New York lights way in cutting customer costs with clean energy
While the federal government remains gridlocked on policies to promote clean energy, states are leading the way.
In New York, Gov. Andrew Cuomo launched Reforming the Energy Vision (REV), an ambitious energy and climate strategy that is aiming to achieve 100 percent clean, carbon-free power by 2040 — the most aggressive commitment in the nation. In doing so, New York is demonstrating to the rest of the country that by capturing the attractive economics of clean energy technologies, investments in a carbon-free, reliable 21st-century grid needn’t raise costs to customers.
To build the clean energy system of the future, the old way of doing business isn’t the right answer. Across the nation, regulated electric utilities are spending a lot of money: $55 billion of annual investment over the last decade.
Some of this investment is necessary to support the equipment that produces and delivers electricity to customers. But spending has grown faster than electricity needs, raising customer bills, and the investment has flowed to old-school infrastructure that isn’t reducing carbon emissions anywhere close to the pace we need to deal with climate change. In fact, total U.S. emissions continue to surge.
Much of the infrastructure that utilities build is rarely used — the system is built for the hottest (or in some places, the coldest) few days of the year, while customers pay for it all year long. Compared to many other capital-intensive industries, the regulated utility business is financially inefficient.
We can’t be surprised that we have a grid that is expensive and relies on traditional technology: utilities typically earn a guaranteed return on assets they own. They are paid for how much capital they spend, not for its efficiency.
Where other industries, for example, aggressively have adopted IT solutions to improve costs or quality of service, regulated utilities have lagged. For regulated utilities, IT costs are either not capital on which they can earn a rate of return or displace capital which otherwise would increase their bottom line.
To weaken this traditional link between investment and earnings, New York created incentives that align utility spending with customer interests and reimagine how utilities deploy capital. Spurred by New York’s REV policy, utilities in New York have pioneered new investment approaches to share in the value or savings they deliver to energy users.
So-called non-wires solutions (NWS) — portfolios of resources such as rooftop solar, battery storage, energy efficiency and smart load controls — represent one such powerful approach.
In many cases, it turns out that the needs of our aging grid reliably can be addressed by NWS instead of traditional utility-owned "wires-and-poles" type infrastructure — often at a fraction of the cost.
For example, if electricity demand in an area was forecast to grow, the typical utility response might be to upgrade the distribution lines serving it. Instead, the non-wires solution might offer a portfolio of local generation and demand management technologies — such as smart thermostats or batteries — that reduce the area’s demand and eliminates the need for the line upgrade.
The new regulatory framework has incentivized efficient use of both customer- and utility-owned infrastructure. Further, NWS projects have benefits beyond cost savings.
First, by providing value to portfolios of distributed energy resources, NWS investments support the deployment of clean energy technologies that help achieve clean energy goals, both directly (producing clean electricity where it’s needed and reducing demand for fossil fuels) and indirectly (providing grid flexibility to incorporate clean resources such as wind and solar).
Second, NWS projects can be rolled out as needed in contrast to large-scale infrastructure investments that are made despite the uncertainty of need, minimizing the risk associated with relying on imprecise forecasts of future electricity demand.
Third, in pursuing NWS, utilities can improve customer satisfaction and spur local economic development and job creation by engaging more deeply with customer-sited resources and technology companies.
New York has encouraged all market participants to rethink the historic one-way power service model and pushed utilities to consider energy users as partners instead of customers.
Because the grid is financially inefficient, we can get more out of the current customer bill. Customers, innovative energy companies, utilities and the environment benefit. With proper regulatory incentives in place, utilities will adapt their business models to more efficiently deploy capital to support a carbon-free reliable grid.
Non-wires solutions represent a common-sense approach to deploy clean energy and build the grid of the future. Thomas Edison built the first grid in New York over 100 years ago, and we’re past due for the next stage of innovation. Other states are getting on board with NWS — it’s time for all.