Tag Archives: alternative energy

What we might expect for diffusion of new decentralized energy technologies?

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Technologies and policies that enhance the development of decentralized energy resources have generated increasing interest over the last couple of years.  I’ll write more in the future about what are the underlying drivers, both technological and institutional.

I’ve been interested in the question of where do we stand, and how long might it take for diffusion of these new technologies. We can look back and see how technology transformed lives in just a couple of decades. Compare kitchens from 1900 and 1930; if we walked into the earlier kitchen, most of us would be lost, but we could whip up a meal in 1930.

 1030's Kitchen; Photo Credit - Henry Ford Museum

Or the rapid adoption of autos. In 1909, people could stand in the middle of Pike Street in Seattle and talk:

File:Seattle - Pike Street 1909.jpg

Not so safely in 1930:

Do we stand today at a point just at the onset of a new technological evolution?

One question to be answered is whether our institutional settings will allow these new technologies. In one case, it appears that Germany has already chosen its road. But in the US, whether we rely on central power stations using transmission lines may still be a question in play. That deserves a separate post of its own.

If we assume that we choose the decentralized path, what might we expect in when these technologies are adopted widely. A couple of graphics illustrate historic diffusion rates. This is one from VisualEconomics via The Atlantic:

Another one from Forbes via The Technium shows the parallel development paths (however, I don’t like starting at the year of invention instead of a threshold adoption level):

One might interpret the upper graph as showing accelerating adoption rates. But I interpret the lower chart as illustrating at least two factors that drive diffusion: the relative importance of network infrastructure and the expense relative to individual wealth.  Autos, telephones and electricity all required construction of a large network of roads or wires, often funded with public investment. Individuals can’t choose to adopt the technology until a larger public decision is made to facilitate that adoption.  As to expense, refrigerators and dishwashers were large household investments for many years, and cars are still a large single expenditure. On the other hand, cell phones, radios and televisions quickly became inexpensive which lubricated diffusion. We need another graphic showing how diffusion rates relate to these two different axes.

We are still unsure where decentralized energy technologies will fall among these characteristics. They may seem small and inexpensive, but enough solar panels to power a house will still be several thousand dollars for the foreseeable future. And the how much electric network investment is required to integrate these resources is the center of the debate over technology policies.

Too often studies making forecasts and policy recommendations don’t consider what adoption rates are feasible or probable. However a study comes along and incorporates this concept as its centerpiece. A good example is the Clean Energy Vision Project’s Western Grid 2050 report. Lead by a former colleague Carl Linvill, who’s now at the Regulatory Assistance Project, it looked at several different scenarios for technology diffusion. Such studies give us a better understanding of what’s actually possible rather than what we wish for.

Making Community Solar Gardens Work

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California has been quite successful at encouraging the development of (1) large utility-scale renewables through the renewables portfolio standard (RPS) and other measures and (2) small-scale, single structure solar generation through the California Solar Initiative (CSI) and measures such as net energy metering (NEM).  However, there have been numerous market and regulatory barriers to developing and deploying the “in-between” community-scale and neighborhood-scale renewables that hold substantial promise.

Community-scale and neighborhood-scale distributed generation (DG) includes some technologies that simply are not cost-effective at the small scale of a single house or business, but are not large enough to justify the transaction costs of participating in the larger wholesale electricity market.  These resources, such as “community solar gardens”, can meet the demands of many customers who cannot take advantage of adding renewables at their location and can also reduce investment in expensive new transmission projects. Examples of these types of projects are parking structure-scale solar photovoltaics, solar-thermal generation and space cooling, and biogas and biomass projects, some of which could provide district heating.  Technology costs are falling so rapidly that these mid-scale projects are becoming competitive with utility-scale resources when transmission cost savings are factored in. SB 43 (Wolk 2013) recognizes that the promise of mid-scale renewables has not been realized.

In response to SB 43, each of the large investor-owned utilities–PG&E, SCE and SDG&E–have filed proposed tariffs with names such as Enhanced Community Renewables Program or Share the Sun. I filed testimony in the PG&E and SCE cases on behalf of the Sierra Club addressing shortcomings in those programs that would inhibit development of community solar gardens. SDG&E’s proposal, while not perfect, better meets the law’s objectives. After the hearings, the CPUC postponed a proposed decision from the July 1 deadline to October.

SB 43’s requirement that the investor-owned utilities “provide support for enhanced community renewables programs” is a critical step forward for California’s distributed energy goals.  The CSI is the state’s premier distributed generation program.  In SB 43 the Legislature expressed its intent that the “green tariff shared renewables program seeks to build on the success of the California Solar Initiative by expanding access to all eligible renewable energy resources to all ratepayers who are currently unable to access the benefits of onsite generation.”  SB 43 advances the success of the CSI into the area of multifamily residential and multitenant commercial properties and introduces all types of renewable energy resources.  Customers who, for various reasons, cannot benefit from the current net metering programs, will be able to benefit through SB 43.

The Legislature clearly intends for this program to lead to a transformation in the energy market akin to the success for single customers of the CSI. This necessary market transformation extends to multifamily and commercial lease properties that are currently beyond the CSI and Self Generation Incentive Programs (SGIP). The Commission should ensure that utilities’ programs under SB 43 provides the market transformation that is necessary for this underserved segment.

State regulations calls for all new residential dwellings to consume zero-net energy (ZNE) by 2020, and all new commercial properties by 2030.  Fully implementing the market transformation identified in SB 43 is one of the obvious means to achieve this target.  The CSI option has already facilitated many examples of feasible ZNE single-family homes using renewables well ahead of the 2020 deadline.  There are several market barriers to integrating renewables in a similar manner on multifamily and commercial leased properties and on single-family that are not favorably located or that have other impediments.

A properly-designed community solar garden program should provide a critical work-around for the split-incentive problem that has plagued local renewable development in California.  The split-incentive problem arises from the fact that multi-tenant structures, both commercial and residential, may not be able to implement solar or other renewable resources due to the fact that lessees are not the owners of the shared space where renewables could be sited.  The problem of split-incentives between landlords and tenants has long been recognized, and has been the focus of energy efficiency programs.

As a corollary, the Commission should provide individual developers and property owners the opportunity to integrate energy efficiency and DG measures to achieve the best mix for meeting environmental and economic goals. Each project is unique so that a “one size fits all” approach that requires sale of all output into the wholesale market with buyback from customers who may have no connection with the project will only discourage enhanced development.

For distributed generation to expand in California there must be a cost-effective path for residential and commercial tenants, as well as not-well-situated buildings, to install solar and other renewables and share the costs among other customers. The focus to date has been on either utility-scale or single-building scale projects, but the most promise may be in mid-scale projects that can serve a community or a neighborhood cost-effectively through a combination of scale economies and avoided transmission and distribution investment.  But to achieve this objective requires changes from current utility practices.

An update: Here’s the link to the decision on this CPUC case issued in January. And here’s the link to scoping memo for the phase of this proceeding.

Repost: Millennials and the Future of Electric Utilities

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An insightful discussion about the new type of consumers that utilities will be facing–consumers who now expect to have customized experiences for no added cost.

One potential diversion though: The Brookings Institute description of Millenials–socially conscious, distrust of big companies, more favorable to government regulation–was used to describe the Baby Boomers 50 years ago. The actual changes didn’t really pan out that way. How the marketplace evolves is still uncertain.

The “Peer Economy” and the new future decentralized energy system

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Sunil Paul of Side Car wrote on LinkedIn about how the emergence of the “peer economy” has allowed the emergence of new economic transactions.  Side Car uses a smartphone app much like Uber and Lyft to connect riders with drivers to connect for quickly arranged trips.

Paul writes: “The peer economy is the growing business segment of transactions between individuals – one person to another – without a middleman to manage and package it. Think eBay for everything. ” He goes on to say, “(t)o win in the emerging peer economy, it’s important for companies and organizations to listen to what is possible with the technology and connect that with the needs of consumers and businesses. ”

The electricity industry appears to be on the verge of entering the transition to the peer economy with self-sustaining households and neighborhood microgrids. The single largest barrier is institutional, not technological, from the incumbent utility industry. We need to consider innovative strategies and policies to have them embrace this transition rather than resist it.

At M.Cubed we’re working on those solutions–the objective is not to try to bull over the utilities because that is a sure loser in the political world. There are ways for change the perspective so that the the utilities can see their advantage. We did that for the mobilehome park industry in California when we got PG&E to back conversion of aging master-metered electricity and gas systems to utility ownership. Look for more from us on this topic in the near future.

How do we best induce technological innovation? We’ve already run that experiment

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Improvement in new and existing technologies’ performance and costs is a function of responses to a mix of market and regulatory signals. Finding empirical measures of differing innovation influences is difficult due to confounding influences. Yet we may be able to look at broader economic trends to discern the relative merit of different approaches.

The most salient example could be the assessment of comparative performances after the fall of the Berlin Wall. The Allies conducted a 45-year experiment in which Germany was first split after World War II with largely equivalent cultures and per capita endowments, but one used a largely market-based economy and the other relied on central economic planning. When the two nations reunited in 1990, the eastern centrally-planned portion was significantly behind in both overall well-being and in technological innovations and adoption. West Germany had doubled the economic output of centrally-planned East Germany.

More importantly, West Germany had become one of the most technologically-advanced and environmentally-benign economies while East Germany was still reliant on dirty, obsolete technologies. For example, a coal-to-oil refinery in the former East Germany was still using World War II-era technology. West Germany’s better environmental situation probably arose from the fact that firms and the government were in an adversarial setting in which the firms focused on the most efficient use of resources and were insulated from political interest group pressures. On the other hand, resource allocation decisions in East Germany had to also consider interest group pressures that tended to protect old technologies and industries because these were state-owned enterprises.

The transformation of the West German economy, both technologically and institutionally, was akin to what we will need to meet current GHG reduction goals and beyond. This more clearly than any other example demonstrates how reliance on central planning, as attractive as it appears to achieving specific goals, can be overwhelmed by the complexity of our societies and economies. Despite explicit policies to pursue technological innovations, a market-based system progressed much more rapidly and further.

Rethinking the rates that utilities offer to customers

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I just got back from an annual conference put on by the Center for Research in Regulated Industries. It brings together many of the applied economists and policy analysts working in California’s electricity industry. I presented a paper on reconsidering rate design.

Customers are often left out of the conversation about how to move forward into the new energy future, as they were at the recent CAISO Symposium where not a single customer representative was included in the “Town Hall Meeting.” Current retail rate tariffs seem to be designed with little thought about how customers would prefer to pay for their energy, and what might best encourage consumer energy management. And when customers are asked to take on more risk or cost to address energy needs, their revenue responsibility is often unchanged.

How should utilities align their rates and tariffs to fit customers’ preferences? Utilities both face a rapidly evolving energy marketplace and have available to them a larger portfolio of technologies to provide more services and to measure usage across different dimensions. One important step that utilities could take is to offer customers the same variety of contracts as the utilities make with their suppliers, so that rates mirror the power market.

Customers have a range of preferences, and some prefer to be more innovative or risk takers than others. To better match the market, should utilities offer a range of tariffs, and even allow customers to construct a portfolio of rates that allow a mix of hedging strategies? How should the costs be allocated equitably to customers to reflect the varying risks in those portfolios? How should the benefits of lower costs be allocated between the active and passive customers? The new metering infrastructure also provides opportunities for different billing strategies.

How should time varying rate (TVR) periods be structured to adapt to the potential shift over time when peak meter loads occur? Should the periods be defined by utility-side resources or the combination with customer-side resources? Is the meter an arbitrary division for setting the price? What is the balance between rate stability to encourage customer investment versus matching changing system costs? Should the utilities offer different TVR periods depending on the desired incentives for customer response?
In developing costs, how should utilities and commissions consider how resources are added, and in what capacity? Renewables are now part of the incremental resources for “new” load, and we can no longer rely on the assumption that fossil fuels are the marginal resource 100% of the time.

The “super off-peak” rate offered by Southern California Edison (SCE) to agricultural customers is one example of how a rate can be constructed to encourage customer participation in autonomous ongoing energy management. Are the incentives appropriate for that rate? Over what term should these rates be set given customer investment?

If you’re interested in this paper, drop me a line and I’ll send it along.