There is a far-reaching transformation underway in the electricity industry. The electric grid that has powered our lives for more than a century is undergoing major changes, in response both to technological advancements and the consumer demand these new technologies have unleashed. In short: the grid is modernizing and it’s happening all across the country.
I represent dozens of companies, utilities, and other organizations that care about these changes via the GridWise Alliance, which for more than a decade has been leading the industry in enabling policies and practices focused on transforming the grid. In partnership with Clean Edge we recently released the 3rd Annual Grid Modernization Index (GMI) to document the significant shifts taking place, and to better track best practices. Based on data collected from industry stakeholders, the GMI tracks and ranks all 50 states and the District of Columbia on more than 80 key indicators that measure progress to a modern grid.
A quick look at the results reveals several of the usual suspects in the top spots: California is the clear #1, with Illinois and Texas very close behind; those are the same top three states as in the previous GMI (in a slightly different order), released in November 2014. Maryland, Delaware, Washington DC, Arizona, and Pennsylvania all return to the top 10, joined by newcomers Oregon and Georgia. It’s a diverse group of states, each of which has taken its own path to reach this point.
This edition of the GMI offers several lessons for policymakers. The report shows that grid modernization progress continues across the country, but some parts of the nation are just getting started. Some of the best-performing states in the Index make big leaps this year: California and Illinois, the top two states this year, each add more than six points to their scores from the previous GMI. Others, like Oregon (ranked 7th) and North Carolina (#11), also made big moves, respectively scoring 11 and 10 points better than before. But at the same time, the gap in GMI scores between the highest-performing states and the rest of the country is getting larger. In the 2014 Index, the average score for the states ranked #11-20 dropped 31% from the average score of the top 10; this year, that gap reaches 36%. So while progress is being made, it’s happening unevenly, and that is something that policymakers will need to address.
What’s driving grid modernization? One could list any number of factors, but one of them is the growth of distributed energy resources (DERs). The proliferation of DERs – from rooftop solar panels and electric vehicles to “smart” connected devices and energy storage – has helped unlock the potential for customers to play a much larger role in how their energy is produced and used. States across the country are working on ways to integrate DERs into a smarter electric grid. A few examples:
- California requires its investor-owned utilities (IOUs) to submit distributed resource plans (DRPs), which detail how the IOUs will value DERs as distribution grid assets.
- New York’s Reforming the Energy Vision (REV) initiative is the process through which the state will completely transform its energy market and leverage DERs’ role in it.
- Massachusetts requires its utilities to submit detailed grid modernization plans.
- Minnesota’s e21 Initiative recognizes the role that customers play in electricity production, and is looking at the rates (including a first-in-the-nation solar tariff) and services that will reflect this emerging reality.
- Texas is beginning to look at ways to aggregate DERs so they can both provide larger benefits to the grid, and remain profitable to their owners.
- Hawaii – a state with the highest percentage of installed solar capacity in the nation, and a pledge to reach 100% renewable energy by 2045 – in October 2015 eliminated the net metering (NEM) program that played a big role in the state’s solar success, in favor of two new (lower) solar compensation programs. It will be interesting to see how this major shift impacts the state’s solar market, and if mainland states take the same path.
While these and other states are helping their utilities leverage DERs to engage their customers, on the whole the GMI finds that customer engagement is one area in which many states can improve. Customer Engagement is one of three indicator categories in the GMI (State Support and Grid Operations are the others), and it is the one in which scores are generally lowest. This means that, while the grid is becoming more modern, many utilities are finding it difficult to unlock all of the mechanisms that can take advantage of the new technology. These mechanisms – rate structures, data use and accessibility, how utilities communicate with customers – continue to evolve, but there is significant room for improvement. For example, utilities using smart meters can often pinpoint power outages almost simultaneously, rather than having to wait for customers to contact them (the old way of tracking outages). Communicating outages to customers and telling them when the power will be restored is a huge benefit to customers, especially when severe weather and storms wreak havoc.
Against the backdrop of a modernizing grid, I believe that policymakers, regulators, utilities, and consumers all have at least one thing in common: they want great service at a reasonable cost. Therein lies one of the biggest challenges: to understand the costs and benefits of modernizing the grid so that prudent investments continue to be made. Clearly new technologies are allowing for more efficient and reliable solutions, but each state must find its own optimal pathway. What works best in California, Texas, and Illinois won’t always be the best solution in Florida, Maine, or Alaska. In many cases, modernizing the grid is not only the best option, but it is also the most cost-effective to serve changing consumer demands.
The way we communicate, the way we shop, and the way we use energy are all facing massive disruption; wholesale shifts from old models to new ones. While it’s difficult to predict exactly what the future will bring, at GridWise Alliance we are working with industry stakeholders to track and understand the monumental change in the way we produce, distribute, and use electricity. As the GMI shows, there are great changes taking place already, but much more remains to be done. One thing is certain: the electric grid is changing at an increasing rate. All of us – customers large and small, utilities, regulators, state legislators, innovators, and energy companies – will need to work together to ensure that everyone can take full advantage of these changes.
To download the report, visit http://www.gridwise.org/resources_gmi.asp or http://cleanedge.com/reports/3rd-Annual-Grid-Modernization-Index
Steve Hauser is CEO of GridWise Alliance and a nationally and internationally recognized expert on transforming the power sector to meet future economic, environmental, and energy security mandates.