Monday Study – Power Sector Innovation Leadership Here

The Role of Innovation in the Electric Utility Sector

Lisa Schwartz, Lawrence Berkeley National Laboratory; National Association of State Utility Consumer Advocates; Kevin Lee, BlueGreen Alliance; Adam Cooper, Lisa Wood, and Mike Shuster, Institute for Electric Innovation; Anne Hoskins and Christopher M. Worley, Sunrun; Kristin Barbato, Barbara Kates-Garnick, and Max McCafferty, Build Edison; April 2022 (U.S. Department of Energy Grid Modernization Laboratory Consortium/Lawrence Berkeley National Laboratory)

Executive Summary

A new National Academies report evaluates energy technologies, grid operations, business practices, electricity demand, and other developments that could support beneficial evolution of the nation’s power systems across a wide range of futures. According to the authors, “Creating an environment that promotes innovation will be essential if the future power system is to do an adequate job of providing service that is safe and secure, clean and sustainable, affordable and equitable, and reliable and resilient.”1

The report recognizes the importance of utility regulatory advances to speed socially beneficial innovation for investor-owned electric companies.2 Among them is accelerating investigations into changes in electric industry structure, services, security, pricing, and market design to: (1) align with significant deployment of behind-the-meter technologies and other distributed energy resources (DERs) and (2) address equity issues for energy access and clean energy.3 In addition, the authors assert that “[a]chieving greater deployment of advanced electrical technologies will require states to implement regulatory reforms that allow utilities to recover the costs of larger research and development (R&D) budgets alongside other forms of regulatory approval that encourage more adoption of new technologies.”4

Overall, state regulation can slow utility innovation, in large part because the risks for utilities may be too high relative to the rewards. 5 In addition, consumer advocates would rather have R&D funded in ways that are not on consumer electricity bills. 6 As a result, electric company innovations tend to be reactive to initiatives by regulators and the utility's corporate customers. In contrast to firms that put money at risk to provide solutions that customers did not even know they wanted, such as the smart phone, electric companies often are not financially motivated to change the status quo. So it is not surprising that energy utilities on average invest a low percent of net revenues in R&D compared to similarly situated industries.7

click to enlarge

To achieve state targets for clean energy and reducing greenhouse gases, some public utility commissions are exploring new approaches that are intended to spur beneficial utility innovation, while minimizing risks to utility customers. Among these initiatives are regulatory and marketing flexibility for utilities, increased funding for utility demonstration projects, and performance-based ratemaking including multiyear rate plans. Another pathway some commissions are exploring is facilitating third parties to provide utility customers with innovative products and services directly.

This report provides consumer, labor, utility, third-party service provider, and clean technology consultant perspectives on innovation in the context of state regulation of utilities. A key point of departure among the authors is the role of utilities versus third-party providers in developing and providing innovative solutions. The organizations represented by the authors also are at odds over the level of spending on innovation, who bears the costs and risks, who will benefit, and who builds and maintains the electricity infrastructure that innovation requires.

The National Association of State Utility Consumer Advocates (NASUCA) begins the discussion by describing both opportunities and challenges for regulatory innovations in six areas to advance the transition away from fossil-fuel powered generation toward a more renewable and distributed grid: prioritization of DERs; pricing, rate design, and cost allocation; performance-based regulation; integrated planning; stranded costs; and energy equity…

click to enlarge

Kevin Lee, BlueGreen Alliance, explains why state regulatory and utility actions to meet the climate challenge also should support strong local economies and fairness for utility workers…

Adam Cooper, Lisa Wood, and Mike Shuster, Institute for Electric Innovation (IEI), present case studies on U.S. investor-owned utilities that provide innovative solutions to meet the needs of their customers through partnerships with technology companies…

Anne Hoskins and Chris Worley, Sunrun, instead call for a “market-based approach” for innovative technologies and services with a strong role for third-party providers willing to risk capital and compete to develop the innovations needed to meet energy, climate, and other state goals…

Conversely, Kristin Barbato, Barbara Kates-Garnick, and Max McCafferty at Build Edison, a consulting firm for innovative clean technology companies, maintain that utilities should play the dominant investment role in the transition to a clean energy future…

Protecting Consumers in a Period of Rapid Transformation By National Association of State Utility Consumer A

click to enlarge

Introduction…Major developments affecting the electricity grid will continue to drive its transformation. This essay summarizes the views of consumer advocates on expected changes in the U.S. electricity sector and ways that innovation will both drive and respond to these changes. To formulate this work, the National Association of State Utility Consumer Advocates (NASUCA)6F 10 asked its members about their expectations for how the electricity sector will change over the next 10 to 20 years, views on the potential benefits of innovation and prospective challenges, and perspectives on how all these developments will impact the roles of consumer advocates in the electricity sector…

click to enlarge

A Labor Perspective on Innovation to Meet Climate Goals for the Electricity Sector By Kevin Lee, BlueGreen Alliance

Introduction…Tackling the climate change crisis will require a massive mobilization of resources. For the U.S. electricity sector, reducing emissions to prevent damaging climate change will require grid modernization investments and infrastructure build-out on a scale not seen in generations.56F 60 Meeting this goal is technically feasible, but poses challenges ranging from the purely technological and cost-related to those rooted in social, political, and community-oriented forces. Critically, these challenges are often intertwined, and policymaking to address one facet of the challenge can and should be carefully and intentionally crafted to account for challenges across the sociopolitical spectrum. In short, we can (and arguably, must) meet the climate challenge while also meeting the challenges of racial and economic equity, fairness for workers, community agency, and environmental health…

click to enlarge

U.S. Electric Companies Are Innovating to Provide the Solutions and Options that Customers Want by Adam Cooper, Lisa Wood, and Mike Shuster, Institute for Electric Innovation

Introduction…New technologies, data analytics, partnerships, and regulatory flexibility are enabling U.S. electric companies to provide the innovative energy services and solutions that today’s customers want. This essay provides examples of how U.S. investor-owned electric companies are innovating to meet the evolving needs and expectations of their customers, focusing on:

1-Innovations in providing services and solutions to residential customers

2-Innovations in providing carbon-free energy solutions to corporate customers

The essay also explores regulatory approaches that are needed to support new services and solutions for customers in the future…

click to enlarge

Innovating the Electricity System from the Hearing Room to the Edge of the Grid By Anne E. Hoskins and Christopher M. Worley, Sunrun

Introduction…The climate crisis requires a dramatic shift in how the United States produces and consumes energy. The switch from fossil fuels to cleaner alternatives will require trillions of dollars in investment in order to meet local, state, and national objectives, including building gigawatts of renewable energy and electrifying buildings and the transportation sector.178F 182 In addition, the climate crisis is exposing the fragility of our energy system to extreme weather events and natural disasters. Our aged centralized electricity systems failed to provide reliable power during California’s wildfires and the Texas freeze of 2021. Without a fundamental change in the way we generate and distribute power, repeated outages and related harm to people and communities will increase as the Earth’s temperature rises and extreme weather events become more common…

click to enlarge

dvocates

Scaling Utility Innovation: Identifying a Path to Action By Kristin Barbato, Barbara Kates-Garnick, and Max McCafferty, Build Edison

Introduction…Energy and climate goals are accelerating around the country (Figure 16). Increasingly, states are moving in the direction of sustainable energy practices, and the targets for renewable generation, energy storage, electric mobility, energy efficiency, and energy equity continue to grow. States including Massachusetts, Maine, New York, California, and fourteen others have developed substantive clean energy and climate action policies, linked with strict timelines…

Tweet