This paper, a submission for the Solar Electric Power Association’s (SEPA) 51st State Challenge, synthesizes current thinking on system optimization by returning to first principles of rate design and market structure. By starting from first principles, the recommendations can be widely applied across jurisdictions with different market structures, resources, and demographics, including but not limited to a hypothetical 51st State.
This whitepaper, written as part of America’s Power Plan, describes the changing role of electric utility companies as new technologies for energy efficiency and distributed generation pose threats to their traditional business models. Aging infrastructure, changing customer demands, and stricter environmental and climate regulations additionally incite the need for evolution of utility structures. This paper offers recommendations for several types of utility structures, but focuses mostly on vertically-integrated and regulated utilities. It outlines three future scenarios for utilities; minimum utility involvement, medium involvement as smart integrator; or orchestrator; or maximum role as energy services utility.
Electric utilities have great potential to reinvent themselves in order to stay relevant throughout the power sector’s imminent transformation. A confluence of factors – new and cheap technologies, declining electricity demand, and increased action against climate change – are driving this change. To account for these factors, utilities must evolve from electron suppliers to system optimizers, and they ought to be rewarded based on performance rather than sales.
This paper provides an overview of America’s Power Plan (APP), a series of papers on how policymakers, market operators, and utilities can address changing market conditions head-on. The papers cover wholesale market design, utility business models, finance policy, transmission policy, distributed energy resources, distributed generation, and siting. Energy Innovation’s Director of Strategy, Sonia Aggarwal, directed research for APP’s development.
This report discusses the future for electric utility companies as ‘disruptive’ technologies, flattening energy load, and environmental regulations all potentially threaten their traditional business model. It proposes new business opportunities for utilities, giving special attention to performance-based ratemaking. Several case studies are included to demonstrate various elements of performance-based ratemaking, followed by best practice principles and recommendations. A version of this paper was published in the July 2014 issue of the Electricity Journal.