Monday Study – Better Planning For The New Energy Transition

Reimagining Resource Planning

Mark Dyson, Lauren Shwisberg, Katerina Stephan, January 2023 (RMI)

Executive Summary

Opportunity to Improve Resource Planning

In this period of rapid change in the electricity sector, resource planning has never been more important — or more complex.

Planning represents an opportunity to shape a significant fraction of the future electricity system. Between now (2022) and the end of 2025, utilities serving at least 40% of US total electricity sales and over 90 million customers will file integrated resource plans.i Current utility resource plans show that utilities plan to invest over $300 billion in new resources over the next 15 years.

Utility integrated resource plans (IRPs) have historically been tools for utilities and regulators to determine the portfolio of generation and demand-side resources that can meet projected peak and energy demand over the next 10 to 30 years at least cost, while mitigating risk and meeting policy objectives. The outputs of the plan are intended to inform a utility’s resource procurement, power purchasing, and program decisions — driving accountability toward a portfolio that results in affordable rates and maintains a safe and reliable grid.

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Yet much of the value in resource planning is not in definitively determining the utility’s portfolio 30 years out, but in the exercise of planning. Resource planning presents a crucial opportunity for utilities, regulators, and stakeholders to:

• Understand the energy needs of the households, communities, and businesses a utility serves, as well as how they will change over time, and translate them into system needs

• Establish a common set of assumptions and evidence that can be used to assess which near- and long-term options can meet system needs and achieve desired utility performance across multiple objectives

• Identify longer-term risks and opportunities and strategies to navigate them

Challenges of Planning for an Uncertain Future during a Period of Rapid Change

We observe that IRPs must maintain three core qualities to be effective tools for utilities and regulators to evaluate resource decisions…

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Today, a few major trends are adding urgency and complexity to the IRP process, including but not limited to:

• Rapid technology change and shifting resource costs

• A range of new state and federal policies that expand planning objectives beyond affordability, reliability, and safety to include emissions reductions, advancement of environmental justice, economic development, and support of electrification of transportation, buildings, and industry

• Increasing recognition that decisions made on distribution and transmission systems affect generation resource planning and vice versa

• Increasing stakeholder awareness that resource planning can have an impact on local air quality, health, jobs, energy bills, and climate change

If an IRP does not achieve these three qualities, its credibility, accuracy, and effectiveness may be eroded. The risks of unanticipated costs for ratepayers, disallowed future investments, dissatisfied customers, and failure to meet public policy objectives will increase.

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Expanding Scope for Resource Planning

Updating the IRP process to ensure that it remains trusted, comprehensive, and aligned can make IRPs more complex. As such, making changes around the edges or adding new IRP requirements may no longer be what best serves a utility or regulator — especially with staff time and capacity constraints. To use a metaphor to guide our thinking, the goal is to avoid amassing incremental IRP expectations in a way that is like the straw that breaks the camel’s back…

Overview of Planning Enhancements

After aligning on a set of priority changes, utilities and regulators can look to approaches that have been tested in IRPs across the country that can “enhance” plans to be more trusted, comprehensive, and aligned. These enhancements are summarized in Exhibit 3.

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To build trust in resource plans, regulators and utilities are:

• Prioritizing transparency, by updating rules that assess what information may be held as confidential or proprietary — and applying those rules to ensure that stakeholders have the information they need to engage effectively in the IRP process

• Meaningfully engaging stakeholders, with an inclusive and substantive process for input before and during the plan’s development

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To make plans more comprehensive, regulators and utilities are:

• Integrating resource, transmission, and distribution system planning, to better understand how decisions at one level of the grid might affect others

• Using all-source solicitations in the planning process, to bring in timely market data as a basis for making procurement decisions

• Updating assumptions and modeling tools for distributed energy resources (DER) adoption and value, to more accurately forecast DER growth patterns and impacts and assess DER costs and benefits

• Accurately representing emerging resources and their value, by including all options that may be commercially available in the planning horizon and using models with a level of spatial and temporal granularity needed to reveal values

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To align resource plans with evolving objectives and understand the impacts of plans on people, regulators and utilities are:

• Updating approaches to planning for reliability, to better understand the risks, vulnerabilities, and types of solutions that can contribute to reliability, including resource adequacy and resilience

• Accounting for carbon emissions and decarbonization targets, to assess progress and alignment toward climate goals or better understand the risk of future climate policy

• Analyzing health and air quality impacts across resource options and portfolios

• Including affordability, jobs, and environmental justice, to make the human impacts of planning clearer

Reimagining Resource Planning

Ultimately, we hope that utilities and regulators will use this opportunity — when their resource planning processes are being stretched and challenged — to consider how resource planning may need to be more radically reimagined…

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