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The Regulatory Assistance ProjectChinaEuropean UnionUnited States
www.raponline.org
Distributed Generation and Decentralized Grids: Some Practices
and Models to Consider
January 28, 2015
IRENA Renewable Energy Training WeekJanuary 25-29, 2015 ǀ Abu Dhabi, UAE
David Farnsworth, Senior Associate
Outline
1. Review of Resources Related to:
Microgrids – The UN Best Practices Study
Designing DG Tariffs Well – Linville et al, RAP
Designing Markets to Accommodate Variable
Resources: “Teaching the Duck to Fly,” Jim Lazar,
RAP
2. RPS and RE Tracking – “Follow the Money.”
3. Discussion
2
Suggested Resources
• Three Resources:
1. Microgrids – The UN Best Practices Study
2. Designing DG Tariffs Well – Linville et al, RAP
3. Designing Markets to Accommodate Variable
Resources: “Teaching the Duck to Fly,” Jim
Lazar, RAP
3
4
Microgrids
• Microgrids – distributed systems of local energy generation,
transmission, and use –technologically and operationally ready to
provide communities with electricity services, particularly in rural and
peri-urban areas of less developed countries.
Microgrids for Rural Electrification: A critical review of best practices based on seven case studies, United Nations
Foundation, February 2014
• Over 1.2 billion people do not have access to electricity, including
550 m (Africa)
300 m (India)
International Energy Agency, 2012
5
Microgrids
• The traditional approach to serve many of these communities: extend
the central grid.
• This approach is technically and financially inefficient due to a
combination of:
capital scarcity,
insufficient energy service,
reduced grid reliability,
extended building times and
construction challenges to connect remote areas. Microgrids for Rural Electrification
6
The Central Grid
• “Our current, baseload-based electricity system is extremely
inefficient…only about 44% efficient … astoundingly low.”
• We need to improve that, and there’s great potential for
doing so by using a distributed generation system, and by
having systems that are much more responsive and much
more able to match supply with demand….”
Interview With NREL Director Dan Arvizu On Distributed Energy / Distributed Solar
(Benefits & Obstacles), http://cleantechnica.com/2013/01/30/distributed-power-
distributed-solar-benefits-obstacles/7
Critical Components
• Microgrids for Rural Electrification identifies critical
components that explain why the twelve Microgrids
considered thrive or struggle, or why they enter virtuous or
vicious cycles:
Strategic Planning,
Operations, and
Social Context
8
Virtuous cycles
Virtuous cycles achieved through the
production of:
(i) sufficient revenue to support the grid
and
(ii) service and schedule reliability to keep
consumers as loyal customers.
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Virtuous cycles
10
Vicious cycles
Vicious cycles characterized by:
a chain of poor maintenance,
disappointed customers,
insufficient revenue and
dysfunctional community support.
11
Vicious cycles
12
Microgrids – Plan for Certain Practices
Seven critical factors to plan for, every practice is equally
relevant:
• Tariff design,
• Tariff collection mechanisms,
• Maintenance and contractor performance,
• Theft management,
• Demand growth,
• Load limits, and
• Local training and institutionalization. 13
Microgrids – Not every practice is equally relevant
• Depends on the type of business model established by
micro grid developer:
• For-profit,
• Partially subsidized, and
• Fully subsidized.
Microgrids for Rural Electrification: A critical review of best practices based
on seven case studies, United Nations Foundation, February 2014, Schnitzer
et al, https://cleanenergysolutions.org/content/microgrids-rural-electrification-
critical-review-best-practices-based-seven-case-studies14
Suggested Resources
• Three Resources:
1. Microgrids – The UN Best Practices Study
2. Designing DG Tariffs Well – Linville et al, RAP
3. Designing Markets to Accommodate Variable
Resources: “Teaching the Duck to Fly,” Jim
Lazar, RAP
15
Designing Distributed Generation Tariffs Well
• Improvements in distributed generation economics,
• Increasing consumer preference for clean, distributed resources, and
• A favorable policy environment in many states have combined to produce
significant increases in distributed generation adoption in the US.
• Regulators are looking for the well-designed tariff that fairly:
Compensates DG adopters for the value they provide to the electric
system;
Compensates the utility for the grid services it provides, and
Charges non-participating consumers for the value of the services
they receive.
16
Regulatory options for dealing with DG.
• The authors consider:
Current tariffs; and
Benefits, costs, and net value to distributed generation adopters,
non-adopters, the utility, and society as a whole.
• The paper highlights:
A valuation methodology so that the presence or absence of cross-
subsidies can be determined;
Rate design and ratemaking options for regulators to consider, and
Recommendations for fairly implementing tariffs and ratemaking
treatments to promote the public interest and ensure fair
compensation. 17
The Transition in the Customer/Company Relationship
• Technology is making customer resources less expensive
• Technology is enabling customer resource participation
• Power sector institutions are evolving
• What constitutes fair compensation in a time of transition?
18
Sound Decision-Making Benefits All
• For consumers: Keep more $$, quality
• For utilities: Corporate health, purpose
• For investors: Safety, value, expectations
• For employees: Safety and welfare, pride
• For the regulatory process: Confidence
• For society: Key role for power in society
A process that promotes shifting risk rather
than managing risk is inherently unstable
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Designing DG Tariffs Well: Twelve Points
1. Value is a two-way (or more) street
2. Consider all relevant sources of benefit and cost over the long term
3. Select & implement a valuation method
4. Cross-subsidies may flow either way
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Consider: Cross-Subsidies Run Both Ways
• If value of PV < compensation:
– Other customers subsidize PV customers
– Under-recovery of utility’s fixed costs
– Upward pressure on rates (cross subsidy)
– Reduced utility shareholder returns
• If value of PV > compensation:
– PV customers subsidize other customers
– Suppresses PV deployment
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Twelve Points …
5. Extrapolating from extreme situations is misleading
6. Infant industry subsidy tradition
7. Rules matter (e.g. interconnection)
8. Be no more complicated than necessary
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Twelve Points
9. Support innovative power sector models
10.Keep incentive decision separate from rate design
11. Keep decoupling decision separate from rate design
12.Consider mechanisms for “have-nots”
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Consider: Many Possible Alternative or Supplemental Tariff Policies
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• Fixed charges
• Demand charges
• Bi-directional distribution rates
• Time-based rates
• Minimum monthly bills
• Stand-by rates
• Value of Solar Tariff (VOST)
• Separate PV customer class
For a complete discussion, see
Designing Distributed Generation Tariffs Well
• Publication: Carl Linvill John Shenot Jim Lazar:
http://www.raponline.org/document/download/id/68
98
• Webinar: http://www.raponline.org/event/webinar-
designing-distributed-generation-tariffs
25
Outline
1. Three Resources:
Microgrids – The UN Best Practices Study
Designing DG Tariffs Well – Linville et al, RAP
Designing Markets to Accommodate Variable
Resources: “Teaching the Duck to Fly,” Jim
Lazar, RAP
2. RPS and RE Tracking – “Follow the Money.”
3. Discussion26
27
Increasing solar means steep afternoon
ramping – Teaching the Duck to Fly
28
Customer demand for new energy technologies is hitting a brick wall of
regulatory systems designed for the last century. This is especially true in
the design of power markets.
Renewables and demand-side technologies have some features that will
disrupt energy markets as they grow. As a package, they present a very
different way of running the grid, with greater efficiency, energy security,
and lower emissions. But market designs need to evolve to accommodate
innovation and clean energy.
Mike Hogan and Bentham Paulos, “Dealing with the Duck.” Public Utilities Fortnightly, January
2014.
Increasing solar means steep afternoon
ramping – Teaching the Duck to Fly
29
I could take the head off that duck, just give me some demand
response.
Unnamed participant at a meeting of California regulators
Ten Strategies To Align Loads to Resources(and Resources to Loads) with Illustrative Values for Each
1. Targeted energy
efficiency
2. Orient solar panels
3. Use solar thermal with
storage.
4. Manage electric water
heat
5. Require new large air
conditioners to include
storage
6. Retire older inflexible power plants
7. Concentrate demand charges into
“ramping” hours
8. Deploy energy storage in targeted
locations
9. Implement aggressive demand
response programs
10. Use inter-regional exchanges of
power
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Not every strategy will be applicable to every utility.
What Causes This Challenge?
Variable Loads: we’ve
had those forever.
Wind: Variable supply.
Solar: Predictably NOT
available for late PM peak
demand.
31
Guess What: Ducks Can Fly
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A duck in water has very much
the shape of the CAISO graphic.
The “fat body” floats, and the tall
neck breathes.
A duck in flight stretches out its
body and straightens its neck in
order to reduce wind resistance.
Our job is to straighten
this duck out.
Our Starting Point:A California Utility’s Projected “Duck”
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4,000 MW Peak Demand; 2,000 MW Minimum Demand;
73% Load Factor; Max 1-hour ramp: 400 MW
Forecast: 2,500 MW of wind and solar added 2012 – 2020;
Predicted 63% Load Factor; Max 1-hour ramp: 550 MW
0
500
1000
1500
2000
2500
3000
3500
4000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Total Load
Load Net ofWind/Solar
Strategy 1: Targeted Energy Efficiency
Focus efforts on EE measures with afternoon peak orientation.
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5% of total
usage by 2020;
3:1 ratio
between on-
peak and off-
peak savings.
Kitchen
lighting is a
great example.
A/C is huge.
Strategy 1: Targeted Energy Efficiency
Focus efforts on EE measures with afternoon peak orientation.
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0
500
1000
1500
2000
2500
3000
3500
4000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Post Strategy Total Load
Post Strategy Net Load
Original Net Load
Original Total Load
Strategy 2: Orient Solar Panels to the West
Fixed-axis solar panels produce a more valuable output if oriented to the West.
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100 MW shift
out of AM
into PM
hours, out of
~700 total
rooftop
solar
assumed.
6 PM
Strategy 2: Orient Solar Panels to the West
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0
500
1000
1500
2000
2500
3000
3500
4000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Post Strategy Total Load
Post Strategy Net Load
Post Strategy 1 Total Load
Post Strategy 1 Net Load
Strategy 3: Use Solar Thermal In Place of Some Solar PV
Solar thermal energy is more expensive, but can be stored for a few hours at low cost.
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Substitute 100
MW of solar
thermal for 100
MW of utility-
scale PV, out of
1,500 MW of
utility-scale
solar total
assumed.
Strategy 3: Use Solar Thermal In Place of Some Solar PV
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0
500
1000
1500
2000
2500
3000
3500
4000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Post Strategy Total Load
Post Strategy Net Load
Pre-Strategy Total Load
Pre-Strategy Net Load
Strategy 4: Control Electric Water Heating
Install grid control of electric water heating;
Supercharge during low-cost hours.
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Illustrative utility
has ~12% of state
load; assume it can
gain control over
5% of the electric
water heaters in the
state, for 300 MWh
of load shifting.
Strategy 4: Control Electric Water Heating
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0
500
1000
1500
2000
2500
3000
3500
4000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Post Strategy Total Load
Post Strategy Net Load
Pre-Strategy Total Load
Pre-Strategy Net Load
Strategy 4: Water HeatTotal US Potential Is Huge
45 million electric water heaters in US
4.4 kW peak power per water heater
200,000 Megawatts total potential demand augmentation when needed
40,000 Megawatts to potential peak load reduction when needed.
Up to 25 kWh potential storage per water heater Battery bank for 25 kWh: ~$10,000
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Strategy 5: Require 2-hour Storage On New AC
Require new AC units over 5 tons to include at least 2 hours of storage, under grid control.
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Move 100
MWh of AC
load out of
the 6 – 8
PM period
into off-
peak
periods.
Strategy 5: Thermal StorageCould Be A Much Larger Resource
A/C chilled water or ice storage can move the entire cooling load into low-cost hours.
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Strategy 5: Air Conditioning StorageA/C is ~30% of Peak Demand
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• Commercial load doubles;
• Residential load up 4X.
• Option:
– Appliance standards
– Service standards
– Retrofit incentives
Strategy 5: Require 2-hour Storage On New AC
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1000300100 3000 10000
100
1000
10000
10
CAES
Chilled Water /
Ice Thermal
H2O heaters
Metal-air
Na-S
Flow
Lead-acid
Ni-CdEV
Li-ion
Zinc-air
H.P.
capacitors
H.P. flywheels
L.D. flywheels
L.D. capacitors
Distributed /
demand-side
Battery
Grid-scale
Flywheel /
capacitor
Cap
ital co
st
per
un
it e
nerg
y -
$/k
Wh
ou
tpu
t
Capital cost per unit power - $/kW
Cost per Unit of Performance
for Various System Flexibility Options
PSH
Strategies 4 &5: Very Inexpensive Compared With Battery/Flywheel
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Strategy 6: Retire Older Inflexible Generating Plant
Older steam plants with night minimum loads and slow ramping are being replaced with gas “flex” units that ramp quickly.
48
GE Flex Combined Cycle Unit
Strategy 6: Retire Older Inflexible Generating Plant
No specific change attributed; assumed to be embedded in the 2020 forecast from the sample utility.
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How Did We Do?
Pre-Strategy, without Solar/Wind: 73% LF
Pre-Strategy, with Solar/Wind: 63% LF
Post-Strategy, with Solar/Wind: 83% LFHourly Ramp: 340 MW vs. 400 today, and 550 w/o strategies
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Teaching the Duck to Fly
Requesting Permission for Take-Off
Outline
1. Three Resources:
Microgrids – The UN Best Practices Study
Designing DG Tariffs Well – Linville et al, RAP
Designing Markets to Accommodate Variable
Resources: “Teaching the Duck to Fly,” Jim
Lazar, RAP
2. RPS and RE Tracking – “Follow the Money.”
3. Discussion52
What is a Renewables Portfolio Standard?
• A duty placed by a state on a regulated retail provider
• Typically to ensure that a percentage of the energy
provided by the company – e.g., 2% of 2015 retail sales.
• Can include both utility-provided and customer-
developed RE.
• Alternative Compliance Payment (ACP) required for not
meeting RPS requirements, value of REC goes to designated
fund, e.g., the “Massachusetts Clean Energy Center.” http://www.mass.gov/eea/energy-utilities-clean-tech/renewable-energy/rps-aps/retail-electric-supplier-compliance/alternative-compliance-payment-
rates.html
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For RPS Purposes, Quick Background on US Retail Electric Market
Two basic models for
electricity “providers”:
• Vertically-Integrated or
• “Restructured,” i.e., retail
function separate from
generation and transmission.
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DISTRIB
CO.
TRANS
CO.
GEN
CO.
Traditional,
i.e.,
Vertically-
Integrated
Functions:
• Distrib
• Trans
• Gen
Model 1 Model 2
What is an RPS?• RPSs categorize and define renewables differently,
for example:
• New/Existing (entering into service before/after
26/1/2015
• Utility-owned; or customer-owned.
• Solar, wind, biomass, methane digester, “small”
hydropower (i.e., “run-of-river” or “≤ 1 MW”).
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Tracking Systems
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RPSs rely on
tracking systems
to account for
ownership of
attributes
associated with
renewable
megawatt hours,
also known as
Renewable Energy
Certificates
(“REC”), i.e., “Green
Certificates” in the
EU)
What is a REC
https://www.youtube.com/watch?v=6jpLsSKQiIE58
RECs have
individual serial
numbers and can
contain other
identifying
information such
as plant name
and location,
month and year
of generation,
fuel type, and
emissions rate
(lbs. per MWh).
What is an RPS? • A REC represents the property rights to the environmental, social, and
other non-power qualities – all known as attributes” of renewable
electricity generation.
• A REC and its associated attributes can be sold separately from
the underlying physical electricity associated with a renewable-based
generation source
• “All grid-tied renewable-based electricity generators produce two
distinct products:
Physical electricity
RECs
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RPS – the ProcessCompliance for 2% RPS demonstrated as follows:
• Utility company confirms for the regulator the amount
of:
Energy sold over relevant year, i.e., its “portfolio”
RECs acquired and retired to reflect correct
percentage of overall energy portfolio.
Simple illustration:
• Company sold 10,000 MWhs in 2014 and retires 200
RECs.
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RPS – the Process• Retiring a REC is important; what does “retire” mean?
• Think about the tracking system; it works like a banking account.
Generators and retail companies have their own accounts.
For each MWh of electricity that a wind project produces, the tracking
system mints and stores a REC in the generator’s account.
The retail company buys RECs from the generator, and when directed by
the generator and retail company, the tracking system transfers the
RECs from the generator account into the retail company’s account.
Note, only one owner at a time, and when the retail company uses the
REC to demonstrate compliance, the REC and its serial number is retired
for good, and can never be used again.
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Some Observations about REC Tracking Systems
• They can be used to prove ownership of the
renewable attribute.
• They can prevent double-counting of the attribute.
• They do not track electrons, but can track
investment in and claims about renewables projects.
62
Thank You
Discussion
63
Resources• “Interview With NREL Director Dan Arvizu On Distributed Energy /
Distributed Solar (Benefits & Obstacles),” http://cleantechnica.com/2013/01/30/distributed-power-distributed-solar-benefits-obstacles/
• “Microgrids for Rural Electrification: A critical review of best practices based on seven case studies,” United Nations Foundation, February 2014, Schnitzer et al, https://cleanenergysolutions.org/content/microgrids-rural-electrification-critical-review-best-practices-based-seven-case-studies
• “Designing Distributed Generation Tariffs Well”: Carl Linvill John Shenot Jim Lazar: http://www.raponline.org/document/download/id/6898
• Webinar: http://www.raponline.org/event/webinar-designing-distributed-generation-tariffs
• “Dealing with the Duck,” Mike Hogan and Bentham Paulos, Public Utilities Fortnightly, January 2014.
• “Alternative Compliance Payment Rates,” http://www.mass.gov/eea/energy-utilities-clean-tech/renewable-energy/rps-aps/retail-electric-supplier-compliance/alternative-compliance-payment-rates.html
64
About RAP
The Regulatory Assistance Project (RAP) is a global, non-profit team of experts that focuses on the long-term economic and environmental sustainability of the power and natural gas sectors. RAP has deep expertise in regulatory and market policies that:
Promote economic efficiency Protect the environment Ensure system reliability Allocate system benefits fairly among all consumers
Learn more about RAP at www.raponline.org
David Farnsworth: dfarnsworth@raponline.org