Lisa Harmon, DNV, 12/8/2021
Here at DNV, we have a unique understanding of the energy transition, which is of strategic importance to us as well as our customers. It is our fervent belief that the energy industry can and must take the lead in driving the energy transition. We discussed the hurdles with a diverse group of experts across the DNV Energy Systems teams and issued a challenge: Convince me that the energy transition is possible.
Discover why grid transformation and modernization is vital to electrification and why utilities need to start today.
For the past two decades, utilities have worked diligently to manage grid demand through energy efficiency and conservation programs. These programs incentivize the adoption of products like LED lighting, energy-efficient air conditioning units, and other smart technologies that reduce energy consumption.
But as usage patterns change and legislation demands more renewable sources on the grid, utilities have a new, more urgent charge: decarbonization through electrification.
Electrification using renewables like solar and wind generation has great potential to reduce carbon dioxide emissions in a substantial way. While energy efficiency remains a first-order requirement, utilities have the opportunity to integrate electrification and distributed energy resources (DERs) into their operations and programs. However, to do this, a modern grid infrastructure must be in place.
As part of the #ConvinceMe series kicked off by Nick Brod, my colleagues have addressed two key areas of change that must simultaneously evolve to accelerate the energy transition: energy regulations and utility business models. In this article, I will share why utilities must begin modernizing infrastructure now to prepare for the future.
The state of the aging grid
The path to electrification depends on the ability to deliver renewable energy in an efficient, secure, and resilient way. But one of the biggest hurdles utilities face is an aging grid that was never designed to take in and store power from distributed, renewable power sources.
To advance electrification, grid infrastructure must be modernized to collect and deliver the power created by renewables—which in many cases must be transported long distances. Robust energy storage solutions are needed to bridge the gap between peak demand at night and renewable solar production during the day.
Infrastructure must also evolve with resiliency, reliability, and flexibility to withstand and adapt to increasing infrastructure growth requirements and shifts in peak demand curves. Solving for safety and power issues caused by voltage fluctuations requires the addition of voltage regulation and power intermittency through the application of energy storage. And as consumers switch to electric vehicles, infrastructure must be expanded to accommodate the increased load.
External factors driving grid modernization
Meanwhile, as the impacts of grid demands become more apparent, and as consumer demand for renewable power escalates, the need for grid transformation grows more pressing. To expedite electrification, renewable portfolio standards (RPS) legislation is refocusing to encourage and even mandate that utilities supply customers from renewable sources and reduce dependence on fossil fuels.
For example, the state of California has mandated that 60% of electricity come from renewable sources by 2030 and that the remaining 40% come from clean sources by 2045. States like Colorado and Maine aren’t far behind, with RPS legislation requiring 100% renewable power sources by 2050. To reduce dependence on foreign oil, Hawaii requires that 100% of the state’s electricity be generated from renewable energy resources no later than 2045.i Utilities must plan now to meet these requirements.
Navigating a shifting energy landscape
The US has a long history of DER integration. In the past, electrification and DERs have been integrated as a utility-centric solicitation model focused on grid benefits. Today, DERs are seeing increasing demand and are being implemented faster than ever and with greater impact to the grid due to shifting regulations and market drivers. As technology advances and costs decrease, we expect to see these impacts escalate—along with the urgency to transform the grid.
Energy storage is the ideal complement to renewables because it can be used to resolve the timing imbalance between peak supply and peak demand. According to the U.S. Energy Information Administration, we’re about to see a massive uptick in the number of large-scale battery storage solutions coming online. Fueled by decreasing prices, battery storage solutions soared 28% in 2019 alone—and US battery storage projects through 2023 could add 10,000 MW to the grid.ii This growth rate may be accelerated by energy policy at the state and federal levels, particularly if Congress creates incentives for energy storage projects.
Further shaping the energy landscape, FERC Order No. 2222 removes barriers for DER vendors and manufacturers by allowing them to aggregate customer peak energy usage reductions and sell those reductions back to grid operators. This enables DERs to compete on a level playing field with large, traditional energy sources, thus making energy efficiency a valuable asset to grid operators.
Why careful planning is key
Together the markets, policies, and technologies coming online create operating complexity that impacts utilities. Despite these challenges, many utilities are making strides to decarbonize and evolve grid infrastructure. In fact, it behooves them to do so.
We recently worked with a municipal utility in California to model various scenarios and forecast the costs of upgrades to the distribution network at the circuit and substation levels. We determined that the “do nothing” approach now would double the cost of infrastructure modernization later, versus proactively creating programs and incentivizing customer behaviors to achieve the needed outcomes.
Many utilities are providing incentive funding for installing energy reduction equipment and transitioning to clean energy technologies. They’re also partnering with customers to meet corporate clean energy initiatives and drive improved power quality.
Arizona Public Service (APS) is one example of a utility that is proactively implementing technologies to modernize their grid. These technologies include advanced meter infrastructure (AMI), which enables more accurate time-specific data, as well as energy management systems and advanced distribution systems. APS is making technology investments based on the unique needs of their market, which increasingly relies on solar to meet clean energy goals.
Today, utilities have extensive insights into customer use patterns, thanks to AMI. But there is an opportunity to align AMI and DER data in order to optimize usage and set realistic pricing. This principle, sometimes known as “prices to devices,” works by regulating electric consumption based on time-variant and dynamic pricing to influence customer behaviors and reshape demand.
Grid transformation and modernization is vital to electrification, but it’s going to require major capital investment, such as the proposed $73 billion for electric grids currently designated by the bipartisan Infrastructure Investment and Jobs Act. Meanwhile, it’s encouraging to see that many utilities are moving forward with modernization efforts. Utilities that prioritize infrastructure upgrades and find creative solutions now position themselves to save money in the long term while ensuring they meet growing demand and achieve decarbonization goals.
For more information about what’s in store for the future of grid transformation—and why a massive redirection of capital is critical—download Energy Transition Outlook 2021: Financing the Energy Transition. To explore how we can help with your electrification journey, contact the experts at DNV today.
i National Conference of State Legislatures (2021) ‘State Renewable Portfolio Standards and Goals,’ available at: https://www.ncsl.org/research/energy/renewable-portfolio-standards.aspx (accessed August 25, 2021).
ii Emma Penrod (2021) ‘Battery storage is on a growth spurt that’s about to get even bigger, EIA says,’ available at: https://www.utilitydive.com/news/battery-storage-is-on-a-growth-spurt-thats-about-to-get-even-bigger-eia-s/ (accessed Sept. 1, 2021).