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N.Y. utilities seek new pricing plan for distributed energy

By: Peter Behr |

The local utility of the future will be home to more rooftop solar, smart grid technologies and independent energy service providers. But it will need something else, experts say — entirely new ways of pricing customer-supplied electricity supplies and conservation measures.

The owner of several upstate New York utilities has asked Massachusetts Institute of Technology experts to design such a pricing strategy to help them meet the requirements of the state’s Reforming the Energy Vision (REV) utility restructuring policy.

The MIT Energy Initiative, collaborating with a leading Spanish research institute, is designing a computer model of a representative local electric utility distribution network to simulate how consumers’ solar units, battery storage and other distributed energy systems would affect the costs of running the network. That would lead, in turn, to a new system for pricing power as distributed electricity services expand.

Across the United States, utilities, regulators and customer groups are at odds over how distributed energy suppliers, and companies that aggregate power demand and efficiency services, should be paid for what they provide and for their use of the grid.

Utilities are challenging common net-metering pricing policies that pay rooftop solar power owners the retail rate for excess energy that offsets the power they still draw from the utility. The utilities say the customers aren’t paying a fair share for the power infrastructure they rely on when the sun isn’t shining. Solar owners reply that cutting the rates cheats them of the value of their clean energy power, which relieves utility costs (EnergyWire, March 10).

The MIT project seeks to itemize the ways distributed energy customers take and return power at specific parts of the distribution network.

“The modeling we are doing is going deep into the household level,” said José Ignacio Pérez Arriaga, visiting professor at the MIT Center for Energy and Environmental Policy Research and founder of a technology institute at Spain’s Comillas Pontifical University.
Planning to the ‘toaster’ level

Rather than charging all electricity customers the same basic rates for power, the model would result in different prices based on how and when electricity is produced and consumed. “Those charges would depend on the particular profile that each of the users would have,” Pérez Arriaga said. He called it “going down to the toaster level” of detail.

“The model seeks to identify the scale at which distributed generation becomes beneficial to the grid while taking into account potential impacts on electricity prices, grid reliability, and the environment,” according to the MIT group. The project’s sponsor is Avangrid, the parent company of New York State Electric & Gas (NYSEG), Rochester Gas & Electric (RG&E), Central Maine Power and United Illuminating. Avangrid is a subsidiary of the Iberdrola Group, a global energy company based in Spain.

REV requires local utilities — including RG&E and NYSEG — to give up their historic roles as principal suppliers of customer power. Instead, they would become energy service platforms distributing and managing power from customers and third-party providers. Each utility is required to file by June 30 an initial distributed system implementation plan that identifies opportunities for customers and third-party electricity providers to connect to local distribution grids.

The MIT model could support the REV plan “by simulating how distributed resources, such as solar photovoltaics, battery storage, and combined heat and power might impact the power system,” MIT said.

A key piece of information, for example, is whether customers are drawing electricity from the grid during peak demand periods, when power is most expensive, or sending surplus power back to the utility. That would be an essential part of each customer’s power use profile, on which the customer’s charges would be based.

Putting the plan into practice requires utilities to know how individual customers’ electricity uses change hour by hour, and that in turn calls for installation of smart electric meters in the state and computer systems to collect and manage the huge resulting flow of customer data.

“What the REV strategy is trying to do is empower distributed resources, consumers, ‘prosumers’ and local generation to participate in the provision of energy services. In order to do that, each of these distributed resources should receive a correct economic signal” based on the resources’ costs and contributions, Pérez Arriaga said.

“This doesn’t mean we are predicting the future. We are saying, ‘If you want to go in this direction and you want to empower and make possible distributed resources, this is how you have to treat them to have a level playing field,'” he said.

The MIT model will try to portray what happens when REV is implemented, he said, which is still years ahead, according to independent predictions. “We are trying to simulate that different world in which the distributed resources will participate, and whether those resources would be able to compete with the centralized ones,” Pérez Arriaga said.

The model may show that the likely electricity prices will not support a big investment in distributed, third-party electricity resources. “That may happen,” he said. “And then we will say that.” But New Yorkers may decide to proceed with REV anyway, for other reasons, he added.