Utilities can also conduct cross-sector planning through the central assessment and prioritization of grid changes. For example, electric and gas companies could work with regulators and communities to identify areas where full electrification and gas-pipeline decommissioning could be feasible, reducing the need for future gas-system investment or ongoing maintenance spending. And a study on the British transmission grid found that consumers could save up to 18 percent of their transmission costs if offshore wind developers used an integrated approach to transmission development rather than creating their own lines, a process known as the generator lead line approach. 6 Government and regulators could push utilities toward improved capital efficiency by revising incentives. Under current regulations, utilities are encouraged to deploy as much capital as possible, even when operations and management solutions might be more effective. As a result, utility expenditures are not always allocated to maximize efficiency or innovation. New capital projects often take priority over operations and management solutions including energy-efficiency initiatives, opportunities to repair instead of replace, and the use of technologies that optimize current infrastructure such as advanced analytics. Grid-enhancing technologies (GETs), for example, are almost twice as cost-effective as traditional trans mission upgrades for equivalent levels of avoided renewable-energy curtailment. 7 But there is no incentive to use GETs, because they minimize capital growth. This factor is often cited as the key limitation to their wide- spread adoption. Regulators could evolve this system by putting in place performance-based rules involving multiyear rate plans, revenue decoupling, and earning-sharing mechanisms designed to
determine profit caps based on true performance rather than on total capital spending. So far, 20 states and the District of Columbia and Puerto Rico have made regulatory changes related to performance. Another option is evaluating utilities on their total expenditure—assessing both capital and operations outlays rather than just capital. This method, which is used globally, could help promote operations and management solutions that are deprioritized in the legacy US utility regulatory environment. 3. Empowering and educating customers. Customers need to be empowered both to take control of their energy bills where possible and to understand their energy expenditure. Utilities can use rate design that empowers customers to both lower their bills and provide value to the grid in the form of flexibility, possibly reducing the need for capital build-out. Customers could be offered rates with charges proportionate to their demand during “flex” periods, time spans with the largest spread between demand and renewable production. This would motivate customers to use less electricity and lower their bills when the system is most constrained. To ensure an optimal experience, this would have to be simple for residential customers to implement, either through automated devices (such as smart thermostats that allow users to define their preferences) or by providing information about usage periods, such as typical days throughout the year when the most flexibility is needed. Residential customers may not have time to monitor the “flex” market regularly, but additional incentives could be offered to commercial and industrial customers to better match their needs to the system. And there is evidence that customers have the ability to
6 Justin Horwath and Yannic Rack, “US offshore wind boom entangled in transmission debate,” S&P Global Market Intelligence, July 6, 2021. 7 Grid-enhancing technologies can be used in transmission to help expand line capacity at lower costs than building or upgrading lines. Examples include dynamic line rating, or the use of sensors that provide real-time line-capacity information by reporting varying environmental conditions such as ambient temperature, solar radiation, and wind; devices that can change the flow of power through the grid and provide real-time control over how renewable energy is routed; and topology optimization—software and hardware that can provide grid system reconfiguration to reliably route power around congested lines.
Accelerating the journey to net zero
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