The complexities of building a DSO system are becoming more
evident, writes Dan Cross-Call of the Rocky Mountain Institute.
Platform business models have redefined the modern economy.
From titans of personal computing and e-commerce like Apple and Amazon, to
ubiquitous financial services that we use with hardly a second thought (such as
ATMs and credit cards), industries everywhere have reoriented from
one-directional pipeline delivery systems to multisided platforms via which
information and services flow in many directions between actors.
This platform concept has also been suggested for the
electric utility sector -- often under the title of a “distribution system
operator,” or DSO. Concepts from platform markets hold tremendous promise for
addressing many of the modern challenges on the grid, including the integration
of distributed energy resources (DERs) and the business challenges associated
with that.
Yet despite the promise and seeming appropriateness of such
concepts, the innovation and reimagining of producer/consumer relationships
that platform markets can offer have been slow to be introduced on the grid.
There are reasons for this. The electricity system is
immensely complex, and many roles, regulations, and physical systems need to be
considered before a fully baked DSO or platform design can be realized. But it
would be a mistake to conclude from this that DSO platforms are out of reach or
too difficult to implement in the electricity industry.
In fact, DSO innovation is already happening -- in some
cases in unexpected places -- and suggests that what we imagine as the DSO may
or may not be the DSO we get. And that’s OK.
Those and plenty of other insights came out of a discussion
on this topic of Rocky Mountain Institute’s Electricity Innovation Lab
(e-Lab).
DSO proposals abound
A bevy of opinions and proposals have been thrown around for
what form a DSO system should take.
Most notably, at least in the U.S., is the New York
Reforming the Energy Vision (REV) process, where regulators have decided to put
the utility in the role of “distributed system platform” (DSP) provider -- a
variant on the DSO concept that emphasizes the role of integrating DERs to
achieve system goals, including network efficiency, growth in new customer
services, and greenhouse gas reductions.
On the other side of the country in California, utilities
are required to file distribution resource plans as part of the Golden State’s
own approach to modernizing utility and distribution systems to better
integrate new DERs.
Meanwhile, at ComEd in Illinois, the utility has taken
the lead in promoting the idea of transforming the utility to a platform
business model. There, the CEO and senior utility management have publicly
stated their desire to remake the utility business model into a smart energy platform model.
It is not only regulators and utilities that hold this
vision. To achieve their full potential, many solar companies and other
third-party service providers also see the opportunity afforded by more
transactional platforms on which to sell services and reach customers.
More questions than answers
As proposals and discussions pile up, the complexities of
building a DSO system are also revealed.
Many internet businesses and other platform markets are not
capital-intensive business models (think Airbnb and Uber), and are not beholden
to legacy investments and regulatory systems. But remaking the distribution
grid as a multisided platform has proven hard to do.
Still, some of the same value-laden opportunities afforded
to digital businesses could also be taken advantage of on the grid, where they
may unlock significant economic savings in reallocated capital expense and
gains in economic efficiency.
More than most other industries, electricity is already
heavily regulated, with features of natural monopoly and significant barriers
to entry (some barriers are real and others are imposed by entrenched market
structures). This requires addressing thorny questions in public and
institutional forums, such as public utility commission proceedings or policy
debates.
Just a few of the major questions that confront DSO
development are:
Who should serve in the role of DSO? There are
competing views on whether this is a natural and appropriate role for incumbent
utilities, if new independent organizations should be established
(as was done in establishing independent system operator markets), and whether
the DSO should be a for-profit or a nonprofit entity.
What is the revenue model of the DSO? Platform markets
are replete with many revenue structures, including transaction-fee models,
advertising and premium services. There is also a choice between
supplier-derived versus consumer-derived revenue structures, with important
connections to willingness to pay and relative value derived by each side of
the market.
What products or services should be transacted in DSO
markets? There is a range of perspectives on whether familiar products for
energy and capacity will be the basis of markets, or whether
distribution-specific products should be created, like local congestion relief
or reactive power. Some also see DSO markets as more service oriented rather
than based on trading in commodity products.
Examples of services include
customer-oriented offerings such as risk management for bill volatility, or
programs that relieve customers of direct responsibility for their energy
decisions.
How to coordinate distribution-level markets with bulk
system operations? Questions here include how to coordinate scheduling and
dispatch procedures, as well as ensuring that double payments or other financial
complications do not arise.
Although the DSO concept can appear relatively
straightforward and attractive at first glance, it tends to get more
complicated the closer you get.
DSO innovation is happening
This is not reason for despair. In fact, the mistake may be
in assuming that we need to know the answers to every DSO design question at
the outset. Although the above design decisions are important and
consequential, more will be learned from experiments and demonstration projects
than from abstract discussions that attempt to settle everything beforehand. A
few notable examples were reviewed at the e-Lab Summit, which are instructive
for where DSO design might be headed.
One hotbed of experimentation is New York state, where
utilities under the REV process are being pushed to experiment with DSP
concepts. For example, Con Edison is implementing a virtual power plant (VPP)
on 300 homes in New York City and is testing new approaches to aggregate DERs,
including solar and storage, to replace the need for traditional investments.
The technical potential for the VPP is proving very
promising, but scaling the project may be challenging -- including how to make
the VPP approach compatible with existing tariff designs and how to allow
aggregated resources to bid into New York Independent System Operator markets.
Another exciting experiment comes from the other side of the
world. The Australian Renewable Energy Agency (ARENA) has sponsored a project
to pair technology with competitive market structures in its Decentralized Energy Exchange (deX) project. At the heart
of deX, DSO functions are provided by a software-as-a-service layer that
reviews availability and price bids from multiple vendors to aggregate demand
response and related services from individual homes.
The software, provided by GreenSync, selects
bids on a least-cost basis in order to deliver required energy or demand
reductions to the distribution network operator (i.e., the utility). While the
project’s scale is small, it introduces an interesting potential into the DSO
debate: Rather than a utility vs. third-party paradigm, can some DSO functions
be as simple as writing software and integrating it into the network?
Hints of the DSO future may also be emerging from outside
the traditional electricity sector. For example, revolutionary opportunities
may emerge from blockchain-enabled systems, which could transform the ways in
which data is collected and shared, not to mention how payments and other
contracts are enforced. Numerous organizations and initiatives (including
the Hyperledger
project at Linux Foundation and RMI’s own Energy Web Foundation) are
rapidly staking out this space to develop the technology and business
structures that will define new applications.
What's next?
What does this all mean? Clearly, we have a way to go before
the DSO vision is realized. And there are certainly some big questions to
wrestle with about DSO identity, revenue structures, and more. This is the
reality of being in a sector that has massive legacy systems -- both physical
and institutional -- and that is critically important to the economy and
national security.
But while those discussions proceed, it is essential that we
also make space for experimentation and incremental learning. Leading states
and utilities, and especially new entrants and innovators, are showing glimpses
of what a platform-based electricity system may look like. These efforts should
be accelerated and their successes scaled.
Then, in all likelihood, those questions will start to get
answered along the way.
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