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INTRODUCTION The Policy Process of Grid Transformation Gridtransformationisagrowinghottopicintheenergyindustry.In2017,over200state,city,andutility-levelactionsrelatedtogridtransformationwereproposed,pending,orenacted.1Formanypolicymakers,however,understandingtheroleofgridinvestments,regulatoryandlegislativepolicy,aswellaschangesinthemarketplaceinthetransformationofthegridisstillunclear.TheSolarEnergyIndustriesAssociationrecentlyinitiatedaseriesofpolicybriefsthattakeanin-depthlookatstate-leveleffortstomodernizetheelectricutilitygrid.2TheNorthCarolinaCleanEnergyTechnologyCenter,aN.C.StateUniversity-basedresearchorganization,alsodevelopedits50StatesofGridModernizationtocatalogueproposedandadoptedpolicychangesrelatedtogridmodernizationanddistributedenergyresources(DER).3

Followingthoseinitialefforts,VoteSolarwillauthoraseriesofwhitepaperstohelplawmakersandotherlegislativestakeholdersunderstandthewhatgridtransformationisandisn’t,whatcomponentsarenecessarytotransitionwell,andtheimportanceofastrongpolicyprocesstosupportthetransformationofournation’selectricgrid.Asthefirstinstallment,thispaperprovidesabriefoverviewofthewhatandthehowofgridtransformation,focusingonthenecessarytenantsofastronggridtransformationprocess.Astrongpolicyprocesscanhelpensurethatanyeffortintransitioningthegridwillresultinareliable,affordable,clean,flexibleandinnovativeelectricsystem.

1NorthCarolinaCleanEnergyTechnologyCenter.2017.50StatesofGridModernizationhttps://nccleantech.ncsu.edu/the-inaugural-50-states-of-grid-modernization-report-now-available;Black&Veach.2018.StrategicDirections:SmartCities/SmartUtilities.https://pages.bv.com/SDR-Smart-City-Smart-Utility-DL.html#_ga=2.1467191.706672811.1511881544-2018393701.15118815442SolarEnergyIndustryAssociation.2017.GridModernizationWhitePapers.Availableat:https://www.seia.org/grid-modernization-whitepaper-series3NorthCarolinaCleanEnergyTechnologyCenter.2017.50StatesofGridModernizationhttps://nccleantech.ncsu.edu/the-inaugural-50-states-of-grid-modernization-report-now-available/

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DEFINING GRID TRANSFORMATION GridTransformationisthestrategictransitionintheplanning,operations,investments,regulation,andmarketsoftheelectricsystem.Therearethreebasicelementsofgridtransformation:gridmodernization,markettransformation,andregulatorytransformation.Inordertotransitiontothegridofthefuture,allthreeaspectsofGridTransformationmustbeaddressedinconcertandsupportedbyastrongpolicyprocess.GridModernizationGridModernizationisthestrategicinvestmentsinthedistributionsystemtoaccommodatetwo-wayflowsofenergyanddistributedenergyresourceswiththepurposeofcreatingacleaner,moreefficient,andintelligentgrid.TheadventofGridTransformationisinlargepartaresultofthegrowthinnewtechnologysolutionstoenableasmarter,cleaner,moreefficientuseofenergy.Advancementsininformationtechnologies,distributedenergyresources,anddistributionsystemoperationstechnologiesareprogressingrapidly.Inordertotransitiontoamoremoderngrid,strategicinvestmentsinnewsupportinginfrastructurearenecessary.Someinvestmentsareintendedtoimprovegridreliability,resiliency,andsafety,whileothersaretargetedtoenableconsumerstomeetfutureenergyneedswithDER.However,manydistributionsysteminvestmentscanaccomplishbothobjectives.Forexample,smartinvertersenabletheinterconnectionofdistributedsolarandstoragetothegrid,whilealsoprovidingvaluableservicestoincreasesystemreliabilityandstability.MarketTransformationInvestmentsinGridModernizationhavetheopportunitytoopenupanentirenewmarketfortheproducts,services,andmanagementofthefuturegrid.However,tofullyutilizethetechnologiesofthefuturewillrequirechangestomarketstructurestoallowfororincentivizethird-partiesintheprovisionofgridservices,and/orincentivizethird-partyinvestmentsandleveragetheadoptionofnewtechnologies.Thetechnicalandmarketstructurescurrentlyinplaceoftendonotfitwellwiththeadoptionoftechnologiessuchasdistributedstorage,electricvehicles,microgrids,anddistributedsolar,andmayneedadjustmentinordertoutilizeDERsfortheirfullvalue.Markettransformationistheexpansionoftheecosystemofentitiesthatcanprovidegridservices,andthenewregulatorystructurethatsupportsthisecosystem.Oneofthemostinnovativeaspectsofgridmodernizationisthepotentialforthird-partyinvestmentsinnon-wirealternatives(NWAs)tomeetgridneeds.Non-wirealternativesareprojectsthatusenon-traditionalsolutions,suchasdistributedenergyresourcesandITinfrastructure,todeferoreliminatetheneedfortraditionalequipmentupgrades.UtilizingNWAsispredicatedonthecreationofnewmarketstructuresthatrecognizethevalueofNWAsovertraditionalinvestmentsandallowfornewparticipantstoengageintheprovisionofgridservices.ThoughtleadersinthefieldofgridmodernizationenvisiontransitioningtoadistributionsystemplatformthancanbeusedasamarketforNWAs.Policymakersneedtodeterminehowtocreatecompetitivemarketsthatallowforinnovationandhowtobestcompensatepartiesthatprovidemarketsolutionstogridneeds.Forexample,inwholesalemarketsthereexistanumberofmarketbarriersthatlimitDERsabilityto

To fully utilize the technologies of the future will require changes to market structures to allow for or incentivize third-parties in the provision of grid services, and/or incentivize third-party investments and leverage the adoption of new technologies

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participateincertainwholesalemarketproducts,suchasdemandresponseorancillaryservices.RegulatoryreformthatremovesthesebarrierscanhelpunlockthevalueofDERs.RegulatoryTransformationGridTransformationrequiresconsiderationofchangestoregulatorystructuresandratedesigntoadvanceamarketforgridservices.Investmentsingridmodernizationtechnologiesaremeanttoimprovegridservices,buttheoptimizationofthoseservicesisdependentontheactionstakenbyboththeutilityandotherparties.Regulatorytransformationislargelyconcernedwithtwoprimaryobjectives-ratetransformation,andbusinessmodeltransformation.InvestmentsinGridModernizationneedstobesupportedbyratedesignthatwillfacilitateand

incentivizethesmartuseofenergy,strategicinvestmentsindistributedresources,andaccuratelyreflectthevalueofcustomer’sprivateinvestments.Whilehistoricallyratedesignhasbeenformulatedbasedonan‘averagecustomer’usagepattern,thefuturegridwillneedratedesignthatrecognizesthetemporalandlocationaluseofenergy.RateTransformationisthetransitiontorateschedulesthataremostreflectiveofthetemporalandlocationalvalueofenergy,andprovide

pathwaystoincorporatecustomersasactiveagentsinthegenerationandconsumptionofenergy.Inadditiontoratedesignchanges,hebusinessmodelformostregulatedutilitiesallowsareturnoninvestmentformoniesspentoninfrastructurebutnotontheprovisionofservices.GiventhatoneofthepurposesofGridTransformationistooffernew,improved,and/orexpandedservicestoratepayers,itmaybenecessarytoexaminepotentialchangestotheutilitybusinessmodelandwhatmechanismsofregulatoryoversightaremostappropriate.Forexample,inNewYorkandRhodeIsland,regulatorsaredetermininghowtoincentivizetheuseofDERsasNWAsratherthanallowingmoreexpensiveinvestmentsintheratebase.ThischangewillrequiredeterminingtheappropriatemeansofcompensatingutilitiesthatinvestinDERsasgridserviceprovidersasopposedtojustgenerationresources.

The regulated utility business model allows a return on investment for infrastructure spending but not services investments.

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ESTABLISHING A POLICY PROCESS FOR GRID TRANSFORMATION Inordertotacklethecomplicatedtransitiontothefuturegrid,GridTransformationmustbesupportedbyastrongandrobustpolicyprocess.GridTransformationproceedingscantakeseveralformsandbeinitiatedateitherthestate,local,orregulatorylevel.Itcanbedonethroughaformalregulatoryrulemaking;aspartofanexistingresourceplanningprocess;oraspartofastateorlocalinitiative.Typically,aregulatorybodywillneedtoformallyauthorizetheinvestmentrequiredtomodernizethegridaswellasthesupportingchangesinratedesignandmarketreform.Legislationcanhelpdefinetheprocessofregulatoryreviewofgridmodernizationandoutlinethevisionandgoalsfortransition.Table1.outlinesafewinitiativesthatstatelegislature,localgovernments,andregulatorycommissionerscantaketomovetowardsamoderngrid.

StateLegislature LocalGovernment RegulatoryCommission

-CommissionStatewideGridTransformationprocessandstudiestoexaminetheroleofDERsandsupportiveinfrastructureforgridmodernization-Legislationcreatingmarketsforthird-partiestoprovidegridservices-CreatingstatewidegoalforaGridTransformationprocess-ProvideincentivesfortheuseDERsandtheuseofNWAs-FacilitateastakeholderprocessforGridTransformation-DirectlyinvestinDERsforstateinfrastructureandworkwithutilitiestooptimizetheuseandvalueofinvestments

-CommissionlocalstudiestoexaminetheroleofDERsandsupportiveinfrastructureforgridmodernization-Creatinglocalgoalsforthemoderngrid-ProvideincentivesfortheuseDERsandNWAs-FacilitateastakeholderprocessforGridTransformation-WorkwithutilitiestodeterminelocalpathwaysforGridTransformation-DirectlyinvestinDERsformunicipalinfrastructureandworkwithutilitiestooptimizetheuseandratestructuresthatsupportthevalueofinvestments

-Commissionutility-specificstudiestoexaminetheroleofDERsandnecessarygridmodernizationinvestmentsforGridTransformation-ExplorenewratedesignstoincentivizesmarteruseofenergyandcorrectlyvaluetheuseofDERsandNWAs-CommissionpilotprojectstostudyDERsuseasNWAs-Explorenewrateregulationmodelsthatvalueservicesorperformancemetricsovercapitalinvestments-FacilitatestakeholderprocessforGridTransformation-Commissionutilitiestoperformintegratedresourceplanning-Commissionutilitiestoperformrobustcost/benefitanalysestoexaminedifferenttechnologiesforGridTransformation-RequestutilitiesprovidepubliclyavailablemapsandinformationonthedistributionsystemtofacilitateDERinterconnectionandidentifypotentialNWAprojects

Table1.Policymakersactionstoworktowardsamoderngrid

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Inordertodeterminethe‘bestpractices’ofGridTransformationfromapolicyprocessperspective,VoteSolarreviewednumerousGridTransformationproceedingstranspiringthroughouttheUnitedStates.OurreviewdeterminedthattherearefivecriticalpolicyprocesscomponentsofGridTransformation:

1. StakeholderEngagement2. ClearandMeasurableGoals3. IntegratedDistributionPlanning4. CostBenefitAnalysis5. Benchmarking

Thesefivecomponentsofthepolicyprocesssupporttheon-goingmodernizationofthegridandarenecessaryattheonsetanygridmodernizationproceedingandthroughoutthetransition.

Figure1.ThePolicyProcessofGridTransformation

MarketTransformation

RegulatoryTransformation

GridModernization

StakeholderProcess

GoalSetting

IntegratedDistributionPlanningCost/BenefitAnalyses

Benchmarking

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StakeholderEngagementStakeholderengagementiscriticalforsuccessfulGridTransformationandunderpinstheentirepolicyprocess.Aformalstakeholderprocessneedstobringtogetherutilityandnon-utilityexpertsinthefieldofgridmodernization,ratetransformation,andmarkettransformationtodefineandchartaclearpathwayformodernizingthegrid.Thebenefitofastakeholderprocessistoshareinformation,ideas,andexpertiseontechnologies,options,andstrategiesforGridModernization.Ultimatelyastrongstakeholderprocessshouldcreateanopen,transparentdialogonkeyGridTransformationtopics,andattempttoreachconsensusonopportunitiesformeetingtheagreedupongoalsofgridmodernizationandthestrategicinvestmentsthatwillfacilitateachievingthosegoals.Whilestakeholderprocessescanvary,areasofdiscussioninastakeholderprocessshouldtackleallthreecomponentsofGridTransformation(i.e.strategictechnologyinvestmentforgridmodernization,markettransformationandregulatorytransformation)andservetoinformtheadditionalelementsofastrongpolicyprocess.SettingClearandMeasurableGoalsBeforeengaginginanyinvestmentinthegridofthefuture,orintroducingsupportivemarketandregulatorychanges,itisimportanttoclearlydefinethegoalsofaGridTransformationproceedingandanygridinvestments.Commongoalsinclude:

● ImprovedUtilizationofGridAssets● IncreasedPenetrationofDistributed

EnergyResources● ImprovedReliability● ImprovedEfficiency● ImprovedResiliency● ImprovedFlexibility

● ImprovedInformationSharing● ImprovedSecurity● IncreasedCustomerOptions● ImprovedTransparencyandData

Access

Thesegoalsshouldbebasedonbenchmarksofperformanceandassociatedwithmetricthatcanbemeasured,soutilitiesandregulatorscanassessandtrackprogress.Forexample,agoalof‘increasedpenetrationofdistributedenergyresource’or‘improvedefficiency’maybestrategic,gridmodernizationinvestmentsofAdvancedMeteringInfrastructurecoupledwithRateTransformationthatexpandsthevalueofDERs,suchasthecombinationofsolarandstorageusedforancillaryservices.Clearandmeasurablegoalshelpfacilitateefficientinvestmentsandtheuseofexistinginfrastructure,aswellasprovideameanstoassesstheusefulnessofaninvestment,regulatorychange,ormarketchangetowardsachievingaspecifiedgoal.Goalscanalsohelpdeterminecompensationformarketparticipantsbasedontheirperformanceinachievingtargets. IntegratedDistributionPlanningIntegrateddistributionplanning(IDP)isaprocessforproactivelyidentifyingtheimpactonthegridfromexistingandforecastedpenetrationsofDER.TheprocessalsoidentifieslocationsonthedistributionsystemwhereDERsolutionsmaybepreferredovertraditionalutilityinvestmentalternatives.IDPbuildsontraditionalmethodsfordistributionplanningbyincludingassessmentsofindividualcircuits’abilitytoaccommodateDER(i.e.,hostingcapacity),advancedloadandDERforecastingusingprobabilistic

Stakeholder engagement is critical for successful Grid Transformation and underpins the entire policy process.

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methodsandscenarioanalyses,andthedeterminationofthelocationalvalueofDERdeployment.Likeastakeholderprocess,effectiveIDPistransparent,participative,andcanenabletheinclusionofmorecost-effectiveinvestments,aswellasincrease opportunitiesforthird-partyparticipation.Thereareseveralresourcesavailabletohelpguideintegrateddistributionplanning,including:

•DistributionSystemsinAHighDistributedEnergyResourcesFuturebyLawrenceBerkeleyNationalLaboratory;

•IntegratedDistributionPlanningConceptPaperbytheInterstateRenewableEnergyCouncil;

•IntegratedDistributionPlanning–AHolisticApproachtoMeetingGridNeedsandExpandingCustomerChoicebyUnlockingtheBenefitsofDistributedEnergyResourcesbySolarCity(nowTesla);

•It’sAllinthePlans:MaximizingtheBenefitsandMinimizingtheImpactsofDERsinanIntegratedGridbySmith,Rylander,Rogers,andDugan;

•MoreThanSmart:AFrameworktoMaketheDistributionGridMoreOpen,EfficientandResilientbytheGreentechLeadershipGroup;

•PlanningtheDistributedEnergyFuturebyBlack&VeatchandtheSmartElectricPowerAssociation;and•ImprovingDistributionSystemPlanningtoIncorporateDistributedEnergyResourcesbytheSolarEnergyIndustriesAssociation.4

Cost/BenefitAnalysesCost/benefitanalyses,astheyrelatetogridmodernizationinvestments,areanappraisalofthecosts,includingtheopportunitycosts,andbenefitsofinvestinginaspecifictechnology.Costbenefitanalysisshouldbeconductedforthepurposeofeachinvestmentindependently,andincombinationwithothercomplementaryorsupportinginvestments.Costbenefitanalysesareutilizedtodetermineiftheproposedinvestmentsachievethedefinitivegoalsofthegridmodernizationproposal.Atminimum,costbenefitanalysesincludeabusinesscaseanalysisontheimpactsoftheproposedgridmodernizationinvestmentsagainstabaselinescenariowherenogridmodernizationinvestmentsaremade.BenchmarkingBenchmarkinginvolvesthemeasurementandcomparisonofautility’sperformanceagainstcomparableorpeerutilitiesandotherrelevantorganizations.Thecomparisonsmayincludeoperatingperformancemeasures(e.g.,reliabilityindices,customersatisfaction,etc.)andmeasuresofefficiencyorcostperformance.Effectivebenchmarkingalsoprovidesinsightintotheunderlyingpolicies,practicesorproceduresthatcontributetoautility’sperformance,andidentifiestherelativestrengthsand

4Lindel,T.(2013).IntegratedDistributionPlanningConceptPaper,InterstateRenewableEnergyCouncil.Inc.&SandiaNationallabs.Availableat:http://www.irecusa.org/publications/integrated-distribution-planning-concept-paper;SolarCity(nowTesla).2015.IntegratedDistributionPlanning–AHolisticApproachtoMeetingGridNeedsandExpandingCustomerChoicebyUnlockingtheBenefitsofDistributedEnergyResources.Availableat:http://www.solarcity.com/sites/default/files/SolarCity%20White%20Paper%20-%20Integrated%20Distribution%20Planning_final.pdf;Smith,J.,Rylander,M.,Rogers,L.,&Dugan,R.(2015).It'sallintheplans:MaximizingthebenefitsandminimizingtheimpactsofDERsinanintegratedgrid.IEEEPowerandEnergyMagazine,13(2),20-29.;DeMartini,P.(2014).MORETHANSMART:AFrameworktoMaketheDistributionGridMoreOpen,EfficientandResilient.Availableat:http://morethansmart.org/wp-content/uploads/2015/06/More-Than-Smart-Report-by-GTLG-and-Caltech-08.11.14.pdf;Black&VeatchandtheSmartElectricPowerAssociation2016.PlanningtheDistributedEnergyFuture.Availableat:https://pages.bv.com/rs/916-IZV-611/images/planning-the-distributed-energy-future.pdf;SolarEnergyIndustriesAssociation.2017.ImprovingDistributionSystemPlanningtoIncorporateDistributedEnergyResources.Availableat:https://www.seia.org/sites/default/files/resources/SEIA-GridMod-Series-2_2017-July-FINAL_0.pdf

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opportunitiesforimprovementforeachorganization.Finally,benchmarkingcanserveasthebasisforestablishinggoalsortargetsforimprovingperformance.

CONCLUSION

Lawmakersandutilityregulatorsthroughoutthecountryareengagedineffortstomodernizethedistributionsystem.Thispaperdrawsattentiontotheimportanceofastrongpolicyprocesstosupportanygridmodernizationeffort.Therearethreebasicelementsofgridmodernization-strategictechnologyinvestment,regulatoryreform,andmarketreform.InordertosupportallthreeelementsofGridTransformation,astrongpolicyprocessisnecessary.Thecomponentsofastrongpolicyprocessinclude:establishingastakeholderengagementprocess,settingclearandmeasurablegoals,conductingintegrateddistributionresourceplanning,performingrobustcost/benefitanalyses,andbenchmarkingtheperformanceofinvestmentsmadeforgridmodernization.Thereareanumberofquestionssurroundinggridmodernizationthathaveyettobeansweredbuttherolesoflocalandstatelawmakersandutilitycommissionersarecriticaltoensuringasmarterfuture.

CONTACT:

Caroline Golin, PhD Regulatory Director, Vote Solar

caroline@votesolar.org | 404.996.8890