Last week I had the pleasure of attending Austin-based research firm ZPryme’s annual Energy Thought Summit, which brought together business leaders and technical experts to discuss emerging energy technologies and trends.
One of the featured speakers was former Federal Energy Regulatory Commission (FERC) Chairman Jon Wellinghoff. He spoke about some potentially disruptive energy technologies currently under development, arguing that electricity markets and policies should adapt to ensure we maximize the potential benefit of these technologies in the future.
I sat down with Wellinghoff to discuss his vision for the future of U.S. energy and the role that FERC and other policymakers might play in the U.S. energy transition. What follows is an edited and condensed transcript of our conversation:
Robert Fares: During your talk you discussed a vision of a more distributed electric grid, where smaller customer-owned resources combine to provide electricity on a local level. I find that to be a really compelling vision, but at the same time I find it hard to see how we could transition from the way that today’s first entry distributed resources like rooftop solar are operated and compensated to a future where there is a greater degree of controllability over distributed resources and they are more market-facing. How do we deal the controllability challenge and then also the economic challenge where we might pull the bottom out from these distributed resources by making them face the wholesale electricity market at some point in the future?
Jon Wellinghoff: We face both of those challenges in the same way. Actually what I would answer with one will help the answer with the other. Answering the second one first: we increase market visibility all the way down to the distribution level. If we increase the market visibility all the way down to the customer level, then you all of a sudden reveal value to distributed assets that they didn’t have before. And you make their economics better.
Fares: That makes sense. But at the same time, could you a have a situation where there’s a large concentration of solar somewhere that causes the electricity market price to become depressed on a local basis, throwing off the economics for both electricity customers and the utility?
Wellinghoff: There’s no question that as you increase market visibility at a low level and you add resource deployment into those markets, it’s going to change the dynamics of the markets in ways that can create winners and losers. There’s no question about that. That can happen. But ultimately I still see net benefits from increasing distributed resources and the availability of those resources to the larger market overall, to the extent that we can have more dispatchability of distributed resources whether they be demand-side resources like efficiency and demand-response, or distributed generation or batteries or storage or whatever they may be, and provide them with the opportunity to extract as much value from the market as possible. When those opportunities dynamically change depending upon how many of those resources enter the market, I still think ultimately there will be a net benefit that will ultimately provide impetus for people to invest more in those types of resources.
Fares: It sounds like there are certain external costs that we don’t always think about associated with the fact that we don’t have this small, modular, flexible, localized grid, at least not yet.
Fares: What about the effect commonly referred to as the “duck curve” that California regulators fear will occur as the state adds more and more distributed solar? Is there is a risk that we’ll have too much electricity generation from solar in the middle of the day when really it might be better to have a mix of wind and solar, for example?
Wellinghoff: To the extent that we can reach into the distribution level and allow those entities at the distribution level to participate in the market and to be potentially operated by the market, we can ultimately mitigate the impacts of the duck curve by in essence flattening the head—the peak part—flattening the head some and also allowing the belly to be more variable in a sense that you allow renewable resources to be dispatchable (controllable) as well.
If you had storage with the solar, certainly there is no duck curve, because then you would optimize to sell when the price is highest and use solar energy internally when it’s the highest value to do so. I think problems like the duck curve can in large part be mitigated if you allow operators visibility all the way to the distribution level and you allow the distribution level to have market access all the way up.
Fares: Do you think that the grid operators are capable of the extra data and controllability that goes into having that level of visibility over the distribution system?
Wellinghoff: Well, they certainly don’t have the systems in place now with that capability, but the systems do exist out there. I know the vendors. There are vendors that have the ability and the software tools and I talk to them literally every other week in Silicon Valley and the San Francisco area where I live. We can put the systems in place. We don’t have to go build them. We just have to integrate them.
Fares: Do you think the policies are moving fast enough? Are we going to get into some sort of conundrum where we have lots of renewables deployed without the capability to be controlled like you describe?
Wellinghoff: I think more and more renewable energy developers are beginning to understand that their systems need the capabilities I describe. Some entities like the Midcontinent Independent System Operator (MISO) require new renewable energy resources to have these capabilities.
Fares: For new wind? Or solar?
Wellinghoff: For new wind that wants to connect to the grid. More and more manufacturers of renewable and distributed energy systems and developers are beginning to understand the value of incorporating those kinds of advanced capabilities into their systems.