New York is gambling big on the idea that its electric utilities can transform the grid into a decentralized 21st-century energy system.
The state Public Service Commission has approved demonstration projects by New York's six investor-owned utilities that would test the waters for a more consumer-driven power market. Under New York's ambitious Reforming the Energy Vision (REV) plan, the utilities will morph into hybrid roles as distribution grid operators that use their networks to deliver power from customers' solar units, storage batteries, microgrids and midsized upstate wind farms.
Under the REV plan, monopoly utilities that are the successors to Thomas Edison's central stations powering Manhattan in the late 19th century will coordinate demand-management programs and become the grid's general contractors in a new age of expanding power markets, digital communications and low-carbon energy.
That work is expected to extend well into next decade, according to Moody's Investors Service.
Utilities hope to discover whether customers will buy into a REV future that aims at greener and cheaper power without jeopardizing electric reliability and the utilities' financial viability.
Among the questions the demonstration projects tackle are:
How many Consolidated Edison Inc. customers in metropolitan New York would pay extra for home batteries to store electricity from rooftop solar units as insurance against another crippling superstorm?
Will villagers in upstate Potsdam, N.Y., chip in to finance a microgrid with storm-hardened underground power lines that would keep the power on during blizzards at Potsdam's largest employer, a hospital, drug store, service station, and the village water and sewer plants?
Will more large-scale solar power projects get built upstate if utilities lower grid connection charges in return for the right to cut off the solar units when power lines get overloaded?
Richard Kauffman, the state of New York's chairman of energy and finance under Gov. Andrew Cuomo (D), told EnergyWire the demonstrations are meant to jump-start a process for utility transformation. "We need to create a culture of ongoing innovation," Kauffman said. "This is really an opportunity for all parties -- utilities, third parties and regulators -- to get going."
Kauffman said the demonstrations will test technology but also reveal working designs for new energy markets and regulation.
"It's clear to me that for the past 10 years we've spent quite a lot of time thinking about technology solutions, and we have some excellent solutions," said Kauffman, a former Wall Street executive and Energy Department adviser. "The challenge in many cases is not the technology but the fact that we have inadequately thought through market-based policies relating to deployment of the technology. That is very much the emphasis now."
Jackson Morris, eastern energy director for the Natural Resources Defense Council, said the demonstration projects "are critically important in order for the PSC, the utilities and third-party providers to test what is really a grand hypothesis around the REV."
The hypothesis: that the revenue pie in the electricity sector can be distributed across a growing number of market participants -- and the New York REV plan is the way to achieve that.
Splitting the pie
Can New York find the optimal path forward for its electricity system? "Of course there might not be one," Kauffman said. "But I would rather think the evidence is the other way."
A major REV milestone comes later this year, when the utilities are required to file initial five-year plans to begin delivering distributed energy resources from third-party providers. The demonstration projects are intended as blueprints for the new utility initiatives, called distributed system implementation plans, or DSIPs, in the acronym-laden New York model.
"The DSIPs are the next really big piece," Morris said. "The demonstration programs let them get their feet wet, see what is working and not working, and use those lessons for what will be included in the DSIPs.
"The plans will evolve," he added. "There's certainly not going to be a large enough pool of data to have definitive conclusions, but there will be enough to look at. That will help direct what goes into the DSIPs."
New York is tasked by U.S. EPA's Clean Power Plan with reducing carbon dioxide emissions from power plants by nearly 10 percent by 2030, compared with 2012 emissions. Cuomo has praised the Obama administration's climate initiative, adding that the state intends to go beyond its CPP target. (EPA has calculated that the state will exceed that plan's goals even without the CPP.)
The state's energy plan's goals for 2030 are a 40 percent reduction in greenhouse gas emissions from the energy sector compared with 1990 levels, a 50 percent share of electric power from renewable sources and a 23 percent reduction in energy use by buildings.
The six utilities -- ConEd, Orange and Rockland Utilities Inc., Central Hudson Gas & Electric Corp., Niagara Mohawk Power Corp., New York State Electric & Gas Corp. (NYSE&G), and Rochester Gas and Electric (RG&E) -- have said they support the REV plan's goals.
For its part, the ConEd Virtual Power Plant project pairs the utility with SunPower Corp. and Sunverge Energy Inc. to add electric storage units to new residential customers' rooftop solar installations in a $14 million, three-year project.
The utility, in turn, aims to connect the battery units together, pooling up to 1.8 megawatts of combined storage to serve other customers, reducing the need for new investments in generation and transmission. ConEd will also test whether it can sell grid-stabilizing services from the system. This part of the project requires communications and control systems to dispatch power that is not available today, ConEd said.
Another solar connection project is proposed by AVANGRID Inc., an affiliate of the Iberdrola Group and the recently formed parent company of RG&E and NYSE&G, whose customers extend across upstate New York. It, too, involves a planned trade-off of costs and revenues. The companies said that up to half of the third-party solar projects proposed in their areas are not completed because of the costs developers face to connect to the utility's networks.
Under this project, the utilities would take a smaller connection payment in return for the solar developers' agreement to let the utilities scale back or shut down power deliveries from the solar units when utility power lines are getting overloaded. If they can craft the right revenue-sharing formula, the utilities could avoid costly system upgrades.
"REV is a big umbrella of things that are integrated," Kauffman said. "It starts with the observation that business as usual really isn't working in New York. We have a system that is getting more and more expensive. There are millions of New Yorkers having trouble paying their electricity bills."
The average capacity utilization of New York's utilities is around 50 percent, Kauffman said, a data point he cites to show the opportunity to increase the efficiency of the state's power network for customers' benefit.
"I understand regulated businesses are understandably nervous whenever there are changes in policy," Kauffman said. "There is concern among the utility industry that we will somehow drive the industry off a cliff. That certainly, absolutely is not our intent."
Kauffman says a better financial and operational balance can be found, bringing consumers in as energy suppliers without jeopardizing the financial footing of the utilities, whose networks are required to deliver and stabilize electricity flows.
The proof is still to come, at the point when New York's REV plan starts to spin out more answers than questions.
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