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July 25, 2017

Adapting to Distributed Generation

TPPA Annual Meeting | San Antonio, TX

NEWGEN STRATEGIES AND SOLUTIONS, LLC

Agenda

• Introduction

• Background on Distributed Energy Resources

• Distributed Energy, Load Shapes and Resource Planning

• Customer Segmentation and Distributed Energy

• Financial Planning and Distributed Energy

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NewGen Core Competencies

Economics Strategy

Stakeholders Sustainability

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• Cost of Service • Rate Design• Financial Modeling &

Planning • Litigation & Regulatory

Support • Valuation & Appraisals• Resource Planning

• Distributed Resources• Community Solar• Joint Action• Procurement• Strategic Planning• Contract Negotiations• Rate Strategy

• Stakeholder Engagement• Education & Training• Facilitation • Council / Board Meeting

Support • Customer Surveys

• Carbon Neutrality• Sustainability

Reporting• Sustainability Strategy • Renewables • Waste Resources


• Increased penetration of customer-sited Distributed Energy Resources (DER) can complicate various utility functions*

• These complications often present areas of risk for the utility

– Resource Planning

– Financial Planning

– Rate Design

• Identifying DER risk is important, but appropriate analytical methods to mitigate and manage these risks is also critical

– Requires work across traditional utility functions

• This presentation highlights how DER risk can manifest itself in traditional utility functions but requires solutions across these functions

Why are we here?

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Managing DER risk requires innovative solutions that oftentimes cut across

traditional utility organization structures

*Note: This presentation focuses on customer-sited DERs as opposed to utility-owned DERs connected to the distribution grid on the utility side of the meter.


Agenda

• Introduction





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• Many customers install DERs to reduce energy and/or demand charges

– Renewable DERs can mitigate energy charges, but may not reliably mitigate demand charges

– Thermal DERs can mitigate demand charges, but require fuel costs

– Energy storage can be used for various use cases

• Adoption is driven by decreasing technology costs

• DERs are also driven by customer demand for more control and choice over the energy supply

– Contain or hedge energy costs

• New players have emerged offering new DER solutions

Technology Comments

Renewable DER (mostly solar)

• Mitigates energy charges• Limited capacity value• Does not require fuel

purchases

Thermal / Natural Gas

• Mitigates energy and demand charges

• Requires fuel purchases

Storage• Load shifting• Stabilize power flow and

improve reliability

Renewable DER + Storage

• Can mitigate both energy and demand changes, but is not currently cost competitive on a distributed basis

Why are Customers Choosing Distributed Energy Resources?

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While DERs Impact Several Utility Functions, Managing DER Risk Requires a Holistic Approach

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Managing these risks requires close

coordination across several utility functions

including resource planning, distribution

system planning, financial and rates, billing

(advanced metering infrastructure(AMI)), and

customer services

System Planning

• Load (and shape) forecasts• Resource selection and

procurement

Rate Design

• Price signals to manage customer demand

• Improved customer segmentation

Financial Planning

• Impact of customer attrition• Proactively manage financial risks


• Many utilities recognize that using AMI data only for billing is a very limited application

• To find beneficial uses of AMI data, utilities should view its application across existing utility functions

• AMI data can help utilities streamline their operations and planning functions and ultimately reduce costs

AMI Data Can Support More Advanced Modeling Analytics to Estimate DER Impacts

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Identifies Customers with Anomalous Load

Shapes

AMI Data

Informs More Precise Customer Segmentation,

COS, Rate Design, and Resource Planning

Enables Data Driven Support for Politically

Sensitive Changes


Agenda

• Introduction





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• Load shapes in today’s power system are changing as a function of DERs

– For Residential customers, this is primarily due to rooftop PV and EVs

– For Commercial and Industrial customers, various DERs (PV, storage) are being deployed to reduce and manage demand charges

– Load shapes may change independent of PV and EV penetration (e.g. customers on new time-of-use (TOU) rates)

• DERs may change the timing, level, and ramping requirements of peak demand differently in various customer classes

• This influences a utility’s coincident peak and can lead to a change in the amount and type of capacity resources required

How Are DERs Changing Load Shapes?

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• DER impacts on load shapes is not only a function of PV but also EVs

• Important to assess impacts of PV and EVs both separately and combined

• Variables that impact EV load profiles are:–Type of charger–Type of vehicle–How the vehicle is used

• Assuming standard evening charging profile, customer, and likely system peak demand will increase

–EV load diversity will vary significantly at certain levels of technology penetration

• PV plus EV exacerbates the duck curve and evening ramping requirements

Load Shape Impacts Can Be Complicated by EVs

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Residential EV Charging Profile

Residential PV+EV Charging Profile


• Energy storage can help manage load shapes

– If storage absorbs PV “exports” (assuming minimal sizing differential), then load shapes flatten and reduce peak demand

• While Peak demand is reduced, ramping requirements may still be significant depending on load diversity

Load Shapes Can Be Managed By Technology

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Note: this is not looking at economics of a combined PV + storage system – only what can happen to load

shapes if these are installed

Residential PV+EV+Storage


• Rate design can send price signals to influence load shapes (consumption behavior or DERs) that benefit the system

• Design rates –Based on system cost characteristics

–Send the right pricing signals to customers…

–…While maintaining the viability of customer choice

“Rates as a Resource”: Load Shapes Can Also Be Managed by Rates

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Key Takeaways

• Inaccurate estimates of load shapes can impair a utility’s ability to forecast needs for reserve capacity and fast-ramping resources

• Utilities should consider approaches that accomplish the following:

– Accurately forecasts load and load shapes incorporating DERs– Ability to forecast ramping requirements and requisite fast-ramp

capacity to meet peak demand– Consider rate design as a way to incentivize efficient use of the system

and to impact load shapes that reduce ramping and capacity resource requirements

– Rate design assessment – which is inherently necessary for load shape forecasting – is usually an afterthought in resource planning

• More accurate load shape forecasts that are influenced by targeted rate design changes can likely improve estimates of production costs

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Agenda

• Introduction





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• Utility costs are predominately fixed

• Majority of utility revenues are misaligned with cost structure

Fixed Cost Recovery Issues

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Three cost classifications, allocated to customers based on costs imposed on system

1. Demand (fixed)

– Peak Demand Responsibility

– Time Differentiation

– Coincident/Non-Coincident/Sum of Max Demands

2. Customer (fixed)

– Minimum system

– Number/weighted number of customers

3. Energy (variable)

– Energy consumed, include losses by service voltage

Fixed, 65%

Variable, 35%

Utility Costs

Variable, 80%

Fixed, 20%

Utility Revenues


Market or Customer Segmentation

• Electric Utilities Historical Segmentation: – Group customers with similar size, infrastructure needs, costs to serve,

load characteristics, and consumption

• Leveraging technology investments offer more options, manage risk for utilities

• Do historical segmentation practices help manage DER and disruptive technology risks?

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TOU CPPEnergy Only

Wright RateTiers RTP Standby Value of

Solar

Rate Options

Possible Customer SegmentsHigh Load

FactorMultifamily

Central PlantsDual

Peaking PV / DER Evening PeakEV


• Customer classes treated as somewhat homogeneous when individual shapes are not

• Average profiles may vary substantially from actuals

• The reality is that there are many ways to segment types of profiles within a class

Customer Segmentation

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• Four discrete profiles identified

• Each profile contributes differently to system peak

• Currently, all are treated the same

• How do/can we use this information?

Customer Segmentation

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Customer Segmentation Insights and Trends

Demand Side Management: • Optimizing DSM programs and measures,• “Microtargeting” customer segments, delivering more for less• Leverage behavioral/emotional elements vs. infrastructure

Machine Learning:• Load forecasting• Segmentation and load profiles• Oracle/Opower:

– Segment attributes: rate class, weather, day of week, GIS / Industry codes– Cluster customers with multiple similar attributes (e.g., weather and industry codes)

Targeted Rate Making to Benefit and Optimize System• Recognize, quantify the potential impacts from DERs, disruptive technology• Improve load factor• Manage, reduce and shift peaks• Manage ramping needs

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Rate Making Considerations and Tools• Defensibility of rate making

– More communities facing rate scrutiny, justification of incentivized rates (California Prop. 26 concerns)

– Apply demand data, AMI analytics to develop incentives– Demand costs for system peaking: customer classes contribution– Demand costs for localized distribution system peaks; customer class contributions

• Time based ratemaking:– Understand load shapes, potential impacts to load shapes from DERs– Identify peak / off peak periods; seasonality– Elasticity of demand and pricing differentials needed (3:1, 4:1 needed)– Revenue neutral – Use system demand costs and allocations to define on/off peak and incentives

• Do not do more harm, amplify the issue – Utilities are facing DER related revenue, equity issues as industry was slow to

adjust rates– Proactive, begin adjusting now, avoid similar issues

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• Use segmentation to identify customers / capacities to use rates/ DSM as integrated tools to manage load and quantify and manage EV/PV/time variable rate opportunities

• Test, quantify, and optimize TOU potential

Target Customer Segments to Optimize System Load Profile

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• Using rates in an integrated approach to benefit system and optimize resources

• Comprehensive TOU and EV management

• Prepare / proactive –have we learned from net metering?

Target Customer Segments to Optimize System Load Profile

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Unmanaged EV rates/incentives

for charging

TOU rates incentivize shift and EV / active

management of load shape and peak


Agenda

• Introduction





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• Adoption of DERs can impact utility financial strategy and should be analyzed as part of forecasting financial metrics

• Theoretical scenario analysis demonstrates how DERs impact financial metrics

• Discuss financial strategy to mitigate risk of DER impacts

Managing DER Risk in Financial Planning

• ~150 MW in peak demand• 20,000-30,000 residential

customers• 3,000-5,000 commercial

customers• 5-10 large industrial customers• $75M-$100M in annual rate

revenues• $50M-$70M annual cost of power

• ~$20/kW demand• ~$20/MWh energy

Hypothetical Utility Assumptions

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Base Case Financial Metrics –No Modeled DER Impacts

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Illustrative


High PV Scenario (NEM)

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Illustrative

Substantial impact on

DSCR

Slower, consistent erosion of revenues

Reduced Res. energy

sales


High PV + EV Scenario (With TOU)

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Illustrative

Slightdecrease in DSCR over base case

Liquidity is similar to base case

Decrease in energy

sales and rate

revenue


Strategies to Manage DER Risk in Financial Planning and Management

• Rate design and fixed cost recovery– Cost equity across and within customer classes– “Rates as a resource” to send price signals to stimulate

load growth outside of system peaks– Standby rates can improve fixed cost recovery in the

case of large, high load factor customers• Ample regulatory precedent, including at the Federal

level via Public Utility Regulatory Policies Act (PURPA)

• Reservation charges: a portion of demand costs are recovered from a customer-generator regardless of usage of the utility system

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Strategies to Manage DER Risk in Financial Planning and Management

• If a residential-peaking system, stimulate commercial EV charging (day-time)

– Incremental load growth without increased system demand

– Consideration for commercial charging and demand charges

• Customer incentives for large, high load factor customers

– Economic development– Load retention

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Managing DER Risk in Financial Planning:Key Takeaways

• Rate design and fixed cost recovery are key to managing DER risk

• EVs can offer an opportunity for incremental load and revenue growth

• Additional reserve funds may offer an opportunity to mitigate some types of DER risk

• DER risk can exert upward pressure on rates, which improves customer economics of DERs

– Consider offering programs that satisfy customer interest in DERs to build goodwill

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CONTACT INFORMATION

Grant RabonExecutive Consultant

[email protected]: (512) 900-8232

Fred WellingtonVice President

[email protected]: (415) 407-3269

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