICA’S POWER PLAN Transforming Utility Regulation

• A primary concern is with increasing utility rates • Regulators are open to modifying the regulatory

model; looking for ideas • Some commissioners are dissatisfied with the

adversarial process • Many commissioners face severe barriers to

communications with stakeholders, and even fellow commissioners

• Commissions have inadequate resources

What we’ve heard from commissioners:

Changing Business Models AMERICA’S POWER PLAN Transforming Utility Regulation

Three Possible Utility Roles

• Minimum: markets provide power and services, utilities manage wires

• Moderate: “orchestrator” “smart integrator” ▫  Risk aware planning; regulated “make or

buy” decisions; consumer service packages • Maximum: Nebraska, Moorland Commission ▫  Disaster recovery ▫  Climate adaptation

Changing Business Models AMERICA’S POWER PLAN Transforming Utility Regulation

Three Potential Regulatory Models

•  The UK “RIIO” model ▫  Price cap built on RPI-X, with decoupling ▫  Output regulation �  Reliability, Environmental, Innovation, Price,

Efficiency, Social Responsibility

•  The “Iowa Model” ▫  Seventeen years of constant rates, settlements,

diminished focus on earnings levels

•  The “Grand Bargain” ▫  Comprehensive multi-year output-oriented deal ▫  Regulator led

Changing Business Models AMERICA’S POWER PLAN Transforming Utility Regulation

Utility Business Opportunities? Functions supporting distributed generation •  customer segmentation •  information, planning •  integration •  quality assurance •  reliability •  damage recovery •  interconnection •  integration

Changing Business Models AMERICA’S POWER PLAN Transforming Utility Regulation

Utility value, costing and pricing If utilities provide value to DG, then: •  What value propositions? •  To whom are values proposed? •  Can utilities market these values? •  What costs lead to prices? •  Are utility tariffs required? •  What profits can a utility expect?

Can a utility’s clean energy strategy become its most profitable course of action?

Changing Business Models AMERICA’S POWER PLAN Transforming Utility Regulation

Thanks for inviting me.

I look forward to our discussion. Ron Lehr rllehr@msn.com 303 504 0940 AmericasPowerPlan.org

New Business Models for the Distribution Edge������

James Newcomb October 8, 2013

Maintain Expands electricity system like that of today. Largely based on business-as-usual projections (BAU) from EIA's 2010 AEO.

Renew Examines a future in which centralized renewables like solar, wind, geothermal, biomass and small (plus existing large) hydro provide 80% of US 2050 electricity.

Transform Examines 80% renewable future in which 50% originates from distributed sources.

Migrate Assumes lingering threat of legislation to reduce GHG emissions drives switch from coal and gas to more nuclear power and new coal plants equipped with CCS.

four potential futures for the u.s. electricity system Reinventing Fire Scenarios: Electricity Supply Mix

Declining Solar PV Module Costs…

Source: PV Technology and Cost Outlook, 2013-2017, GTM, June 2013

Best-in-class Chinese Module Manufacturing Cost: Q42013E-Q42017E

$-

$2.00

$4.00

$6.00

Solar PV Soft Costs in the United States

Residential Solar PV Prices and Costs: Current State and Future Potential

$5.21

$3.34

Source: GTM/SEIA Q3 2012 Solar Market Insight Report Executive Summary; Goodrich et al. Residential, Commercial, and Utility Scale Photovoltaic System Prices in the U.S.: Current Drivers and Cost-Reduction Opportunities. NREL. February, 2012; Ardani et al. Quantifying Non-Hardware Balance of System Costs for PV installations in the U.S. NREL. December, 2012; Seel et al. Why are Residential PV Prices in Germany So Much Lower Than in the United States. Lawrence Berkeley National Labs. February, 2013 (revised publication).

$/W

dc

Current System Price

Soft Costs: U.S. Q3 2012

Soft Costs: Future State U.S. /

Germany 2012

$0.62

Soft Costs

Inverter Hardware

Module

…and Balance of System Costs

•  Shift from value chain to network of interconnected business models

•  Create a new platform for economic and operational integration of distributed resources

•  Reduce transactions costs and increase transparency to increase shared value

Three Opportunities…

•  Managing large numbers of interactions among agents

•  Responding to issues related to equity, fairness, and social impacts

•  Engaging customers in new ways

…Three Challenges

New Business Models: Independent Distribution Network Operator

•  Distribution wires company with performance-based incentives for cost reliability, and resource integration, reliability, and cost reduction

•  Market and operational platforms support a transactive grid and enable customer aggregation and virtual power plants

•  DNO invests in distributed assets such as microgrids, control systems, distributed storage

•  Unregulated affiliates deliver competitive services

New Business Model: Distributed Resource Manager

•  Integrated utility provides a portfolio of distributed solutions under performance-based regulatory incentives

•  Integrated distribution system planning enables increased transparency into distribution system costs and opportunities for cost reduction

•  Utility can provide incentives, contract for services, invest directly, or serve as a financial intermediary to support distributed resource investments

New Business Model: DER FinanceCo

•  An integration cost ($7.50/MWh) is included.

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Fort Collins’ electricity supply portfolio could shift significantly

Solar deployment relative to leaders

Assessing the costs: Fort Collins