What Can Regulators and Utilities Do to Boost Solar Nanogrids?

This portion of a new special report series looks at utility and regulatory changes across the nation that could push solar nanogrids to the forefront of energy innovation.

Get the full report.

In spite of the many challenges that nanogrids address, their growth is limited by regulatory and utility hurdles that prevent nanogrid owners from realizing their many benefits. Utilities, regulators and stakeholders are beginning to identify some of these hurdles and the advantages of overcoming them.

Utilities now face a whole new world, with the influx of renewable energy and other distributed energy resources, the rapid adoption of electric vehicles and the pressures to decarbonize the grid. If they don’t change, utilities may eventually become only occasional backup as their customers increasingly opt for on-site generation, predicts a report by Accenture.

To adapt to the new energy environment, utilities and regulators can focus on a number of strategies, including implementing time-of-use rates, using new intelligent meters and taking advantage of new technologies, as explained below.

Tariffs that charge customers for when they use energy

New tariffs could focus on charging consumers for energy depending on when they use energy. One option is time- of-use rates, which change depending on the time of day and provide incentives for customers to use energy during off peak periods. Generally, time-of-use rates categorize a day into on-peak hours, off-peak hours, and, sometimes, mid-peak hours.

Another option is real-time rates. Customers obtain the true price of using energy on an hour-by-hour or minute-by-minute basis through an advanced smart panel. This advanced smart panel automatically implements the customer’s priorities and turns off nonessential appliances or loads when tariffs are too high. Real-time rates differ from time-of-use rates because they are constantly changing, while time-of-use rates are generally fixed and do not take into consideration emergency situations throughout the year.

A report by the Wind Solar Alliance notes that with real-time rates and smart controls — smart appliances and smart electric vehicle charging — customers can use more electricity when prices are low and use less when prices are high. This helps utilities avoid the operation of peaking power plants that are generally fossil fuel-based and create air pollution.

New tariffs could focus on charging consumers for energy depending on when they use energy.

Adding advanced smart panels and new hardware technologies that include disaggregated metering and real-time pricing provide many opportunities to support this new world of energy. These technologies allow energy distributors to remotely meter customers and allow retailers to use real-time information to create innovative tariff schemes. What’s more, they allow customers to use real- time data to control when and how they use energy. Real-time rates would help nanogrid owners decide when to store energy and when to release it. If utility customers can measure all loads, circuits and resources, they can better control the environment and make informed decisions. Current “smart meters” will not help with real-time pricing because of their aggregated nature. Most smart meters can’t act on the information and have no control over how property owners use their energy.

It makes more sense to integrate an advanced smart panel with the ability to take action based on real-time utility events and predefined load priorities. This technology can make the difference, utilizing the information for the customer, either automatically or with property owner intervention. This is what is now missing from many microgrids and nanogrids.

Utilities can also embrace technology, encouraging customers to buy automated appliances and services that help control peak demand. For example, consumers could track their usage and set appliances to run during off peak periods or when large amounts of renewable energy are on the system.

In this new era of data, renewable energy and new hardware technologies in the energy field, consumers need to be more engaged. Utilities and regulators can provide incentives that entice customers to participate in a dynamic system that allows them to generate, store and distribute energy. With incentives from utilities, more homeowners could acquire nanogrids.

A number of regulatory changes would reap more benefits for nanogrids by boosting the energy resources they use. These include changes in utility treatment, federal incentives, state policies and wholesale market rules.

Utility IRPs

Utilities play a key role in determining what resources are used in the U.S. when they lay out their long term strategies, a process known as integrated resource planning (IRP). In many jurisdictions, the utility must calculate what mix of resources will prove most cost-effective over time. But, as a Department of Energy paper noted, because traditional IRP models do not consider many of the services that energy storage can provide, the technology does not neatly fit into planning processes. What would help? More sharing of data and best practices, according to the paper, along with better modeling. Utilities also are increasingly producing grid modernization plans that open the door to incorporating more energy storage services.

Tax incentives

Federal investment tax credits (ITC) have played a major role in helping new clean technologies get integrated. But the credits are limited for energy storage and beginning to fall short for solar.

In June 2020, Democrats in Congress released the Moving Forward Act, which aims to ensure that investments in clean energy will play a major role in any potential economic recovery package. The $1.5 trillion infrastructure plan would boost the use of renewable energy, grid modernization, resilience efforts and microgrids. The proposed legislation focuses on microgrids because of their ability to provide resilience and to integrate innovative technologies into the grid. In addition, the Secretary of Energy is asked to prioritize renewable and clean energy integration in funding programs.

The legislation proposes extending the federal investment tax credit for solar and geothermal energy and re-establishing the original incentive of 30% through 2025. After that, it would be phased out. The existing ITC program phases out residential solar tax credits entirely after 2021, and steps down the incentive for commercial and industrial deployments to 10% by 2022. The bill would expand the tax credit to include stand-alone energy storage systems, as requested by the storage industry. It would also extend tax incentives for carbon capture and sequestration technology for a few more years.

As requested by the SEIA and others, the legislation calls for “direct payment” options for these incentives to help renewable industry players that have lower revenues due to the COVID-19 crisis and can’t benefit from tax credits. Recipients would get 85% of the value of the credit in the form of a tax refund.

Industry members have said they won’t have enough time to meet ITC deadlines for this year that would allow for a 26% credit. Solar advocates are seeking approval of a program that provides industry members with a choice of the existing ITC or direct cash payments instead of the ITC for all qualified solar energy projects until the ITC expires. They also have been seeking a multiyear extension of the solar ITC and a postponement of the deadlines specifying when projects should be in place in order to qualify for the ITC.

Without Congressional action, the solar ITC will gradually decrease, which solar advocates say could slow solar growth. The incentive began as a 30% tax credit for solar systems on residential and commercial buildings. It stepped down to a 26% credit for projects that begin construction in 2020 and to 22% for projects that begin construction in 2021.

The residential and commercial solar ITC has allowed the U.S. solar industry to expand by more than 10,000% since it was implemented in 2006, according to the SEIA. Solar advocates argue that a long- term solar ITC — as opposed to an ITC that ramps down — is critical to boosting the number of solar projects in the U.S. and supporting decarbonization efforts.

Trade tariffs

The solar industry also faces some challenges related to trade tariffs imposed by the federal government on solar panels beginning in 2018. Tariffs on imported solar cells and modules have sparked the loss of more than 62,000 U.S. jobs and $19 billion in new private sector investment, said a market analysis from SEIA.

The 30% tariffs are imposed on many of the materials that go into solar PV systems. They have slowed the growth rate of solar PV deployment in the U.S. Some of the negative impacts of the tariffs are being counteracted by continuing technology improvements.

Need for state incentives

Another obstacle to getting more solar plus storage on the ground is lack of financial incentives for homeowners.

However, two states — Massachusetts and New York — provide incentives for home- owners. For example, the Massachusetts SMART program is expected to provide 1.6 GW of solar for the grid. It includes special rates for combining solar with energy storage. New York’s Value of Distributed Energy Resources also provides incentives for solar and storage. The program compensates projects based on when and where they provide grid electricity, using a solar value stack calculator. This combines the wholesale price of energy with distributed energy resource attributes that benefit the grid, including avoided carbon emissions, cost savings, and savings associated with utilities avoiding expensive investments in power plants. Implemented nationwide, such programs would help give nanogrids a boost.

Allowing DERs to participate in wholesale markets

Distributed energy resources can improve the grid’s reliability and resilience and cut costs, but they need to be allowed to participate in wholesale markets, the Advanced Energy Economy argues. With their battery storage systems, nanogrids can act as flexible resources that are capable of supporting the electric grid and help deploy intermittent renewables.

For example, grid operator PJM has a number of markets for ancillary services, which help balance transmission as it moves electricity from generating sources to consumers.

PJM signed a contract with a global independent power producer that will use a 72 MW/72 MWH battery system to provide grid services to PJM, signalling energy storage’s ability to compete and provide grid benefits.

Federal-, state- and utility-level measures can increase the storage market — and with it, the nanogrid market. This will provide resiliency and clean power while helping the grid with essential services and saving building owners money.

See the full report to see how new state policies are growing. A number of states have begun offering incentives for energy storage, which is a big plus for nanogrids. Next week, this special report series will highlight why solar’s transition to nanogrids is beneficial for solar installers.

And check out the previous articles in the series below:

Download the full report, “Nanogrids: A New Opportunity for the Solar Industry,” courtesy of Instant ON, to further explore the possibilities of solar nanogrids.