Virginia, USA — Utilities, get ready: Massachusetts is in revolutionary mode again. No one is throwing tea into Boston Harbor, but the state is trying to sink outmoded ways of moving around electrons.
Massachusetts recently became the first state in the nation to issue a ‘grid modernization’ strategy, a move to make the electric system amenable to new technologies. More than that, it’s a shift to encourage utility innovation.
The state is “remaking the electric grid as it might have been designed by Steve Jobs: elegant, customer-friendly, and with functionality that was previously unimaginable,” said Paul Gromer, CEO of Peregrine Energy Group and former Massachusetts state energy commissioner.
The Department of Public Utilities began investigating grid modernization in 2012 out of concern that technology was changing and the grid wasn’t keeping up. Clearly, the electric grid of the last century wasn’t built for homes acting as power plants, appliances keyed to energy prices, and cars fueling up from an electric plug. After months of meetings with key players, expert input, hearings and a mulling of ideas, the regulatory agency in mid-June ordered a course of action to ready the grid for the new world.
What Will This New Grid Be Like?
The state isn’t pushing a particular kind of future grid. (“We cannot know today all the advances and technological breakthroughs that will occur in the electricity sector over the next decades,” said the DPU in the order.) Instead, it is laying out a new way for utilities to plan their future, one increasingly inclined toward greener operations.
“The grid modernization order requires utilities to really think differently about the way they operate their businesses,” said Ann Berwick, chair of the Massachusetts Department of Public Utilities in an interview.
The order calls for utilities to submit plans to the state to show how they will achieve four modernization objectives: reduce power outages; reduce peak demand; integrate distributed resources, and improve workforce and asset management.
The plans must receive DPU approval before they are put in place. And the DPU will monitor progress over the years based on a series of metrics, including the number and output of distributed generation systems installed.
“What gets measured, gets done. With this order, in Massachusetts renewables will get done,” Gromer said.
Those who follow Massachusetts energy policy expect solar, in particular, to benefit from grid modernization.
“We are really big in Massachusetts on solar,” Berwick said. So big that the state met a goal to install 250 MW of solar four years early. Now, with more than 500 MW installed, Governor Deval Patrick has set a new goal of 1,600 MW of solar by 2020.
Massachusetts is pushing wind power, too. But given the state’s dense population, it has little room for land-based wind and is relying more on the still nascent U.S. offshore industry to help it meet its 2,000 MW wind power goal by 2020.
To encourage utilities to act — and act quickly on grid modernization — the state is trying to remove what many say is a significant impediment to innovation: the way regulators treat utility investments. Traditionally in the U.S., regulators take a backward-looking approach to cost recovery. The utility makes the capital expenditure, then state regulators investigate and decide if the utility did the right thing and can therefore recover its cost in consumer rates. This makes utilities notoriously risk adverse; they fear getting left with a big bill.
But to modernize the grid, the state will take a forward-looking approach to cost recovery. Utilities will offer up their capital investment plans first and then if regulators find them worthy, they will pre-authorize the expenditures.
Specifically, the state is requiring that the utilities file 10-year plans that outline how they will modernize their facilities. Investments made in the first five years are eligible for pre-authorization.
There are some nuances. To be eligible for the special rate treatment the capital investment has to be incremental — “to specifically facilitate grid modernization over and above what companies would be doing without these requirements,” Berwick said.
And as a precondition, utilities also must put in place “advanced metering functionality,” she said. That might mean installation of advanced meters or some other technology that can do the same kind of thing — collect customer data in near real time, automatically report customer outages to the utility, etc.
The Obama administration recently issued a federal proposal to limit carbon emissions from existing power plants 30 percent by 2030. But Massachusetts set its own carbon requirements several years earlier. In 2008, the state passed a law requiring a 25 percent reduction by 2020 and 80 percent by 2050 from all sectors of the economy.
It will be easier for the state to reach its goals with a modernized grid, since the new structure will better accommodate not only renewables and energy efficiency, but also electric storage.
Tom Leyden, CEO of Solar Grid Storage, said the state is showing “clear leadership in confronting climate change and ensuring the reliability of our power supply.” By supporting solar and storage, Massachusetts will “make the grid more efficient by smoothing out the peaks and providing clean power when its needed most — during peak demand times.”
The state’s grid modernization strategy, in fact, complements the ‘New Technology Adoption Regulatory Model’ or NTARM, which is being promoted by the Energy Storage Association, according to Matt Roberts, ESA executive director.
NTARM allows for a streamlined process to create pilot projects and demonstrate new technologies. Once the technologies are established and utility investment increases, then the technologies are subject to more formalized regulatory oversight, he said. This approach is helpful because “regulation in the energy sector often involves a number of phases that are executed over many months or years, and for a small startup technology company this can be detrimental as they tend not to have the flexible capital to maintain throughout the process.”
Will Others Follow?
Something of a bellwether state, Massachusetts has been out front on several green energy trends. The state is home to what soon may be the first major offshore U.S. wind farm — the 420-MW Cape Wind. And the state has been selected three years running as number one for energy efficiency by the American Council for an Energy-Efficient Economy. Its clean tech industry saw 11.8 percent job growth in the last year.
And Massachusetts was the first state to put a grid modernization plan in place. But change is afoot elsewhere in the U.S., too. New York — another influential state in the power sector — is looking at grid transformation as well, with the intent of boosting distributed resources. Others may follow. This could be the start of a larger, national drive to make the grid more tech-ready. It’s too early to gauge its shape and size, but its color is clearly green.