Across the U.S., a growing number of states have adopted ambitious clean energy goals that will require the bulk of their electricity to come from carbon-free sources by the middle of this century. Yet clean energy will place new demands on the electricity system, which will need to accommodate intermittent wind and solar power, and distributed energy from rooftop solar and electric vehicles. This is a tall order for a grid that was built around large, central powerplants fueled by a predictable supply of fossil and nuclear fuel.
Judy Chang, an energy economist and engineer with the Brattle Group, explores the policy challenges to updating the electric grid to economically and reliably deliver clean energy. She looks at the cost of building a more flexible grid, and at the political opportunities, and hurdles to its development.
Andy Stone: Welcome to the Energy Policy Now podcast from the Kleinman Center for Energy Policy at the University of Pennsylvania. I’m Andy Stone. Across the U.S., a growing number of states have adopted ambitious clean energy goals that will require the bulk of their electricity to come from carbon-free sources by the middle of this century. Yet clean energy will place new demands on the electricity system, which will need to accommodate intermittent wind and solar power and distributed energy from sources such as rooftop solar and electric vehicles. This is a tall order for a grid that was built around large, central power plants fueled by a predictable supply of fossil and nuclear fuels.
On today’s podcast, I’ll be talking with an expert in electricity, policy, and economics about the challenge of updating the electric grid to economically and reliably deliver clean energy. We’ll look at the cost of building a more flexible grid, and at the political opportunities and challenges to its development. My guest is Judy Chang, an energy economist and engineer with The Brattle Group. Judy’s work focuses on renewable energy, transmission networks, and electricity market design. She has served as an expert witness before energy regulators in the United States and in Canada. Judy, welcome to the podcast.
Judy Chang: Thank you. Thank you for having me.
Stone: You know, to get started out, I wonder if you could tell us about your electric system work with The Brattle Group?
Chang: Sure. The Brattle Group is an economic consulting company, and I’ve been with the firm for a little while now, having worked in the power sector for almost twenty years and have gotten through the deregulation of the systems and the policies associated with that. In the most recent years, most of my work has been involved around renewable generation, the integration of renewable generation, transmission systems and network planning, and power market design — wholesale market design — to accommodate the large-scale renewable energy resources and clean energy resources that will be added to our system. And that includes work on not just developing contracts and procurements of renewable generation, but also understanding and analyzing how storage and other technologies might be used on a system for the future.
So thank you very much for having me here, and I’m looking forward to discussing the details.
Stone: How does renewable energy present a challenge for the electric system as it exists today?
Chang: We think of our system as one that can plug and play. So we should be able to develop any kind of generation resources, plug it into the power system, and have it work. But I think we need to take a step backward and think through our current power system, which had been designed and developed and engineered and built over the last several decades. And through that time, we really haven’t anticipated that the future of the power system will include such a large amount of renewable regeneration whose characteristic includes being quite intermittent wind and solar resources.
So I think when we think about whether there are challenges, we’re really talking about these are challenges because we haven’t built a system that anticipated these kinds of intermittent resources. The system that we have today had primarily been built to transfer power from large, centrally-located power generators and transmit it through the transmission network, and then down to the distribution system, and on to the customers’ locations or users’ locations. What we haven’t accounted for is today, we know that large-scale solar and wind generation — the lowest cost and highest quality resources are relatively remote, compared to where customers are, or users of electricity would be — which we call “load.” So in that sense, we have been, probably across the country in the last several years, developing large-scale transmission networks to extend to those locations, so that we can accommodate and integrate our resources that are relatively remote.
Stone: Now you just mentioned transmission. I want to ask you generally: Transmission is one of the possible solutions to the problem of renewable intermittency. What are the other options?
Chang: Yes, I think that’s a very good question. First of all, as renewable costs decline, we are seeing customers wanting more and more renewable generation. So that means that it’s not just what I earlier talked about, large-scale renewable generation that’s from far away. So we can see seas of wind turbines in the Upper Midwest or large-scale solar resources in the deserts or places that have significant amounts of sunlight. We also anticipate that customers are installing energy resources on their rooftops, both commercial and residential customers.
First of all, when you talk about solutions to the problem, we think about solutions to the problem as — I think of them as two-fold. One is, what is the problem? Is the problem accounting for large-scale, intermittent resources? Then how do we account for that? There are many ways through the markets, through transmission — that work I just described — and through demand response, which I’ll talk about in a little bit, which is customers’ ability to respond to signals. Those are all solutions to the challenge of integrating more and larger-scale of renewable generation.
But there’s a separate challenge that I want to bring up here, which is the challenge of decarbonizing the grid, or even more broadly, decarbonizing our economy. So I just want to tee that up here, because part of the challenge — one level of challenge is how do we stabilize our system and the power grid so that customers will enjoy continual and reliable power service? But the other challenge that I think we face — and integrating renewables is one of the solutions — is how do we decarbonize the power grid?
Stone: You know, going with what you were talking about just a minute ago, about that transmission issue — transmission is a solution, as you said, because you could take, for example wind power that was generated out on the Great Plains and transport that wind power great distances over high-voltage power lines to urban centers such as Chicago or Los Angeles or San Francisco — where that electricity is actually in demand, and where it could be used.
Now a decade ago, there was a lot of talk about the need to build this type of massive — they called it an “electric super highway,” to crisscross the country to deliver renewable generation from where it’s generated to where it’s needed. A decade later, nothing has really been done, in terms of making that super highway vision a reality. Why is that?
Chang: That’s a very good question. First of all, there are some large-scale transmission projects that have been developed over the last decade, particularly in the Midwest — across the Midwest — through what we call the Midcontinent ISO, which is essentially across from North Dakota, across to Michigan and Illinois.
And some of those transmission projects were designed and developed over the last decade. So there are some success stories in that regard. It is true, though — the vision of having a super highway or a super transmission highway across the country has not been developed, and I don’t believe they will be developed, because the country is actually better thought of as regional markets or regional power systems. And those regional power systems are developing more transmission, definitely not at the scale of these super highways or super transmission highways that we imagined. But there are some projects being developed.
Having said that, I do want to talk about — there are significant challenges of building transmission. The first one, and understandably, is the “NIMBY effect” — “Not In My Back Yard.” Most people, and particularly also environmentalists do not want to see, do not want to have environmental impact associated with building transmission projects and really any, at least power system or energy system infrastructure. It has become more and more difficult to build large-scale transmission systems because of the potential environmental impact.
The second one is also costs. Also understandably, building large-scale transmission costs a lot of money, and that money has to be allocated and collected from customers. And that, in some regulators’ eyes, becomes a very challenging proposition, particularly if you’re making sure that customers are being presented with the most affordable power — not just now, but into the future.
And then thirdly, I think, grid planners, transmission planners have a challenge of seeing, looking into the future and planning a system for the future, due to the uncertainties on the horizon. It’s very difficult at this juncture to anticipate exactly what the future will look like, what the cost comparisons between solar, wind, and storage and conventional gas generation would look like. Therefore, it’s difficult for planners to plan and therefore put their feet on the ground and say, “Yes, these are the billions of dollars we must invest,” given the regulatory uncertainty and the worries about the costs that we might impose onto customers.
Stone: So regardless of the benefits that these big transmission lines could provide, they are obviously huge capital up-front investments, and you want to really make sure that they’re going to be used at some point in the future before you make those investments. And I think one of the ironies here is that, as we’re seeing more distributed energy solutions, such as rooftop solar, and at some point, maybe electric vehicles that are providing electricity back into the grid, when they’re actually not transporting people around. As we get more of those distributed resources, we have a little bit less idea, as well, of how much need there is going to be to transport electricity from distant places to an urban center, because that urban center may have plenty of resources of its own from its distributed energy generation.
Chang: Exactly. So you’re pointing out one of the risk factors or the uncertainties that planners face, which is how ubiquitous will distributed energy resources be? Will every residential and commercial building have enough solar on their roofs and batteries in their basements to basically supply all the energy used?
Now, I have fairly strong opinions about that, because even if that were true, I do believe some transmission and valuable transmission will be needed. And there are many values or benefits to transmission that can’t just displace with a significant amount of distributed energy resources, including batteries. One of the benefits of transmission is being able to help balance the power needs across large networks, across networks, to capture the diversity of the resources — whether it’s solar or wind or gas generation, or distributed energy resources. So transmission provides reliable service across large footprints that distributed energy resources cannot.
But I think your point about these uncertainties about how much people are going to put on their roofs, and storage in their basements — does that change the landscape and how we think about transmission? I think it absolutely does. And in some ways, it halts some of the transmission developments. And it slows the development down, which is in some ways very unfortunate, because we do need them, and we do need a significant amount of renewable generation and clean energy in this country to decarbonize the grid. And it’s very difficult to do that without transmission investments.
Stone: Now there’s another irony here that I wanted to ask you about, and that’s that distributed resources become harder to manage as more of them connect to the grid. In fact, these resources are already causing headaches for utilities and for the people who manage the larger, wholesale electric grid — the regional transmission organizations. Can you tell us more about the challenges in managing these resources and how those might be overcome?
Chang: Yes, that’s a very good question, and I think that’s a new public policy question and economic question. So you’re absolutely right. Many utilities don’t keep track of what’s connected on the customer’s system — and rightfully so, because traditionally, we just plugged in our appliances and used the power from the grid. But today, we are attaching solar resources on our rooftops. We might have a charging station in our garage for electric vehicles. We might power our electric vehicles with our solar on the roof, or we might even have a battery pack in the basement to balance our own needs. Many utilities do not actually have the total visibility to what folks are attaching to the home or to the commercial buildings.
So number one, it’s very difficult today to track distributed resources on customers’ locations. That can create headaches in several forms: One, lack of information. Two, lack of visibility. So I’ve looked at this data pattern through my work. You can guess, you can conduct an educated guess on what’s connected on the customer’s site, but there’s actually a lack of information. So lack of visibility also means lack of understanding of how customers are actually going to use the power that they generate, versus the power that’s generated from the grid.
And then third, as you mentioned, these wholesale power market operators have no visibility whatsoever beyond the distribution system today. So they can only observe what happens. They have a very difficult time to anticipate how the load will change from not just day-to-day, but hour-to-hour and minute-to-minute, based on the consumer’s or customer’s consumption pattern, based on what’s installed at the customer’s site.
And then lastly, why do we even care about visibility? Ultimately, if we want to balance a system that has a lot of intermittent resources, both from centralized locations of large-scale solar and wind and distributed energy resources on customers’ locations and on a distribution system, we need to have some level of control, so that we can keep the system in balance at all times. And I think the more we’re adding, appending to the system that we don’t have visibility to and don’t have the information for, the more of a headache this creates.
Just one other note on that, too. I do believe that utilities must plan their distribution systems in a different manner today, because certain communities might have attracted a significant amount of distributed energy resources, but others do not. And so lacking the visibility may make planning for the distribution system a lot more challenging.
Stone: You know, the plot thickens here a little bit, too, because there’s a political component to consider, as well. And if a grid operator — I’m talking about the wholesale grid — is trying to balance the power on that grid, that grid operator can see and dispatch nuclear power, wind power, whatever is located on the transmission grid. But if you think about distribution grids increasingly as generators themselves, because they’re the source of potentially more energy as we get, for example, rooftop solar and distributed batteries. As you mentioned, those big grid operators cannot see how much of those distributed resources are on the distribution grid. And that’s a political issue because those distributed grids are controlled by the states. The wholesale grid is regulated at a federal level by the Federal Energy Regulatory Commission, and there is a jurisdictional issue, a challenge that comes in, per my understanding, when these large wholesale grid operators would try to make a way in to see what’s going on at the distribution level. Can you tell us a little bit more about that challenge?
Chang: Yes, you’re absolutely right. So first of all, the distribution system — the utilities that own the distribution system and operate the distribution system are also the ones that are directly interfacing with customers and sending them their bills in most jurisdictions, unless you have complete retail choice, and then you have somebody else sending you a bill for the generation.
But the distribution utility typically is interfacing directly with the customers. They are also setting the prices for power, and most customers don’t think about separating the cost of the power between generation transmission and distribution. They just see a bill with lots of numbers on it, and dollars and rates and things like that.
But the rates — the price associated with using power is regulated by the states. And the reason I bring up price is because often the usage pattern depends on the pricing. So most of us probably just have a flat price. We can use the power any time, and the price is the same. So you use it at night, it’s the same price you pay as using it during a hot summer day, when everybody else’s air conditioning is turned on. It’s the same price. But in some jurisdictions, they vary the prices during the day so that it gives signals to the customers to conserve usage during certain times and to use more during other times, such as at night.
And that whole pricing process and scheme is regulated at the state level. That also means that the incentive and the signals of how to and when to charge your electric vehicles — or when you can sell back power if you had a battery to control that in your home or in your commercial building — is set by the state. And like you said, however, at the higher voltage or the transmission level and the operation of the wholesale market, where generators are being dispatched to serve the needs of other customers — all of that, the markets and the transmission cost allocation and how the cost of transmission is processed through and delivered to the customers — all of that is set at the federal level.
And there are definitely frictions across the jurisdictions. One example is the lack of ability to — let’s say you want to control and move distributed energy resources that are behind the customer’s meter. If a transmission operator or the wholesale market operator wants to be able to see that resource and be able to either turn it down or turn it up, that’s a very challenging — it’s not — the technology is available, but it’s very challenging from a policy perspective, because now you’re crossing jurisdiction between federal and state. And you’re absolutely right. That is a challenge that I think many lawyers and policy-makers bring up, but exactly how we resolve that is still being debated.
Stone: So it’s kind of a Catch-22 overall here, right? Transmission would be great — more long-distance transmission would be great, but you can’t cite it. And distribution resources are great as well, but if you can’t have visibility and manage those, then that’s also a challenge as well. So it sounds like on both sides, there’s some work that still needs to be done to work all those issues out.
Chang: Yes, absolutely.
Stone: You know, I wanted to jump ahead, back to the issue that you brought up at the very beginning of our conversation, that is the importance of addressing climate change. And a number of states recently have upped their renewable portfolio standards, so their renewable energy goals — notably California and New York recently — both of which will require one hundred percent renewable energy by the middle of this century, again to address the climate issue.
I wanted to ask you, what mix of resources among new generation and demand response and even transmission are these states looking at that will actually allow them to provide reliable electricity at lowest cost, that’s clean electricity by the middle of the century?
Chang: Oh, that’s a really good question. First of all, you’re absolutely right. There’s still a significant amount of work that’s necessary, both at the large-scale and wholesale level, and also at the distributed level in the pricing. When it comes to what kind of infrastructure that might be needed, I think we’re still on our pathway to develop the necessary amount of wind and solar resources. But to enable that development, there’s a financial aspect of it we haven’t yet talked too much about, which is who is paying for it, and how are they paying for it?
So I don’t know if infrastructure is exactly what I would consider the financial infrastructure, but for sure one of the barriers or one of the hurdles of building wind and solar and other clean energy resources is the financial aspect of that — the financial infrastructure.
The second one is what we already talked about, which is transmission. The last time I looked at the Midwest and possibly even the Southwest power pool, it’s so difficult to build transmission that even if you want to develop wind in the windiest parts of the country, it’s almost impossible. You’re facing a major barrier to develop the resources that you can’t get anywhere close to the grid.
And then we already talked about this. I do think distribution upgrades will be necessary, and that includes not just the traditional upgrades to the system, but probably with smarter meters, ability to capture the data, which we just talked about. We just talked about how we don’t have visibility into what’s being installed, how customers are using them, and what the new usage pattern would be. I think we need not only the capability of capturing that data, but also data analytics, of how to collect that information, how to coordinate that information, how to use that information for planning and for operations.
And then lastly, I think we’ll get into this — hopefully more also in our conversation here — is storage. I think storage can be a game-changer, and it has already in some jurisdictions. Storage costs are still very high today, but the industry expects that storage costs will continue to decrease, and adding storage to the distribution and transmissions networks could be a significant way of planning for the future and developing the grid for the future.
Stone: Now, Congress did not provide any tax credits for battery storage in the recent $2-trillion financial stimulus package, in response to the coronavirus. Battery costs, while falling, aren’t expected to fall as fast as costs have for wind and solar power. What impact will the lack of targeted subsidies have on battery growth?
Chang: If solar and wind show an example of how development can benefit from incentives, I do think either in the form of tax credit or other forms of incentives will be important for battery storage — and adoption and deployment of battery storage.
Now battery storage has a global market, just like solar and wind have global markets. So I think renewable resources has benefited from incentives across different countries, and I do think storage will also benefit and should benefit from incentives across different jurisdictions.
It is important, I think, to kick it off. I do think, like I said, that storage can be transformative. I think they can be very valuable, and even small amounts of storage can be quite valuable in conserving the amount of renewable generation that’s needed. So battery storage can help reduce the curtailment of resources or of renewable generation when there is not sufficient amount of transmission. Battery storage can store them and then use it at a time when there is less congestion on the system. At the customer’s level, battery storage can help improve and increase demand response, which we haven’t talked a lot about, but it’s basically the customer’s ability to respond to prices and reliability needs on the system. And battery storage could be very valuable for enhancing reliability.
So I do think incentives are important as we walk down this path of where the costs are still quite high, and it needs a significant amount of research and development and deployment to improve battery storage and decrease our costs.
Stone: Let me ask you one more question related to storage. A couple of years ago, the Federal Energy Regulatory Commission, which again regulates the wholesale electricity markets, issued an order directing electricity market operators to make it easier for big grid storage projects to participate in these markets. How much will the impact of that order, which was called Order 841, have in improving the economics of grid storage and expanding storage on the grid?
Chang: I think Federal Energy Regulatory Commission’s Order 841 is an essential step from a policy perspective. It is also a step toward the right direction. It’s not everything — it doesn’t do everything, but it certainly is a step in the right direction. It basically asks the grid operators to enhance and improve their market rules and market engines and the technologies that they use to be able to accommodate the use of storage at the wholesale level. Grid-connected– and of course the 841 Order also talks about distributed energy resources in the form of batteries to participate in the wholesale market. So I think that is an extremely important first step, and the operators have already proposed and are on their way to implementing technical solutions to allow more storage to participate.
It also teed up some of the questions you just asked about earlier. I mean, it teed up this federal versus state control issue, because I think those debates are just beginning, and I don’t think there’s clear resolution around that. But from an economist’s perspective and policy perspective, the more we limit the use of storage, the less cost effective they become. So what I mean by that is, the more we say, “Okay, well, these resources are really state-controlled, so because they’re on the distribution system, or they’re behind the meter on the customer’s location, they’re really under the jurisdiction of the state, and we as a state don’t want those resources to participate in the wholesale market. Or we don’t want these resources to prioritize by participating in the wholesale market.”
I think any time we place those restrictions, we’re limiting the cost-effective use of the storage. Because in some ways, storages themselves don’t see these lines of jurisdiction, and the best usage and therefore the most valuable usage of battery storage is to enable them or to allow them to capture the value — both for the customer, for the distribution system, and to participate in the wholesale market — and possibly even use them for transmission, as transmission assets in some situations.
So the more we allow storage developers and utilities that want to install storage to have multiple uses for the same asset, the more valuable they become, and the more cost-effective they become.
Stone: Let me ask you a final question, if I may. From a policy standpoint, what immediate next steps should law-makers and regulators prioritize to shape the electric system for clean energy?
Chang: I think number one, clarity about decarbonization goals will be very important, whether it’s at the state level, which you suggested earlier, and it’s true — many states and utilities have made significant commitments to decarbonize the grid. The more clarity we have around that, the better. And of course, the more that can be national as opposed to state-by-state, the better. And then I think we need to carefully set policies to encourage the right renewable and transmission to be built, because I do think to decarbonize the grid, we will need more large-scale renewable which will need a facilitation from large-scale transmission. And to do that, we need policies and encouragements from policy-makers for grid-planners to consider a wide future scenario, or a wide range of scenarios when planning the transmission system — so that we can anticipate the amount of resources that we will need.
And then lastly, and very importantly, I think allow customers to install distributed energy resources and encourage their development by setting standards for data, data collection, and the usage of data, and encourage collaboration between utilities and grid operators.
Stone: Judy, thanks for talking.
Chang: Thank you for having me. It has been a pleasure.
Stone: Today’s guest has been Judy Chang, of The Brattle Group. For more energy policy discussions and insights, check out the archive of Energy Policy Now podcasts on the Kleinman Center for Energy Policy’s website. The site also has a wealth of news, blogs, and research covering the gamut of energy and environmental policy topics. You can get updates from the climate center delivered to your inbox by subscribing to our newsletter on our homepage. Thanks to listening to Energy Policy Now, and have a great day.
Judy Chang
