2019 has seen a steady evolution of policy, regulation and business model innovation at the grid edge. The themes of digitalization, decentralization, flexibility and resilience keep cropping up, touching sectors from EV infrastructure to microgrids, demand response and beyond.
Reflecting on the third quarter in a new report, Wood Mackenzie's grid edge team highlighted key trends and developments in the U.S. and global grid edge ecosystem.
Digitalization
The global rollout of second-generation smart meters is a window into what’s next for customers at the grid edge.
From July through September 2019, WoodMac tracked over 1.2 million second-generation smart meters contracted in the U.S. and Europe. WoodMac expects smart meters to almost double from 665.1 million in 2017 to 1.2 billion globally by 2024.
Smart meter data is opening the door to new applications for customer analytics. In response to the smart meter rollout, vendors are gearing up to provide comprehensive product sets.
The customer analytics space is in the midst of vendor consolidation and an expansion of solutions. In July 2019, Tendril (after a series of acquisitions in customer analytics) announced a merger with Simple Energy to become Uplight. The company will offer a suite of software solutions to utilities aiming to better understand and serve end customers.
Along with consolidation, another noticeable trend is leading grid edge customer analytics vendors seeking to analyze and optimize the impact from customer-side resources on distribution grid operation. In this vein, Oracle announced new partnerships with EnergyHub, Powerley and Agentis in Q3 2019.
Flexibility
Distributed energy resources (DERs) around the meter are becoming more important as part of flexible resource portfolios, as FERC activity in the third quarter indicates.
In early September, the Federal Energy Regulator Commission communicated an interest in the “interconnection of distribution-connected DERs” and issued a first-of-its-kind data request to all independent system operators and regional transmission organizations asking for data points on individual DERs in their footprints. The requested data includes information on coordination with state and local entities for interconnection.
As responses roll in, it will be interesting to see the level of detail ISO/RTOs are able to provide on where and what types of resources are sited in their territory. This is especially interesting as electric vehicle charging infrastructure is built out. (In the last few months, WoodMac has observed a number of policy and regulatory developments across U.S. states to help set a foundation for EV charging to scale.)
For the most part, flexible DER portfolios are not yet a reality in the U.S. or other regions. However, in the U.S., the flexibility that has long been provided by demand response is set to remain important for dynamic and nimble resource orchestration in many parts of the country.
The largest incumbent regulated utility demand response programs have been in place for over a decade. These programs are operating direct load control devices to cycle or switch off customers’ largest loads, such as HVAC systems, water heaters and pool pumps.
Of the total maximum demand response potential capacity, 70 percent falls under four parent companies: Duke, NextEra, Exelon and Xcel. In the past year, two of these utilities, Duke and Xcel, have committed to the provision of 100 percent carbon-free electricity by 2050. The flexibility provided by demand response is likely to become an even more critical component of their resource mix.
Decentralization
Federal and state regulatory developments are creating a sensitive environment as the grid becomes cleaner and more decentralized. PJM is a clear hot spot.
PJM is seen as a model market — a progressive market — even beyond the United States. But it remains at the mercy of FERC, which is in the process of defining its jurisdictional boundaries. FERC is still mulling over a decision on market price formation for PJM's 2022/2023 base residual auction, nearly six months after the auction was supposed to take place. There's still no auction date in sight.
Further complications have arisen with the recusal of FERC Commissioner Richard Glick; Glick has to recuse himself from all proceedings involving his previous employer Avangrid until November 29, 2019. It is now unlikely that PJM’s capacity auction will be executed before early 2020.
The FERC decision on price formation will set a precedent for how state energy regulation and subsidies impact pricing for ISO/RTO markets with a capacity market — and more broadly on the responsibility and price tag on resource adequacy procurement.
No matter what the price formation outcome, this decision has major implications for the balance between state and federal authority as the grid becomes cleaner and more decentralized. States that set goals and provide subsidies for renewables will be looking to this decision to understand how they will relate to FERC going forward.
Resiliency
In the aftermath of a summer that brought major blackouts in New Orleans, California and Brooklyn, the grid edge space has its work cut out for it in terms of the need for resilient infrastructure.
However, WoodMac is seeing that normalized regulatory processes do not guarantee economic success for nontraditional business models that could improve resiliency, such as non-wires solutions.
California is leading in the identification of opportunities for non-wires solution, but procurement and implementation remain rare. To illustrate, in August of this year, California’s utilities submitted their second annual Grid Needs Assessments and Distribution Deferral Opportunity Report (DDOR) to regulators. The report asks utilities to identify non-wires solutions opportunities with a mix of DERs for the 2019-2023 distribution planning period.
While SCE and PG&E did launch a solicitation for a few deferral opportunities following their 2018 DDORs, to date no projects have come to fruition. For the 2019 reporting, SCE and PG&E have identified seven opportunities with 18.4 MW of disclosed opportunity. Both utilities are expected to open procurement solicitations by the end of 2019.
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Each quarter, Wood Mackenzie's grid edge team provides a comprehensive executive briefing, including an update and analysis of key trends and developments. See sample figures from the briefing here.
Elta Kolo is a research manager for the grid edge team at Wood Mackenzie working on utility digitization and flexibility in U.S. electricity markets.
