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NEWGEN STRATEGIES AND SOLUTIONS, LLC
Agenda
• Introduction
• Background on Distributed Energy Resources
• Distributed Energy, Load Shapes and Resource Planning
• Customer Segmentation and Distributed Energy
• Financial Planning and Distributed Energy
2
NEWGEN STRATEGIES AND SOLUTIONS, LLC
NewGen Core Competencies
Economics Strategy
Stakeholders Sustainability
3
• Cost of Service • Rate Design• Financial Modeling &
Planning • Litigation & Regulatory
Support • Valuation & Appraisals• Resource Planning
• Distributed Resources• Community Solar• Joint Action• Procurement• Strategic Planning• Contract Negotiations• Rate Strategy
• Stakeholder Engagement• Education & Training• Facilitation • Council / Board Meeting
Support • Customer Surveys
• Carbon Neutrality• Sustainability
Reporting• Sustainability Strategy • Renewables • Waste Resources
NEWGEN STRATEGIES AND SOLUTIONS, LLC
• Increased penetration of customer-sited Distributed Energy Resources (DER) can complicate various utility functions*
• These complications often present areas of risk for the utility
– Resource Planning
– Financial Planning
– Rate Design
• Identifying DER risk is important, but appropriate analytical methods to mitigate and manage these risks is also critical
– Requires work across traditional utility functions
• This presentation highlights how DER risk can manifest itself in traditional utility functions but requires solutions across these functions
Why are we here?
4
Managing DER risk requires innovative solutions that oftentimes cut across
traditional utility organization structures
*Note: This presentation focuses on customer-sited DERs as opposed to utility-owned DERs connected to the distribution grid on the utility side of the meter.
NEWGEN STRATEGIES AND SOLUTIONS, LLC
Agenda
• Introduction
• Background on Distributed Energy Resources
• Distributed Energy, Load Shapes and Resource Planning
• Customer Segmentation and Distributed Energy
• Financial Planning and Distributed Energy
5
NEWGEN STRATEGIES AND SOLUTIONS, LLC
• Many customers install DERs to reduce energy and/or demand charges
– Renewable DERs can mitigate energy charges, but may not reliably mitigate demand charges
– Thermal DERs can mitigate demand charges, but require fuel costs
– Energy storage can be used for various use cases
• Adoption is driven by decreasing technology costs
• DERs are also driven by customer demand for more control and choice over the energy supply
– Contain or hedge energy costs
• New players have emerged offering new DER solutions
Technology Comments
Renewable DER (mostly solar)
• Mitigates energy charges• Limited capacity value• Does not require fuel
purchases
Thermal / Natural Gas
• Mitigates energy and demand charges
• Requires fuel purchases
Storage• Load shifting• Stabilize power flow and
improve reliability
Renewable DER + Storage
• Can mitigate both energy and demand changes, but is not currently cost competitive on a distributed basis
Why are Customers Choosing Distributed Energy Resources?
6
NEWGEN STRATEGIES AND SOLUTIONS, LLC
While DERs Impact Several Utility Functions, Managing DER Risk Requires a Holistic Approach
7
Managing these risks requires close
coordination across several utility functions
including resource planning, distribution
system planning, financial and rates, billing
(advanced metering infrastructure(AMI)), and
customer services
System Planning
• Load (and shape) forecasts• Resource selection and
procurement
Rate Design
• Price signals to manage customer demand
• Improved customer segmentation
Financial Planning
• Impact of customer attrition• Proactively manage financial risks
NEWGEN STRATEGIES AND SOLUTIONS, LLC
• Many utilities recognize that using AMI data only for billing is a very limited application
• To find beneficial uses of AMI data, utilities should view its application across existing utility functions
• AMI data can help utilities streamline their operations and planning functions and ultimately reduce costs
AMI Data Can Support More Advanced Modeling Analytics to Estimate DER Impacts
8
Identifies Customers with Anomalous Load
Shapes
AMI Data
Informs More Precise Customer Segmentation,
COS, Rate Design, and Resource Planning
Enables Data Driven Support for Politically
Sensitive Changes
NEWGEN STRATEGIES AND SOLUTIONS, LLC
Agenda
• Introduction
• Background on Distributed Energy Resources
• Distributed Energy, Load Shapes and Resource Planning
• Customer Segmentation and Distributed Energy
• Financial Planning and Distributed Energy
9
NEWGEN STRATEGIES AND SOLUTIONS, LLC
• Load shapes in today’s power system are changing as a function of DERs
– For Residential customers, this is primarily due to rooftop PV and EVs
– For Commercial and Industrial customers, various DERs (PV, storage) are being deployed to reduce and manage demand charges
– Load shapes may change independent of PV and EV penetration (e.g. customers on new time-of-use (TOU) rates)
• DERs may change the timing, level, and ramping requirements of peak demand differently in various customer classes
• This influences a utility’s coincident peak and can lead to a change in the amount and type of capacity resources required
How Are DERs Changing Load Shapes?
10
NEWGEN STRATEGIES AND SOLUTIONS, LLC
• DER impacts on load shapes is not only a function of PV but also EVs
• Important to assess impacts of PV and EVs both separately and combined
• Variables that impact EV load profiles are:–Type of charger–Type of vehicle–How the vehicle is used
• Assuming standard evening charging profile, customer, and likely system peak demand will increase
–EV load diversity will vary significantly at certain levels of technology penetration
• PV plus EV exacerbates the duck curve and evening ramping requirements
Load Shape Impacts Can Be Complicated by EVs
11
Residential EV Charging Profile
Residential PV+EV Charging Profile
NEWGEN STRATEGIES AND SOLUTIONS, LLC
• Energy storage can help manage load shapes
– If storage absorbs PV “exports” (assuming minimal sizing differential), then load shapes flatten and reduce peak demand
• While Peak demand is reduced, ramping requirements may still be significant depending on load diversity
Load Shapes Can Be Managed By Technology
12
Note: this is not looking at economics of a combined PV + storage system – only what can happen to load
shapes if these are installed
Residential PV+EV+Storage
NEWGEN STRATEGIES AND SOLUTIONS, LLC
• Rate design can send price signals to influence load shapes (consumption behavior or DERs) that benefit the system
• Design rates –Based on system cost characteristics
–Send the right pricing signals to customers…
–…While maintaining the viability of customer choice
“Rates as a Resource”: Load Shapes Can Also Be Managed by Rates
13
NEWGEN STRATEGIES AND SOLUTIONS, LLC
Key Takeaways
• Inaccurate estimates of load shapes can impair a utility’s ability to forecast needs for reserve capacity and fast-ramping resources
• Utilities should consider approaches that accomplish the following:
– Accurately forecasts load and load shapes incorporating DERs– Ability to forecast ramping requirements and requisite fast-ramp
capacity to meet peak demand– Consider rate design as a way to incentivize efficient use of the system
and to impact load shapes that reduce ramping and capacity resource requirements
– Rate design assessment – which is inherently necessary for load shape forecasting – is usually an afterthought in resource planning
• More accurate load shape forecasts that are influenced by targeted rate design changes can likely improve estimates of production costs
14
NEWGEN STRATEGIES AND SOLUTIONS, LLC
Agenda
• Introduction
• Background on Distributed Energy Resources
• Distributed Energy, Load Shapes and Resource Planning
• Customer Segmentation and Distributed Energy
• Financial Planning and Distributed Energy
15
NEWGEN STRATEGIES AND SOLUTIONS, LLC
• Utility costs are predominately fixed
• Majority of utility revenues are misaligned with cost structure
Fixed Cost Recovery Issues
16
Three cost classifications, allocated to customers based on costs imposed on system
1. Demand (fixed)
– Peak Demand Responsibility
– Time Differentiation
– Coincident/Non-Coincident/Sum of Max Demands
2. Customer (fixed)
– Minimum system
– Number/weighted number of customers
3. Energy (variable)
– Energy consumed, include losses by service voltage
Fixed, 65%
Variable, 35%
Utility Costs
Variable, 80%
Fixed, 20%
Utility Revenues
NEWGEN STRATEGIES AND SOLUTIONS, LLC
Market or Customer Segmentation
• Electric Utilities Historical Segmentation: – Group customers with similar size, infrastructure needs, costs to serve,
load characteristics, and consumption
• Leveraging technology investments offer more options, manage risk for utilities
• Do historical segmentation practices help manage DER and disruptive technology risks?
17
TOU CPPEnergy Only
Wright RateTiers RTP Standby Value of
Solar
Rate Options
Possible Customer SegmentsHigh Load
FactorMultifamily
Central PlantsDual
Peaking PV / DER Evening PeakEV
NEWGEN STRATEGIES AND SOLUTIONS, LLC
• Customer classes treated as somewhat homogeneous when individual shapes are not
• Average profiles may vary substantially from actuals
• The reality is that there are many ways to segment types of profiles within a class
Customer Segmentation
18
NEWGEN STRATEGIES AND SOLUTIONS, LLC
• Four discrete profiles identified
• Each profile contributes differently to system peak
• Currently, all are treated the same
• How do/can we use this information?
Customer Segmentation
19
NEWGEN STRATEGIES AND SOLUTIONS, LLC
Customer Segmentation Insights and Trends
Demand Side Management: • Optimizing DSM programs and measures,• “Microtargeting” customer segments, delivering more for less• Leverage behavioral/emotional elements vs. infrastructure
Machine Learning:• Load forecasting• Segmentation and load profiles• Oracle/Opower:
– Segment attributes: rate class, weather, day of week, GIS / Industry codes– Cluster customers with multiple similar attributes (e.g., weather and industry codes)
Targeted Rate Making to Benefit and Optimize System• Recognize, quantify the potential impacts from DERs, disruptive technology• Improve load factor• Manage, reduce and shift peaks• Manage ramping needs
20
NEWGEN STRATEGIES AND SOLUTIONS, LLC
Rate Making Considerations and Tools• Defensibility of rate making
– More communities facing rate scrutiny, justification of incentivized rates (California Prop. 26 concerns)
– Apply demand data, AMI analytics to develop incentives– Demand costs for system peaking: customer classes contribution– Demand costs for localized distribution system peaks; customer class contributions
• Time based ratemaking:– Understand load shapes, potential impacts to load shapes from DERs– Identify peak / off peak periods; seasonality– Elasticity of demand and pricing differentials needed (3:1, 4:1 needed)– Revenue neutral – Use system demand costs and allocations to define on/off peak and incentives
• Do not do more harm, amplify the issue – Utilities are facing DER related revenue, equity issues as industry was slow to
adjust rates– Proactive, begin adjusting now, avoid similar issues
21
NEWGEN STRATEGIES AND SOLUTIONS, LLC
• Use segmentation to identify customers / capacities to use rates/ DSM as integrated tools to manage load and quantify and manage EV/PV/time variable rate opportunities
• Test, quantify, and optimize TOU potential
Target Customer Segments to Optimize System Load Profile
22
NEWGEN STRATEGIES AND SOLUTIONS, LLC
• Using rates in an integrated approach to benefit system and optimize resources
• Comprehensive TOU and EV management
• Prepare / proactive –have we learned from net metering?
Target Customer Segments to Optimize System Load Profile
23
Unmanaged EV rates/incentives
for charging
TOU rates incentivize shift and EV / active
management of load shape and peak
NEWGEN STRATEGIES AND SOLUTIONS, LLC
Agenda
• Introduction
• Background on Distributed Energy Resources
• Distributed Energy, Load Shapes and Resource Planning
• Customer Segmentation and Distributed Energy
• Financial Planning and Distributed Energy
24
NEWGEN STRATEGIES AND SOLUTIONS, LLC
• Adoption of DERs can impact utility financial strategy and should be analyzed as part of forecasting financial metrics
• Theoretical scenario analysis demonstrates how DERs impact financial metrics
• Discuss financial strategy to mitigate risk of DER impacts
Managing DER Risk in Financial Planning
• ~150 MW in peak demand• 20,000-30,000 residential
customers• 3,000-5,000 commercial
customers• 5-10 large industrial customers• $75M-$100M in annual rate
revenues• $50M-$70M annual cost of power
• ~$20/kW demand• ~$20/MWh energy
Hypothetical Utility Assumptions
25
NEWGEN STRATEGIES AND SOLUTIONS, LLC
Base Case Financial Metrics –No Modeled DER Impacts
26
Illustrative
NEWGEN STRATEGIES AND SOLUTIONS, LLC
High PV Scenario (NEM)
27
Illustrative
Substantial impact on
DSCR
Slower, consistent erosion of revenues
Reduced Res. energy
sales
NEWGEN STRATEGIES AND SOLUTIONS, LLC
High PV + EV Scenario (With TOU)
28
Illustrative
Slightdecrease in DSCR over base case
Liquidity is similar to base case
Decrease in energy
sales and rate
revenue
NEWGEN STRATEGIES AND SOLUTIONS, LLC
Strategies to Manage DER Risk in Financial Planning and Management
• Rate design and fixed cost recovery– Cost equity across and within customer classes– “Rates as a resource” to send price signals to stimulate
load growth outside of system peaks– Standby rates can improve fixed cost recovery in the
case of large, high load factor customers• Ample regulatory precedent, including at the Federal
level via Public Utility Regulatory Policies Act (PURPA)
• Reservation charges: a portion of demand costs are recovered from a customer-generator regardless of usage of the utility system
29
NEWGEN STRATEGIES AND SOLUTIONS, LLC
Strategies to Manage DER Risk in Financial Planning and Management
• If a residential-peaking system, stimulate commercial EV charging (day-time)
– Incremental load growth without increased system demand
– Consideration for commercial charging and demand charges
• Customer incentives for large, high load factor customers
– Economic development– Load retention
30
NEWGEN STRATEGIES AND SOLUTIONS, LLC
Managing DER Risk in Financial Planning:Key Takeaways
• Rate design and fixed cost recovery are key to managing DER risk
• EVs can offer an opportunity for incremental load and revenue growth
• Additional reserve funds may offer an opportunity to mitigate some types of DER risk
• DER risk can exert upward pressure on rates, which improves customer economics of DERs
– Consider offering programs that satisfy customer interest in DERs to build goodwill
31
CONTACT INFORMATION
Grant RabonExecutive Consultant
[email protected]: (512) 900-8232
Fred WellingtonVice President
[email protected]: (415) 407-3269