The emerging demand for well-managed grid energy storage will drive Smart Grid innovation with new business models for utilities, energy industry stakeholders, and importantly there will be new business opportunities for utility customers. This need to manage grid energy storage will require a smarter grid, with new utility regulations and new grid markets with corresponding improvements in smart metering, smart grid energy storage, and smart management of electrical loads.
We will start with this story of a small municipal utility, Princeton Municipal Light Department, PMLD, to illustrate the emerging need for managing grid storage and why business models need to change for many stakeholders as we shift to renewable power. The author has been a light commissioner at PMLD for 5 years and it should be noted that small light departments are a microcosm of the larger electric grid. PMLD has some 1500 mostly residential customers with very few commercial and zero industrial customers and we own and operate two 1.5MW wind turbines since 2009 that can provide roughly 20% of the town's power needs. PMLD buys most of its power from NextEra and pays transmission and capacity charges to National Grid via regulations enforced by New England Independent System Operator ISO-NE based on 1-hour peak load usage. We recently analyzed how we might support increasing amounts of PV generation in town. In a hypothetical thought experiment, we imagined how we might support net metering options as each customer installed a PV system equal to their own yearly consumption until all customers had PV sourced power. Utilities everywhere struggle with this problem. While we anticipated the so-called utility death spiral with net-metering at the full retail rate, it is very interesting to observe the business model impacts of the various stakeholders as PV generation increased.
The Drive for Low Carbon Power Has Many New Solutions
Early on with the wind turbines, we realized we needed to move this wind power from behind the meter (servicing our own town load) to in front of the meter where they are an ISO-NE registered asset that can sell power outside of our own town. Physically, they are in town but financially they are on the New England grid. It turns out that about 9% of the year the wind machines generate more power than the town of Princeton needs so, had we kept them behind the meter we would need to curtail their power or face fines for pushing power onto the New England grid from a non-registered generating asset without an ISO-NE administered sales contract.
So, when we used a thought experiment to model a hypothetical 100% PV penetration in town by our customers, we anticipated the utility death spiral effect at full retail compensation. In other words, as our revenue comes from selling power, as a non-profit, we would need to increase our rates as our revenue declines as customers make their own power. Increasing power rates would encourage the economics for more of our customers to install PV systems triggering a chain reaction from those able to finance a PV system and hurting our less affluent customers. Like many utilities, PMLD is seeking a more balanced rate structure to support PV systems and to fairly allocate the cost of services considering the needs of customers that already struggle to pay their bills. There is no perfect solution and there are compromises between the cost of power, the reliability of our system, and meeting our environmental requirements of an increasingly strict non-carbon-emitting portfolio from recent state regulations. Regardless of whether our renewable portfolio increases by residential solar, community solar, commercial solar, or other non-carbon emitting generation, our town would not be the only town or utility increasing renewable generation. This will eventually displace the natural gas dispatchable generators that are roughly 50 percent of the ISO-NE mix today. The SWB (Solar, Wind, Battery) solution needs ever large batteries as natural gas generation declines, but batteries are still far too expensive when storage goes from a few hours to days, weeks, or whole seasons.
In our thought experiment, we observed that whether it was due to our internal residential PV penetration or other sources of local renewable power our relationship with our traditional power supplier changes from generating the power our town needed to grid energy storage with a declining need for any net energy generation. It would be one thing if our small town was the only town with this transition in mind, but almost every town is looking for non-carbon emitting power. In the US we observe that non-dispatchable solar, and wind dominate the new generation options as new hydro and nuclear are not happening. As highly dispatchable natural gas declines, grid operators need new ways to meet challenging daily and seasonal load projections. While states are driving new portfolio standards like our recent MA S.9 bill, the federal FERC order 2222 passed in Sept 2020 will offer new options for alleviating the need for more storage by expanding financial rewards for new demand response participants.