Policy Frameworks to Foster Energy Innovation: a comparison of planned approaches

By Lauren Stuart Iling, NLC Louisiana, & Won Palisoul, NLC New York City

Energy innovation has been a theme of human history beginning with the discovery of fire. We use vast energy sources to power locomotion, lightbulbs, and ultimately our lives. We have used the burning of coal and petroleum to advance our society’s opportunities and comforts since the industrial age. Resourceful inventors even used plant-based oils to fuel the original automobiles. In the past few decades, however, the need to increase efficiency and decrease the environmental damage of our energy sources has driven unparalleled advancements in energy innovation. Energy from solar power, wind, biomass, hydropower, and even landfill gas, are not only technically viable but are also increasingly cost-competitive with their conventional substitutes. There is still a major policy hurdle to be overcome for renewables to reach widespread deployment, which is distributed electrical generation.
 
Distributed generation systems incorporate electricity that is created near the point of use, as opposed to generation at a centralized power plant with transmission across the electric grid. Renewable energy sources generated by utility customers can be sent onto the electric grid using interconnection techniques and through net-metering policies; however, it is most efficient to use electricity close to the generation site. According to the Energy Information Administration, the U.S. loses an estimated 6% of electricity generated through the process of transmission and distribution.
 
States and municipalities can improve energy efficiency and increase access to renewable energy generation through several policy mechanisms. Many local governments have created net-metering policies, several local financial incentive programs are available, and it is fairly common for third-party ownership structures to be allowed. Some states are beginning to address the bigger picture of renewable energy delivery with distributed generation policy frameworks. Two such cases are New York and Minnesota.
 
New York: Reforming the Energy Vision
 
In April 2014, the New York Public Service Commission released the Reforming the Energy Vision (REV) proposal calling for “a fundamental reconsideration of our regulatory paradigms and markets, examining how policy objectives are served both by clean energy programs and by the regulation of distribution utilities”. As described in the initial announcement, the Public Service Commission is planning to consider “changes in current regulatory, tariff, and market designs and incentive structures…” in order to achieve clean energy goals. The proposal called for a broad transformation of the state’s electric industry by the year 2030, with the stated the goals of 50% electric generation from renewable sources, 40% reduction of greenhouse-gas (GHG) emissions beyond 1990 levels, and 23% decrease in energy consumption in buildings from 2012 levels. REV now encompasses an extensive list of initiatives covering the areas of renewable energy, energy efficiency, clean energy financing, energy infrastructure modernization, innovation, transportation, and sustainable and resilient communities. 
 
The New York State Energy Research and Development Authority (NYSERDA) administers the NY Prize as part of the REV Sustainable and Resilient Communities initiative. Now accepting proposals for stage two of the program, NY Prize is making $40 million available to communities for building their own local energy system, or microgrid. These standalone electricity systems represent an implementation of a decentralized utility grid and are able to provide power to customers in the event of an outage in the larger system. In stage one of the NY Prize, funding for engineering feasibility studies was competitively awarded to 83 communities across 10 regions in the state. Hurricane Sandy had caused power outages in many of the recipient towns and villages. The proposed microgrids would generate reliable power for necessary public facilities and many incorporate various renewable energy sources such as solar, wind, fuel-cell, combined heat and power. Also part of the microgrid planning is on-site power storage, advanced transmission and distribution, and other innovative smart-grid technologies. 
 
Another driver in support of REV objectives and reforms is the Clean Energy Standard, which is being designed to enable cost-effective compliance with the State energy goals. As currently envisioned, the standard “will properly value the environmental attributes of clean distributed resources and thereby enhance their market penetration” (STAFF WHITE PAPER ON CLEAN ENERGY STANDARD, Case 15-E-0302, January 25, 2016). Throughout the summer of 2016, the New York Department of Public Service is soliciting public input on the proposed Clean Energy Standard, as a complementary policy in support of REV. Comments are being requested regarding a Zero Emissions Credit, Customer Service Metrics for Gas and Electric Companies, REV Utility Codes of Conduct, the Clean Energy Standard Cost Study, and Energy Storage. Utilities are also being asked to file Distributed System Implementation Plans as well as Proposed Tariffs Describing Fees to Enable Community Choice Aggregation Programs. 
 
Additional REV initiatives range from Clean Energy Financing to Innovation and Research & Development. In order to realize the broad vision of energy reform, the State of New York is developing a multi-faceted approach in partnership with local communities, universities, and industry. Along with building an integrated energy network, the REV is aiming to provide economic development opportunities and affordable energy benefits via the NY Green Bank, which will invest $1 billion of public and private sector financing towards clean energy projects. The K-Solar initiative will save electricity costs by providing reduced cost solar installations for over 800 K-12 schools. Other initiatives include REV Buisiness Model Demonstrations, Energy Efficiency Measures in Affordable Housing, Clean Fleets NY and ChargeNY to install electric-vehicle charging stations. 
 
New York is certainly taking steps to becoming a leader in distributed energy generation. As industry publication Utility Dive noted, “if 2015 was the year that New York’s Reforming the Energy Vision (REV) initiative captured the imagination of the utility sector, 2016 could be the year some of its dreams start to materialize”. It will be interesting to follow the state’s progress as the Clean Energy Standard is finalized and the various initiatives are implemented.
 
Minnesota
 
Minnesota is developing a distributed energy resource program similar to that of New York. More limited in scope, the state is focused on information gathering and ongoing assessment of programs focused on siting and interconnection. Minnesota has set goals to generate at least 30% of its electricity from renewable sources by 2030. The state has a strong track record of policy support for an innovative energy landscape, following the introduction of a mandatory renewable energy standard in and an several financial incentive programs available to both residential and commercial utility customers.
 
In 2014, GreenTech Media noted that Minnesota was a top leader in “leading the distributed energy revolution” due to its Value of Solar Tariff (VOST) policy as an alternative to net-metering utility customers’ solar grid interconnection. The state legislature mandated the Department of Commerce to develop methodology, which the Minnesota Public Utility Commission approved for utility adoption on a voluntary basis. There have not yet been any adoptions of the VOST policy, which would incorporate several grid factors when calculating the utility’s value of customers’ distributed solar photovoltaic systems. Utilities in Minnesota still utilize a net-metering approach which provides customers with a small solar power system a credit on their electricity produced and customers with large systems are either credited the kWh’s saved or the utility’s avoided cost.
 
In the meantime, a public-private effort, the e21 Initiative, aims to transition the regulatory model in Minnesota towards sustainability and carbon-neutrality. This partnership is being led by the Great Plains Institute and includes Xcel Energy, Minnesota Power, Center for Energy and Environment, George Washington University Law School, and others. Currently in its second phase, the e21 Initiative has worked since 2014 to develop utility regulation recommendations such as performance-based ratemaking, grid modernization, and expanded distribution plans from utilities. The Phase I Overview report described the group’s objectives as follows:

“The Initiative aims to update the way Minnesota regulates utilities in two fundamental ways:
Shifting away from a utility business model that provides consumers few options (everyone gets the same grid electricity produced largely with coal, natural gas or nuclear power at large central stations) toward one that offers consumers more options in how and where their energy is produced and how and when they use it; and,
Shifting away from a regulatory system that rewards the sale of electricity and building large, capital-intensive facilities (e.g., power plants) toward one that rewards utilities for achieving an agreed-upon set of performance outcomes that citizens and ratepayers want (e.g., energy efficiency, reliability, emissions reduction, predictable rates etc).”

Phase II of the e21 Initiative will focus on evolving the utility business model and the statutory and regulatory frameworks in Minnesota. Timelines are not published at this time but the policy categories include: Energy Efficiency, Energy Infrastructure, Fossil Energy, International, Collaboration, Renewable Energy, Sustainable Communities, and Transportation. 
 
Conclusion
 
Technological innovation in the renewable energy industry has substantially decreased the cost of distributed energy resources and increased the market penetration throughout the United States. Unlike other areas of technical advancement, however, the national electricity delivery system is a complex, capital-intensive infrastructure with complex, widely varying regulatory frameworks. The federal government has been very involved with research and development, deployment and commercialization of renewable energy technologies but it is up to state and local governments to develop the policies to fully support their implementation.
 
The current secretary of the U.S. Department of Energy, Ernest Moniz, recently commented that large scale clean energy is approaching a “phase change” due to two main factors: inspiration from climate change as seen in the 2015 Paris Agreements and the cost-competitiveness of renewable power purchase agreements. Last year, financial services company, Lazard released a levelized cost of energy analysis and reported a drop in utility-scale solar prices of 82% over the past six-years; wind energy had a 61% decrease in cost over the same period . In the meantime, corporate social responsibility programs are making increasingly ambitious commitments to reduce their carbon foot-print. From Mission Innovation to the Breakthrough Energy Coalition and Sustainable Energy for All, the private sector is contributing towards global climate change mitigation efforts by investing in innovative energy technologies.
 
Local communities stand to benefit from the adoption of renewable and distributed energy resources at yet another critical level resiliency. As the Gulf Coast learned during Katrina and the Atlantic seaboard learned during Sandy, a centralized electricity distribution system has inherent vulnerabilities during disaster situations. A state that develops regulatory frameworks to support microgrids is fostering energy innovation as well as protecting its citizens from black-out situations and ensuing chaos. As an added bonus, distributed energy generation generates economic opportunities in the growth of the renewable energy industry that involves the technology, manufacturing, and construction sectors.