1. Reforming the Energy Vision in New York State
September 2018

2. Background: Vertically Integrated Utilities or Not?

3. In the other half, including New York, utilities do NOT own generation
Background: Vertically Integrated Utilities or Not?
In about half of U.S. states, electric utilities are “vertically integrated,” meaning they own generation, transmission and distribution
In the other half, including New York, utilities do NOT own generation

4. Clean Energy Standard: 50% by 2030
A mandate that by 2030, 50 percent of electricity must come from renewable sources

5. Meeting the 50 Percent Mandate
We cannot achieve the 50 percent renewable mandate by continuing to “bolt on” Distributed Energy Resources (DER) and renewable energy to a grid architecture that wasn’t designed for those types of resources

6. The 20th Century Grid

7. Supply is determined on a given day by a fixed estimate of demand
The 20th Century Grid
Electrons flow in one direction from large power plants often over hundreds of kilometers to cities
Supply is determined on a given day by a fixed estimate of demand

8. Good for DER host customers…
The 20th Century Grid
Good for DER host customers…
but good for all?

9. Creating the Grid of Tomorrow

10. Features of the 21st Century Grid:
Creating the Grid of Tomorrow
Features of the 21st Century Grid:
A mix between large power plants and DER
Electrons flow in more than one direction
Supply and demand are dynamic
Intermittency of renewable resources are paired with storage and adjustable load

11. Why aren’t we building the 21st century grid?
The Challenge
Why aren’t we building the 21st century grid?

12. Because we have policies and regulations that
The Challenge
Because we have policies and regulations that
keep us rebuilding the old grid

13. The current grid is energy inefficient (it was not designed that way)
The Challenge
The good news:
The current grid is energy inefficient (it was not designed that way)
The current grid is financially inefficient

14. The Challenge

15. Low capacity utilization:
The Challenge
Low capacity utilization:
The grid is built for the hottest hours or days of the year, but customers pay all year long

16. Low capacity utilization:
The Challenge
Low capacity utilization:
Because the current grid is so financially inefficient, in New York State we can largely build the new grid within the “cost envelope” of the existing bill

17. Three Elements of Reforming the Energy Vision:
Creating the Grid of Tomorrow
Three Elements of Reforming the Energy Vision:
Establish locational value for Distributed Energy Resources
Change regulated utility incentives and business practices
Stimulate grid edge activity with government resources

18. Three Elements of Reforming the Energy Vision:
Creating the Grid of Tomorrow
Three Elements of Reforming the Energy Vision:
Establish locational value for Distributed Energy Resources
Change regulated utility incentives and business practices
Stimulate grid edge activity with government resources

19. 1. Locational Value: Grid “Opportunity Zones”

20. Three Elements of Reforming the Energy Vision:
Creating the Grid of Tomorrow
Three Elements of Reforming the Energy Vision:
Establish locational value for Distributed Energy Resources
Change regulated utility incentives and business practices
Stimulate grid edge activity with government resources

21. Traditional Utility Business Model:
2. Changing Regulated Utility Financial Incentives
Traditional Utility Business Model:
Through rates, utilities recover costs of providing service plus a regulated return on capital deployed (known as rate based regulation)
The more capital deployed, the greater the profit
The more capital deployed, higher rates unless there are more customers to share costs

22. What’s wrong with the model: It’s expensive: excess capital deployed
2. Changing Regulated Utility Financial Incentives
What’s wrong with the model:
It’s expensive: excess capital deployed
It’s a deterrent to adoption of new technology
It discourages use of distributed energy resources (DER)

23. Utility Revenue Sources
Creating an Incentive for Utility Innovation
Utility Revenue Sources
Fuel
Other Taxes
Income Taxes
Depreciation and Amortization
Other Expenses
Wages and Benefits
Capital Costs
UTILITY PROFIT: 6-7%

24. 2. Brooklyn-Queens Demand Management (BQDM) Program
Targeted Brooklyn-Queens Networks

25. Traditional solution: $1.2 billion substation
2. Changing Regulated Utility Financial Incentives
Traditional solution: $1.2 billion substation

26. Instead of Request for Proposals…
2. Changing Regulated Utility Business Practices
Instead of Request for Proposals…

27. … request for Solutions
2. Changing Regulated Utility Business Practices
… request for Solutions
$200 million for:
Solar
Storage
Efficiency
CHP
Demand response
Instead of $1.2 billion substation

28. 2. Changing Regulated Utility Business Practices
Utility Procurement 2.0
Every utility knows when it is going to commit capital
Utility proposes its solution to market participants, together with underlying data on grid and load conditions
Market actors submit their own ideas
Utility and regulator evaluate alternatives
If alternative solutions are cheaper, utility can earn a share of savings

29. 2. Changing Regulated Utility Business Practices
Non-Wires Solutions (NWS) approach:
If every state adopted a non-wires approach, the carbon benefit could reach 3.5 billion metric tons between now and 2030 – avoiding as much carbon as the entire U.S. wind fleet.

30. Utility Revenue Sources
2. Changing Regulated Utility Financial Incentives
Utility Revenue Sources
Fuel
Other Taxes
Income Taxes
Depreciation and Amortization
Other Expenses
Wages and Benefits
Capital Costs
UTILITY PROFIT: 6-7%

31. We can go beyond deferred capital:
2. Changing Regulated Utility Financial Incentives
We can go beyond deferred capital:
Utilities now have incentive to reduce power supply costs
We will now see if “negawatts” are a possible business for utilities

32. Three Elements of Reforming the Energy Vision:
Creating the Grid of Tomorrow
Three Elements of Reforming the Energy Vision:
Establish locational value for Distributed Energy Resources
Change regulated utility incentives and business practices
Stimulate grid edge activity with government resources

33. Stimulating grid edge activity with government resources…

34. Previous support programs:
3. Stimulating Grid Edge Activity
Previous support programs:
$1 billion per year – 85% in the form of one-time grants…

35. Problem: Lack of Scale Previous support programs:
3. Stimulating Grid Edge Activity
Previous support programs:
$1 billion per year – 85% in the form of one-time grants…
Problem: Lack of Scale

36. New York State’s new $5.2 billion Clean Energy Fund:
3. Stimulating Grid Edge Activity – Clean Energy Fund
New York State’s new $5.2 billion Clean Energy Fund:
Emphasis on reducing soft costs
like financing or customer acquisition

37. 3. Stimulating Grid Edge Activity – Clean Energy Fund
Lowering customer acquisition costs:
Aggregate demand
Standardize processes
Provide data
Lowering financing costs: NY Green Bank
Difficulty in financing stems from bank capital rules and limited access to bond markets for renewable energy projects
Conclusion: there is a financing gap for projects that are economic but cannot obtain financing
NY Green Bank offers debt to fill in financing gaps in collaboration with private sector financiers
Examples of financing products include aggregation facilities, unfunded lines of credit, credit enhancements, subordinated debt, or longer tenor debt.

38. 3. Stimulating Grid Edge Activity – Clean Energy Fund
Competitive Markets: Building the IT Network on top of the physical grid

40. More Value from the Electrons
Pathway to clean energy deployment through responding to customer needs: comfort, health and convenience.

41. More Value from the Electrons
Pathway to clean energy deployment through responding to customer needs: comfort, health and convenience.

42. More Value from the Electrons
Pathway to clean energy deployment through responding to customer needs: comfort, health and convenience.