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A Site Selection Web Exclusive, March 2016
WEB Exclusive story

Grid Transformers

A new report ranks the 50 states on their degree of electrical grid modernization. Are customers modern enough to swallow the cost?

Duke Energy already knows how to store its transformers. Now the utility and its brethren are working on ways to transform energy storage, including a just-announced hybrid ultracapacitor-battery energy storage system at its Rankin Substation (below) in Gaston County, N.C.
Photos courtesy of Duke Energy

Duke Energy Rankin Hybrid Battery

The GridWise Alliance (GWA), in collaboration with Clean Edge, Inc., in January announced the release of the 3rd Annual Grid Modernization Index (GMI), ranking and assessing all 50 states and the District of Columbia based upon the degree to which they have moved toward a modernized electric grid. For the third time in a row, California is No. 1.

The index, which focuses more on implementation than on grand plans, assesses dozens of factors across three categories: customer engagement, state support and grid operations. With 88 points, the Golden State scored seven points higher than second-place Illinois, followed by Texas, Maryland and Delaware. Rounding out the top 10 are Washington, DC; Oregon; Arizona; Pennsylvania; and Georgia. Notably, four of the top 10 states are within the PJM Interconnection territory (Maryland, Delaware, Pennsylvania and DC). Just missing the top 10 is North Carolina, a state the GWA says is worth watching due to its leap up by 13 spots to No. 11.

The GWA is a coalition of electricity industry stakeholders including utilities, industry suppliers, and service providers from the equipment, communications, and IT sectors, along with universities, national laboratories and others, all focused on enhancing electric grid performance and transforming the nation’s electric system "to meet the needs of the 21st century." In addition to most major utilities, the group includes such global technology solution providers as Alstom and ABB.

"Electricity lies at the heart of our economy, and it must evolve to serve the needs of an increasingly low-carbon, always-on, digital economy," said Steve Hauser, CEO of the GridWise Alliance. "We are pleased to see continued progress across the country this year, but the survey shows that we are just getting started."

Top 10 GridWise GMI

Taking into account such criteria as cybersecurity planning; electric-vehicle incentives; energy storage; utility-scale renewable projects and Renewable Portfolio Standards (RPS); distributed energy resources (DER); and advanced metering infrastructure (AMI), the scoring system for this year’s GMI was interpreted slightly differently than it has been in previous GMIs, said the GWA. "For example, the American Recovery and Reinvestment Act (ARRA) provided states with extensive funding for grid modernization upgrades from 2009 to approximately 2014," said the report. "But with the completion of this funding, states must now be more proactive, both in terms of providing funding and through the implementation of policies and regulations to encourage modernization."

But how much are customers — especially big industry — willing to pony up?

"The issue of 'gold plating' comes up frequently when consumer advocate groups are concerned that utilities are simply installing more expensive equipment without the commensurate value that it potentially brings," says Hauser in an email response to that question. "Big industrial consumers are often the most sensitive on price because they are charged rates that are the lowest and they consume large amounts of electricity. It’s difficult to provide you a blanket answer to this because every situation is different; the answer one large consumer gives will be different depending on various factors. In the parts of the country where storm caused outages are high, they are quite likely to support investments that reduce the frequency and duration of outages. Many of them that are particularly sensitive to outages (like big data centers) have already installed their own backup power systems making them less dependent on the grid in general."

Duke Energy Rankin Hybrid Battery
Steve Hauser
CEO, GridWise Alliance

Hauser takes umbrage at the suggestion that prices in territories with modernized grids are significantly higher.

"Many of the improvements are made without rate increases or with only moderate increases," he says. "Utilities typically spend significantly more money on building new power plants and traditional infrastructure than they do on smart-grid technologies. And also, typically, any investment they do make in smart grid is supported by a clear business case that shows the value of the investment to consumers. Smart-grid technologies, if deployed correctly, typically help utilities avoid large capital projects by allowing them to get more from their current grid."

Leading by Example

Among the Top 10 state highlights:

CALIFORNIA now requires its major investor-owned utilities (IOUs) to submit distributed resource plans (DRPs) that detail how they will value DERs as distribution grid assets. "California is a leading state in this area," said the report. "It continues to advance policies that require a modern grid, such as a 50 percent RPS [by 2030], an energy storage mandate, and the aforementioned DRPs. It approaches these issues in a comprehensive way, so that the various elements of its greenhouse gas reduction strategy tend to work together. These efforts are producing results: In September 2015, the energy storage company Stem successfully bid aggregated distributed storage into the California ISO (CAISO) real-time electricity market for the first time, and, in November, the state’s major IOUs submitted bids for the first-ever Demand Response Auction. States like New York, Massachusetts, Hawaii, and Texas are also looking to better integrate DERs into their grids."

Second-place ILLINOIS leads the nation in state support, "continuing the momentum from its Energy Infrastructure Modernization Act, passed by the state legislature (over the veto of former Governor Pat Quinn) in 2011. The Act authorized a 10-year, $2.6-billion grid modernization program for Exelon’s ComEd subsidiary and a $648-million grid modernization program for Ameren."

Ed Sitar, manager, Economic and Business Development, for ComEd, noted recently that "ComEd is now over 75 percent of the way through the infrastructure program work that is enhancing reliability through new equipment and distribution automation devices." ComEd has installed over 1.8 million smart meters since 2012, and received approval for an accelerated deployment schedule to be completed in 2018 instead of 2021 as originally planned.

"The only state to operate a grid entirely within its own borders, TEXAS, drops to Number 3 from the top spot in the previous GMI, but still holds the lead in the Grid Operations category," said the report, noting that the Electric Reliability Council of Texas (ERCOT) grid serves 85 percent of the state. "Although Texas is not subject to FERC jurisdiction, it is wrestling with the same pricing issues associated with demand-side management (DSM) as other states," said the GWA. "And, as the nation’s leading producer of wind power, the state faces integration issues for that increasingly affordable renewable resource; TXU and other utilities recently began offering free electricity at night and on weekends to some customers."

States that have deregulated at least one of their wholesale or retail sectors have higher average Grid Modernization Index scores than fully regulated states.

In July 2015, MARYLAND state regulators passed one of the country’s most aggressive energy efficiency mandates, requiring No. 4 Maryland utilities to cut sales by two percent per year.

No. 5 DELAWARE "is unique among the top states in that it did not receive ARRA grid modernization funds, yet has achieved a 68-percent AMI penetration."

No. 6 DISTRICT OF COLUMBIA "stepped into the industry spotlight in August 2015 when its Public Service Commission (PSC) voted unanimously to reject Exelon’s proposed acquisition of Pepco, in part over concerns about regulating the utility giant. This decision is currently under re- consideration by the PSC."

Seventh-ranked OREGON "had the second-largest score increase over the previous GMI, with an 11-point surge to 53 points (Wyoming’s score increased by 11.5 points) ... Among other State Support leadership factors, in June 2015, Oregon became the nation’s second state (along with California) to pass an energy storage mandate. Regulators will begin hearings on a rulemaking for the mandate in early 2016." Meanwhile, reports the GWA, "Portland General Electric is taking advantage of these changes (and some remaining ARRA funding) to deploy a five-megawatt battery as part of its Salem Smart Power Project."

ARIZONA, tied for eighth with PENNSYLVANIA, "is the only overall top 10 state, except California, that has Customer Engagement as its highest-ranking category," and is in the midst of a major debate over net metering. In October 2015, the Pennsylvania PUC approved a five-year, $274-million plan by PECO (the state’s largest utility) for grid resiliency upgrades, including microgrids."

Cracking the top 10 with a three-place leap from the 2014 GMI is No. 10 GEORGIA, "helped by a Number 3 finish in the Grid Operations category, with an 81-percent AMI penetration rate."

Other state highlights include Gov. Andrew Cuomo's Reforming the Energy Vision program in New York; Hawaii's pledge of a 100-percent RPS by 2045, and a fight over whether its major utility, HECO, should be allowed to be purchased for $4.3 billion by Florida-based NextEra Energy; a new grid modernization requirement of all utilities in Massachusetts; and Minnesota's e21 Initiative, "which aims to help utilities recognize the new role that customers play in electricity production and consumption, and offer new services and rates that reflect this emerging reality."

Grid Cluster?

Outside the benefits a smarter grid might bring to all corporate end users, the entire smart-grid sector may represent an economic development opportunity unto itself.

Mercom Capital Group recently released a report on funding and M&A activity for the Smart Grid, Battery/Storage and Energy Efficiency sectors for 2015, stating that VC funding for smart-grid companies increased slightly to $425 million in 57 deals, compared to $384 million in 74 deals in 2014. Total corporate funding, including debt and public market financing, equaled $527 million, compared to $844 million in 2014.

The Top VC funded company in 2015 was France's SIGFOX, bringing in $115 million. Actility, also based in France, brought in $25 million followed by US firm PubNub with $20 million, US firm Smart Wires with $17.3 million and Canada's Bit Stew Systems with $17.2 million. The largest disclosed transaction this year and in the Smart Grid sector to date was the $5.1 billion acquisition of the Elster Division of Melrose Industries, by Honeywell.

Adam Bruns
Editor in Chief of Site Selection magazine

Adam Bruns

Adam Bruns is editor in chief and head of publications for Site Selection, and before that has served as managing editor beginning in February 2002. In the course of reporting hundreds of stories for Site Selection, Adam has visited companies and communities around the globe. A St. Louis native who grew up in the Kansas City suburbs, Adam is a 1986 alumnus of Knox College, and resided in Chicago; Midcoast Maine; Savannah, Georgia; and Lexington, Kentucky, before settling in the Greater Atlanta community of Peachtree Corners, where he lives with his wife and daughter.


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