Peak Demand Rate Design and DERs: It’s About What You Value

Mar 12, 2019

I’d like to pose this question to you: “Is the value of a kW reduced (or a kWh saved) on Distribution feeder A, the same as its value on Distribution feeder B, or Distribution feeder C?”

In many of the traditional energy efficiency program models, we have designed programs as if the answer to that question is yes, when in fact we know that it many cases, the answer is really no—the value is not the same.

A kWh saved on a part of the distribution system that is bumping up against its maximum capacity during peak periods for example, should be worth more than a kWh saved on a part of the grid that has plenty of capacity.

Utilities have done some locational targeting of energy efficiency programs but they have generally taken a more broad brush approach. Typically, the same program and incentives are available to all customers, but marketing efforts may be focused on a particular geographic location or income base. Most utilities have not gone to the level of saying that "the kWh savings that we get in this area are worth more to us and so we’ll offer higher incentive levels, or that the recruitment bounty for demand response capacity obtained in this area is going to be higher.” That will need to change. And the increasing proliferation of Distributed Energy Resources (DERs) on the grid is the reason why.

The growing number of DERs at the grid edge is forcing utilities to expedite grid modernization efforts. Historically, a key focus of grid operations was on looking for faults and mitigating faults. It was in many ways, a reactive approach. But when you have a high penetration of DERs injecting loads into distribution grids, causing instability at the grid edge, the number of operations needed to maintain reliable service grows exponentially; making a reactive approach and manual operations impractical. Utilities will need to transform from a grid that operates based on a model, to one that can more dynamically react in real-time to the impact of DERs.

Because DERs are being implemented at the grid edge, the intelligence needed to handle this kind of automation needs to happen at the distribution substation. Operational decisions will be made at the substation, rather than at a centralized spot. Substations are going to become micro data-centers in a way with a mini-EDMS that is running in each sub and looking after things feeder by feeder. The information gathered in these substations to allow this kind of intelligent and automated control, will also help us understand how and where to target our customer programs.

In the past, energy efficiency programs, rate design, and grid operations were separate worlds within a utility, led by teams that had limited interaction. That is changing; the bright line between these worlds is beginning to blur. Utilities need to take into account things like the economic worth of DERs to make smarter infrastructure investments; to design equitable rate structures that encourage the desired behaviors; and to optimize programs for energy efficiency, demand response, and DER deployment.

These are efforts that will cross traditional boundaries on the organizational chart, and frankly I think that the role of the energy programs team becomes even more important because we are the ones that know how to put in place programs to influence customers and trade allies to change behaviors, to increase the adoption of desired technologies whether that be across the board or in specific, targeted locations.

I am excited to be in this industry at this time, with Nexant, because we are in a unique position to help utilities navigate this changing landscape. Some of our recent efforts have included DER siting and integration, DER locational value, DR rate design, grid consulting and software solutions, program design, trade ally management, and marketing. We can offer expertise that is tailored to the needs of individual utilities, because not every utility is at the same place in this journey.

Please don’t hesitate to reach out if Nexant can help you on your journey.