NY Energy Czar at Microgrid Knowledge Conference: “There are Going to be a Lot More Microgrids.”

Microgrids will play a key role as New York strives to make renewable energy 50 percent of its electric supply by 2030, said New York State’s Energy Czar Richard Kauffman at the Microgrid Knowledge conference yesterday in Manhattan.

“The good news is that there are going to be a lot more microgrids. The challenge is that we need your help in adding projects in a different way than we’ve added distributed resources in the past,” said Kauffman, the chairman of energy & finance for New York Gov. Andrew Cuomo.

Kauffman, who spoke to a standing-room only crowd, offered details about the state’s next move in Reforming the Energy Vision (REV), the state’s radical remaking of the power industry to align it with a more consumer-focused digital age.

Later in the day, the Public Service Commission approved the plan that Kauffman had described (CASE 14-M-0101), which creates new ways for utilities to earn revenue. The state hopes to incentivize the utilities to work with competitive partners, such as microgrid developers, to bring new services to customers, increase efficiency, improve economics, and green the energy supply.

“The current system is not only energy inefficient; it is financially inefficient. If we can do things better, we have the opportunity to add many more microgrids,” said Kauffman, who was the keynote speaker for the Microgrid Knowledge conference.

Today’s electric grid was built for a different age when large centralized power plants moved electrons many miles. Through REV, New York hopes to remake it into a dynamic “hybrid grid,” which has both the benefits of central station production with the “innovation and flexibility” of distributed energy that is typically smaller and built closer to the user, he said.

The state’s new policy direction is making it a mecca for not only microgrids, both also other forms of distributed energy, such as solar and energy storage.

What New York realized, Kauffman said, is that remaking the grid to accommodate more distributed energy requires not so much more technology innovation, but a change in policy and regulations.

“The policy regime was designed to build the old system; if we want to build a new system, we need new policies. And that is, of course, what REV is all about,” he said. “We must do things differently if we are to achieve scale and build a market on a cost-effective basis.”

Relies on Private Sector

The pacing will depend largely on what the private sector does, he said.

“Policy only takes you so far. The way things happen is through engagement with private sector actors. And that’s where you come in,” he told the more than 160 microgrid insiders who gathered at the Manhattan conference.

He noted that other capital intensive industries have changed in the last three decades, but “not in the utility sector; not until now. This is not a fault of the utilities, but the result of a regulatory system that largely bases utility compensation on the quantum of capital that is deployed, not on the efficiency of capital that is deployed.”

He added: “So we really can’t be surprised that we have a system that is capital inefficient. We also can’t be surprised that utilities have been less aggressive in making investment in software and technology than in other industries. From the utilities standpoint, IT is not capital on which a utility can make a financial return.”

Utilities can’t own microgrids or other distributed energy in New York because of regulations created several year ago to promote competition. So they will have to work in partnership with competitive companies to earn the revenue offered under the new order.

The state plans to create a locational pricing system to attract microgrids and distributed energy to grid constrained areas – a system that state policymakers hope will take the place of net metering.

“Utilities will send a price signal by location which will drive deployment of DER and microgrids – should drive deployment — in certain locations where those resources will be good not just for those DER customers, not just those microgrid customers, but all customers,” Kauffman said.

“If utilities get paid for achieving cost savings for all customers, they will work with all of you to originate projects in particular locations where these solutions have the most value for the system as a whole. They will have a financial incentive to do so,” he said.

He noted that the 50 percent renewables goal is likely to result in several large solar and wind projects. Smoothing their intermittency will require installation of demand side solutions, such as microgrids, according to Kauffman.

“None of these changes are going to happen over night. But the sooner all of you in the microgrid industry can engage with government and utilities on how to better integrate projects into the system of the future, the faster we can move. Utilities will have financial incentive to do this.  But they are going to need to know how they can monetize the value. They are not going to automatically know how to do that without your engagement,” he said.

Other states likely to follow, says Kauffman at Microgrid Knowledge conference

He added that other states are likely to follow New York’s lead.

“The sooner you can demonstrate new ways of financing and developing projects in New York, the more scale we will get. And if we get more scale in New York, other places are going to notice,” he said.

More details about the state’s new approach to utility payment are below.

Under the REV order approved by the PSC May 19, investor-owned electric utilities must file proposals by Dec. 1, 2016 to show how they will reduce power generation during times of peak energy demand.

In the plans, utilities must identify ways they will make their systems more efficient with distributed energy. They receive financial rewards for achieving such results as:

• Reducing greenhouse gas emissions through cost-effective means
• Energy efficiency above and beyond current targets
• Customer engagement in innovative energy management programs
• Faster pace of interconnections between the electric grid and new solar and other renewable power projects
• Reductions in carbon emissions through such investments as conversion to electric vehicles and geothermal heat pumps
• Reductions in costs related to meet the state’s 50 percent renewables goal.

Utilities will have four ways to achieve earnings:

• Traditional cost-of-service earnings
• Earnings tied to achievement of alternatives that reduce utility capital spending and provide definitive consumer benefit
• Earnings from market-facing platform activities
• Transitional outcome-based performance measures

“New York is taking a new direction today by creating the most-advanced and forward-thinking business model for electric utility rates anywhere in the country,” said Audrey Zibelman, PSC chair. “By aligning utility profits with market-enabling activities, residential and business customers can lower their energy bills through advances in digital technology and power-saving systems built for private homes and apartments, as well as entire neighborhoods.”

More news out of the Microgrid Knowledge conference will be posted here over the next several days. Subscribe to the free Microgrid Knowledge newsletter to have the stories delivered directly to your mailbox.