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The Modern Grid Is Already Here. It’s Just Not Very Well Distributed.

December 2019

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“The future is already here. It’s just not very well distributed.” —William Gibson

Clean, affordable, reliable electricity is within our reach, but without significant upgrades to the electric distribution system, it will get further and further from our grasp. As renewable energy prices continue to plummet, adoption of renewables will continue to skyrocket.

Note: This graph was adopted from the 2018 Lazard Levelized Costs of Energy Analysis.

This is a great outcome from a policy point of view, but it also presents a titanic challenge for the regulators and utilities charged with ensuring fair and dependable access to electricity.

At the end of the day, tech companies, utilities, and regulators need to work together to modernize both business models and equipment in order to deliver what was once a fundamentally radical idea – affordable, reliable access to electricity for all. Failing to act on solutions that will modernize the grid could have monumental societal and environmental consequences. Consequences we have already seen, repeatedly, as the state of California faces yet another season of devastating fires and power outages.

I’ve spent several years in varying energy roles, most recently as the administrator of Rhode Island’s Division of Public Utilities, and prior to that, several years in other roles within both the regulatory industry and the energy industry. I have seen it work. The key? Translation. Utilities must learn to speak tech, tech companies must speak regulator and utility, and regulators must become fluent in tech (they already speak utility).

How We Got Here

The 20th-century electric distribution grid was designed for one-directional power flow from large central power plants to distant consumers. As a result, it required little situational awareness and could be operated with analog controls.

Around the same time, it was decided that access to electricity for the public – and thus, the electrical grid – was a fundamental right. Regulatory bodies and utilities alike were given public guardianship of that right, safeguarding access and ensuring fairness.

Flash forward to today: The energy transition is happening at lightning speed. The one-directional power-flow model still exists but is no longer sustainable.

 

Integrating intermittent clean energy sources into our existing generation fleet will require a more complex and flexible control system than the one our current infrastructure has.

Additionally, as both residential and commercial consumers dramatically change how and why they use energy, innovation has become a critical part of staying relevant and competitive in the energy landscape.

For technology solutions providers, this dynamic environment creates an ideal opportunity to promote innovative answers to some of the most pressing problems communities are facing. This sets up providers to offer cutting-edge, smart solutions that will help both municipalities and utilities modernize their grid infrastructure.

For regulatory bodies, the rate of change is much slower. Regulation is a process that takes place over the course of many years and involves multiple stakeholders and considerations – considerations that could theoretically be deliberated beyond the useful life of any innovative idea.

That slower rate of change is warranted, however, when one considers that even with the vast number of changes that have occurred within the energy and environmental landscape, at the end of the day, utilities and regulatory bodies are still fundamentally responsible for ensuring fair access to electricity as guardians of the grid.

It is not that regulators are looking to halt all progress and innovation. One of the core reasons for the existence of the regulating entity is the need for reliability. It is the difference between knowing the solution and being accountable for the outcome. That difference nets out to a hesitancy on the part of the regulators to take chances on new innovations or ideas if there is any chance of risking that fundamental aspect of reliability. That then trickles down to the operation and ability of utilities to remain relevant and useful in the eyes of their customers by opening doors to the new, innovative opportunities presented by energy solutions providers.

But it is not impossible and certainly not unheard of for innovation and regulatory action to work on parallel paths. Many of today’s modern technological advancements are a result of regulatory action. Deregulation of the telephone industry in the 1970s, for example, gave us all cordless phones. And the deregulation of the telecommunications industry in the 1990s led to one of the most ubiquitous innovations out there: the smartphone.

Bridging the Gap

Regulators, utilities, and technology and product solutions providers may see themselves as uncomfortable bedfellows, and a fractured regulatory environment can make for a challenging space for systemic change. Solutions providers can find themselves mired in red tape and struggling to enter opportunity markets because of the intrinsically cautious nature of the regulatory system. Nonetheless, systemic change is certain to occur, and there is a way to bridge the gap and create a space in which all parties can help right the ship and usher in the era of the modern, transformative electrical grid that is so desperately needed.

To achieve this goal, solutions providers should seek to speak and think like regulators.

They cannot and should not slow down in the innovation department, but they should think strategically about communicating their business case in a way that can achieve regulatory buy-in. This might mean defining their particular solution as something that makes sense as a rate case, or as a long-term benefit to ratepayers in the form of improving the reliability and efficiency of the services provided to utility customers.

That point of view also means going beyond simply stating the short- and long-term ROI of the service itself. Instead, solutions providers should identify both the key stakeholders that impact regulatory decision making and the ways to mitigate specific barriers that arise when entering a regulated market.

We can circle back again to the California wildfires as a prime example. There are technological and software-driven solutions that could both modernize the grid to help mitigate fire risk and prevent the systemic outages that occur as these fires run rampant. In order to successfully sell them through, companies that own these solutions would have to make the case for a rate filing.

My former colleague and current commissioner of the Rhode Island Public Utilities Commission, Abigail Anthony, has identified the necessary points for these solutions companies to consider when making the case for a filing.

The bottom line: As a solutions provider, you must make regulatory bodies believe that the societal outcome for investing in your product or service is much greater than the outcome of not doing it.

Something I’ve learned over the years is that timing is everything. A risk-averse regulatory body that is slow to act on innovation affects the way that regulated utilities are able (or unable) to future-proof themselves. When utilities are unable to capitalize on the innovations put forward by technology and energy solutions providers as a result of regulatory challenges, they are putting themselves at risk of being unable to fulfill their responsibility to serve their customers. This is particularly relevant now, as changes in the way that consumers use energy increase at a pace far faster than either utilities or regulators ever planned for, rapidly making the existing infrastructure obsolete.

I have found, time and again, that the key to success is speaking the other person’s language. Putting a regulator’s lens on a groundbreaking solution can provide added value for all parties and will place innovation front and center in an era that is primed for transformation.

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© innogy 2020