"Can America’s Regulators Reinvent Fire?"
By Adam James
This week the National Association of Regulatory Utility Commissioners heard from Amory Lovins, founder of the Rocky Mountain Institute, about his new book “Reinventing Fire.” One of his key messages was that the vast majority of changes that need to occur in transforming the energy system lie at the state regulatory level.
Amory had an excellent summary as to what such a regulatory wish list would look like:
- Equality in interconnection: Ensuring that renewables have an opportunity to compete on equal footing by accessing the grid.
- Supporting entrepreneurial activities at the edge of the grid: Regulations allowing new market entrants to creatively compete with incumbent utilities.
- Moving ahead on net metering 2.0: Net metering is absolutely essential to capturing the true value of renewables. However, there are very real problems with compensation to utilities and cost-shifting to other customers that do need to be addressed. Integration with dynamic pricing and behind-the-meter PV will require regulatory innovation.
- Aligning rate structuring and business models: On the topic of regulatory innovation, utilities need to be given the incentives to make the kinds of forward looking investments which will lead to climate stabilization (i.e. investing in renewables and efficiency).
On this last point, it is important to remember that since utilities are highly unlikely to make investments that undercut their rate base, it will be crucial to find a way to prevent leaving utilities overly reliant on the “fixed cost” portion of utility bills (which reflect sunk costs in infrastructure, centralized generation, and operations and management) while the “variable costs” (how many KWh are consumed) shrink with the introduction of net metering, dynamic pricing, and behind-the-meter solar PV. There needs to be a radical realignment of incentives to shift utilities to a “network management” role, and push for distribution systems that move towards an overlapping microgrid model. Rocky Mountain Institute did excellent work on this here.
Lovins walked through a very compelling, and integrated, vision for what the American electricity sector could look like. A fundamental premise of this vision is that by 2050 we will have to replace America’s electrical infrastructure. The process of upgrading the grid will cost approximately $6 trillion no matter what technologies we include. The question, then, is do we continue down the path of centralized, fossil fuel dependent infrastructure- or do we begin investing in decentralization, microgrids, efficiency and smart energy management?
The difference, Lovins notes, between these technology pathways are the risks associated with each. As Lovins put it, America faces a multiple choice test. Do we want to:
A) Die by oil wars
B) Die from climate change
C) Die from nuclear holocaust
D) All of the above
E) None of the above
I will admit, I am personally biased towards whichever technology pathway allows for “E.” By Lovins estimation, pursuing “E”, will require an integrated approach to all four energy sectors: electricity, transportation, buildings, and industry. This approach has to harnesses innovation in design, policy, and technology to solve real world problems. The result? An energy system that runs on 80 percent clean energy.
The virtue of a holistic vision is that innovations in one sector, such as electric vehicles in transportation, can then intersect with the innovation in another sector (electricity) where these vehicles would increase grid flexibility. There are other innovations, such as policies that increase the rates of efficiency adoption in the rest of the United States to those already seen in the Pacific Northwest, which are by their nature isolated — but do have a wide range of benefits by reducing overall energy demand.
Looking out at the audience of a few hundred, many of whom are decision-makers and high level advisors in every state in America, Lovins concluded by noting that “each state has a piece of the prize.”
He is dead right. State regulators have the ability to harness policy innovation and enable technology adoption at more rapid rates, all in a way that can ensure incumbents continue to have a revenue stream and new market entrants have a shot. But, they will have to be creative and not fear bucking the entrenched system. They will have to have some courage and be willing to make forward-looking, progressive decisions on the dockets that come in front of the Public Utility Commission. They will have to listen to and support new coalitions between ratepayer advocates, environmental groups, and do-good utilities. From a cost-benefit perspective, there is an excellent business case for making investments in a clean energy future. However, there will be times when state legislators and regulators have to look past their short term to determine what is best for their state in the long run.
This, as Lovins expressed, is the challenge of reinventing fire. We have made tremendous strides as a civilization thanks to fossil fuels and a centralized grid architecture. Our old fire gave us a quality of life that is leaps and bounds past what our predecessors were accustomed to. Reinventing fire will require harnessing new energies, in smarter ways, to ensure that future generations are given the same opportunity.