State Grid Modernization Efforts Are On The Rise: What Does It Mean Though?

The transformation of the electric grid in the United States is proceeding at a rapid pace. Several factors, including the proliferation of distributed energy resources, or DERs, utility-scale renewable generation, energy storage, advanced metering infrastructure, and other technologies, are changing the way electric power is now generated, transmitted and distributed.

As these changes are occurring, a ubiquitous but somewhat nebulous phrase “grid modernization” is being thrown around a lot. But what exactly is grid modernization?

A new report series from the North Carolina Clean Technology Center, or CETC, called 50 States of Grid Modernization, makes a helpful contribution by defining grid modernization and tracking actions taken at the state level on grid modernization.

The CETC defines grid modernization as the transition from a traditional one-way power flow to an interconnected web with a small but growing number of end-use customers who are generating electricity with small-scale, distributed systems that are capable to providing various services to the grid. In the traditional model, the utility was the primary decision maker planning for, generating or purchasing, and then delivering energy to meet the demands of retail customers. Customers’ involvement was just limited to using and paying for that energy. However, new technology and policy developments are disrupting the century old utility model and creating a more active role for energy consumers and a need for infrastructure upgrades.

The beginning of this year (Q1 2017) witnessed a flurry of activities on grid modernization in states across the country. The CETC report catalogued six types of policy actions across 37 states and the District of Columbia, adding up to 148 actions enacted, pending or proposed. These include:

·         Studies and cost-benefit analyses. In Q1 2017, 16 states and the District of Columbia took action to study or investigate energy storage, grid modernization, alternative utility business models and rate reform. Illinois and Ohio joined the ranks of states conducting grid modernization studies, while New Hampshire and Rhode Island saw the release of completed studies.

·         Planning and market access. The second type of policy action involves those that would alter utility planning process or market rules. Twelve states took action on this front. New Mexico started a rulemaking to amend its integrated resource planning process, through which utilities determine their generation needs, to ensure energy storage is evaluated on a comparable and consistent basis. In Maine, a bill filed in the legislature would enable municipalities to work with utilities on developing microgrids.

·         Utility business model and rate reform. The third type of action, reported in 13 states, includes changes to how investor-owned utilities recover costs or how they structure rates. Proposals to institute performance based ratemaking are an example of the former while shifts from volumetric to time-of-use, or TOU, rates are an example of the latter. In California, investor-owned utilities are shifting residential customers to TOU, while the Colorado Public Utilities Commission has approved a TOU pilot for Xcel Energy, the state’s largest electricity provider.

·         Grid modernization policies. This includes proceedings going on in 16 states in Q1 2017 to establish a policy framework for grid modernization, including energy storage targets, clean peak standards, and state rules regarding advanced metering infrastructure. Bills proposed in three states—New York, Vermont and Nevada—would create energy storage mandates. Legislation in California would create “clean peak standards,” which would require a percentage of the electricity used to meet peak load come from renewable sources.

·         Financial incentives. The fifth category covers legislative or regulatory actions on state incentives—tax credits, property and sales tax exemptions, rebate programs, loan programs, and property assessed clean energy, or PACE, financing programs—for energy storage, microgrids and other advanced grid technologies. Eleven states had actions ongoing or under consideration related to incentives for advanced grid technologies. Maryland became the first state to pass a tax credit for energy storage systems in April 2017.

·         Deployment of advanced grid technologies. There were 36 pending or decided proposals from state legislators or utilities in 19 states to deploy advanced grid technologies such as advanced metering infrastructure, or AMI, smart grid components, microgrids and energy storage projects. Entergy, for instance, has filed proposals to fully deploy AMI in four of its service territories—Arkansas, Louisiana, Mississippi and New Orleans.

According to the CETC survey, California, Hawaii, Massachusetts and New York are the states most actively pursuing grid modernization actions. Motivations driving grid modernization vary across states. However, there are two basic catalysts. States like Connecticut, New Jersey and New York, which suffered grid failures during Hurricane Sandy, are driven by the reliability issue. States like California and Hawaii are pushing the envelope to get more DERs on the grid.

Moreover, state grid modernization efforts are being led by a diverse group of actors. In some states, such as New York and Massachusetts, grid modernization initiatives are being driven by the governor’s office. In other states, the public utility commission is leading the charge to drive change. In some states, utilities have been proactive in driving grid modernization. The e21 Initiative in Minnesota, for instance, emerged out of the efforts of utilities in the state such as Excel Energy and Minnesota Power to learn how they can work with regulators to revamp the utility business model that better aligns with new customer expectations and the changing technology landscape, and remains financially viable.

Upgrading the outdated electric grid into the 21st century is an enormous endeavor that can take many shapes and forms, as the CETC survey reveals, and involve a broad group of stakeholders including utilities, legislators, regulators, governors’ offices and customers. Before advanced grid technologies can be fully utilized, states need new policies and regulatory structures to support the new system, encourage innovation, and reward performance.