With new market structures and business models, consumers can help states reduce carbon emissions

, July 2014

 

On June 2, in a historic move towards addressing CO2’s climate impacts, the Environmental Protection Agency (EPA) released its Clean Power Plan proposed rule for regulating carbon emissions from existing power plants. The regulations encourage states to take advantage of a range of CO2-reducing methods, like energy efficiency and renewable energy, rather than requiring all emissions reductions to occur at the power plants themselves. Electricity consumers can play an important role in states’ plans to meet the regulations, if regulators can take advantage of all the resources they can provide. Fully utilizing consumers’ electrical resources may require the help of new market structures and business models.

The value that individuals, households, and businesses can provide to the electric grid could be quite significant. Technologies such as rooftop solar panels, “smart” thermostats, more efficient appliances, and electric vehicles, especially when combined with smart meters and other smart grid technologies, could enable consumers to reduce the demands on the grid at peak times and help absorb excess generation from renewable generation when demand is low. As CPI discusses in our Roadmap to a Low Carbon Electricity System, many factors are already conspiring to make these consumer-level resources more valuable and accessible.

Wise use of these so-called distributed energy resources could replace some of the fossil-fuel power plants that would otherwise be needed to balance a renewable-generation-heavy grid, creating cost-effective emissions reductions. They could even make the grid more resilient to future severe weather.

With all these benefits, then, why are these resources not already more wisely and widely used by our electric grids?

The answer is both simple and complex: it’s the money. The people who could provide these distributed benefits — you, me, electric vehicle owners, businesses with flexible power demands, roof-top solar owners, etc —often do not have a good way to be compensated for making these resources available to the grid. Utilities and grid operators likewise do not have a satisfactory system for incorporating these distributed resources into their planning and operations. If regulators can devise a system which meets these demands, it will allow states to comply with the EPA’s regulations and reduce their emissions in a way that should be less costly than simply building new generation.

Such a system would need to consider the range of ways that distributed energy resources can provide value to the grid. Each type of value, from storage to generation to demand reduction, not only differs from the others; its worth may also change with the time of day and with its location on the grid. For example, a consumer who allows her electric car battery to be used as storage may be much more valuable in a part of the grid where there are a lot of solar panels installed, or when a wind energy farm is generating at top capacity in the middle of the night, than in other locations or times.

This valuation could happen in a number of ways. Right now, compensation currently exists for a few types of distributed energy resources, albeit in a coarse way. For example, avoided energy prices effectively compensate energy efficiency measures while net metering policies compensate distributed generation. Some businesses currently aggregate the flexible energy demands of other businesses and sell their aggregated demand-response services to the grid. In addition, some utilities offer electricity rates that vary over time, which can encourage storage and energy efficiency (though these time-varying rates are typically very smooth relative to the true variance in wholesale electricity prices). These three approaches are all ways that regulators could integrate distributed energy resources more comprehensively. However, existing valuations often do not closely reflect the true value of these resources to the grid.

For inspiration regarding how to better reflect the full range of values provided by customer resources, we can look to current utility planning procedures like those in New York, where the idea of integrating distributed resources through markets and other systems is not just a pipe dream. New York State is taking a serious look at these possibilities through its ‘Reforming the Energy Vision’ proposal, which seeks to increase electricity system resiliency and resource diversity through a heightened incorporation of consumer-level distributed resources.

Ideally, state regulators in New York and beyond will use the new EPA regulation as a lever to grow the market for distributed energy services. The Clean Power Plan creates a new source of value for clean energy sources of all kinds. It also prompts regulators and legislators to take a longer, more comprehensive view of changes necessary to decarbonize their electricity systems, which could result in the significant changes in markets and policy needed to fully value, utilize, and incentivize distributed energy resources.

 

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