Editor's Note: The following is a guest post by Navneet Trivedi. Trivedi is the co-founder and executive director of energy consulting firm Vrinda. He previously served in leadership roles with Accenture's Global Smart Grid practice and PricewaterhouseCoopers' utility management practice.
On Feb. 26, New York State approved Track 1 of the bold Reforming Energy Vision (REV) initiative. REV holds promise of transforming the utility industry and setting an example to other states. At the center of achieving the REV is the development of the Distribution System Platform (DSP) model.
We believe that the proposed utility-as-a-DSP model is not an optimal approach for the third party vendors (technology and service providers) or the utilities. This model will not only restrict utilities from diversifying services, but also threaten revenues and raise concerns related to market power. Furthermore, this approach may not benefit vendors due to the known concerns around delay in implementation, lack of transparency, and slow pace of innovation at utilities. This will in turn be discouraging to entrepreneurs and may defeat the very objective of REV.
Regulators, policy makers, utility owners, vendors, and leaders in other states or regions may consider alternative approaches to adopting the REV.
Global trends and REV's aims
Global and national trends on climate change, flat demand for electricity, rising peak demand, aging infrastructure, and decreasing cost of renewable technology substantiate a need for change in the utility model. This change will transform the current pure electricity sales model to a service revenue model.
The New York REV vision rightly translates these trends by identifying critical path objectives of increasing Distributed Energy Resources (DER), building customer and market confidence, and initiating DSP development.
We believe that utilities should be key stakeholders in order to achieve the objectives of increasing DER penetration, innovating customer and technology provider engagement, maintaining grid reliability, and improving operational efficiency. However, the utilities should not own and become DSPs. We believe utility has an important role as a market player rather than a market operator as proposed in NY REV.
Why utilities and vendors should jointly develop DSP platform
We propose that utilities should consider implementing DSP model through a separate entity or in collaboration with third party vendors. Here is why:
- Value for utility: Biggest assets of utilities include their brand, local community outreach, and power network capabilities. Utilities can leverage these assets to provide many market-based products and services. In the current approach, a utility will be restricted to and eventually be pushed towards being a wires-only company. With an already stagnant demand, utilities will find it hard to maintain current revenues and to create stakeholder value.
- Entrepreneur interests and market animation: Many startups and incubators as well as big technology providers have shown interest in clean and efficient energy technologies. Further, such entrepreneurs can improve savings by reducing consumption and cost through disruptive innovation. Consumer accessibility to these technology providers is essential to maintain momentum.
- Cost of electricity: Consumers are concerned about higher electricity bills. New technology providers and Energy Services Companies (ESCOs) can address this concern by providing innovative models such as on-bill financing, residential PPAs, etc. In the current approach, operational monopoly concerns will remain as they are.
- Power of information and speed: Consumers and technology providers need actionable information faster. An information-sharing platform in the next 12 to 18 months is a prerequisite for REV’s credibility with stakeholders. Information technology is not a core competency of utilities. Utilities face a big challenge in developing and maintaining these IT capabilities along with the ability to attract and retain IT talent.
- Need for utilities to focus on core: Utilities are best positioned to maintain grid reliability and hence they should focus on core functions of planning, expansion, and operation. The requirement of utilities to develop new functions such as market operation, will take a long time. It may be beneficial to entrust these responsibilities to an established player such as an Independent System Operator (ISO).
- Transparency and market power: Stakeholders’ biggest concerns in implementing the DSP model are transparency and market power. Since utilities own wires and last-mile connectivity, it is a legitimate concern that utilities may distort market power. Making the DSP independent and allowing the stakeholders to be part of the DSP implementation and operations can mitigate this concern.
Conclusion and Recommendations
Following is a conceptual model of how a DSP platform can look and interact with various legacy and stakeholders:
New York REV is a bold and transformational step for the 21st century economy. If implemented correctly, New York REV will be a new model for the worldwide utility industry. It will create a utility sector very different from what was known for the last century. However, the right implementation approach is a key factor. We recommend that utilities and vendors advocate for an independent DSP under the following approach:
- Develop DSP as an independent platform with utility as a key stakeholder along with technology and service providers.
- Provide DSP with all information and enable transparent information sharing among all stakeholders.
- Enable DSP to monitor compliance and provide oversight of interconnection and customer access.
- Make regulated distribution utility responsible for system planning, operations, reliability, and data collection from field devices.
- Promote the market operation function to be independently administered through a DSP or ISO.