Solar panels. Wind turbines. Fuel cells. Energy storage.
These so-called distributed energy resources are fast becoming a stable source of electricity for households and businesses. They are competing in the marketplace with centralized resources such as coal- and natural gas-generated electricity, typically provided by utilities or competitive retailers.
For example, between 2004 and 2014, more than one-third new electricity generation capacity in the United States comprised solar resources.
But today, these different energy resources – distributed and centralized – are not efficiently integrated, resulting in market distortions. To correct those distortions and ensure a level playing field, markets in the U.S., Europe, and across the globe would require a major overhaul in their regulatory, policy, and rate design, argues a new report by the MIT Energy Initiative.
Titled “Utility of the Future,” the sweeping study is the result of more than two years of extensive data gathering, modeling, and analysis by a consortium comprising MIT and IIT-Comillas, energy companies such as Iberdola, Duke and Shell, and regulatory bodies of New York and Massachusetts, among others.
“Our study does not try to predict the future or prescribe which technologies should prevail; our aim was to highlight the unnecessary barriers to a level playing field for all types of energy resources, and how price signals can be improved to make it attractive for them to compete fairly and effectively,” said Ranaan Miller, the MITEI study's executive director.
"We hope that regulators, policymakers, and industry stakeholders find it a useful source of information that helps them weigh decisions and take actions to guide the evolution of the electric sector."
The MITEI study recommends that electricity should be priced in a “technology-agnostic” manner that is based on how much, where, and what time of the day ratepayers use it. Such locational rates, which could jump high when grids are under stress during peak times, could open market opportunities for distributed resources and enable significant savings.
The first step toward adopting locational rates is the deployment of advanced meters, said Jesse Jenkins, MIT doctoral student and a researcher on the MITEI study. “Without advanced meters, it is impossible to meaningfully develop a comprehensive system of prices and charges and accurately meter, compensate and charge a diversity of electricity resources.”
Along with rates overhaul, the MITEI study also urges regulators to remove any policy costs, such as efficiency programs, taxes, and residual network costs from volumetric rates. Those costs should instead be a lump sum divided into monthly installments included in bills.
Other recommendations of the study include:
- forming distribution system operators (DSOs) to serve as market platforms for distributed energy services at the wholesale level
- developing better compensation and incentives for utilities to incorporate distributed resources
- restructuring the electricity industry to allow the creation of new business models
- implementing robust cybersecurity standards for interconnected energy resources and appliances