IEEE Power & Energy Magazine - July/August 2018 - 129
The usual suspects of policy approaches are unlikely to be sufficient, particularly for electrification. Carbon
pricing alone is inadequate for sending
long-term investment signals, especially
where emissions reductions are a function of interactions across sectors and
measures and over time (as in the case of
EVs, where net emissions depend on the
vehicles being replaced, the changing
carbon intensity of electricity, and their
uptake rate). Policy mechanisms must
be tailored to situations, but some general areas of need are clear
A Regulatory Strategy for
Electricity Demand Under
Decarbonization
The necessity of electrification requires rethinking regulatory strategy
for electricity demand. This includes
the mechanisms and relative priorities
of energy-efficiency and electrification programs and investments and
how both of these relate to decarbonized generation. The recent Illinois
decision to retain Exelon's existing
nuclear plants in return for reducing
demand is a step behind in this thinking: the incentives for the utility to reduce demand work against low-carbon
electrification. Instead, a new paradigm is needed, similar to the decoupling of demand from utility revenue
requirements to encourage energy efficiency: electrification of current fossil-fuel end uses, when accompanied
by generation decarbonization, should
be considered "good load" for purposes
of incentivizing utilities.
A Planning Vehicle for
Cross-Sectoral Planning
and Coordination
Industrial, transportation, and building
electrification all need to be coordinated with electricity sector planning,
across geographic boundaries and jurisdictional levels, to be effective and
economical. Yet neither market nor
regulatory mechanisms exist for such
coordination. Policy must drive joint
planning that aligns investment decisions and timing in sectors that currently have little interaction but must
july/august 2018
interact much more in the future to
reach climate goals.
A Grand Bargain for Utilities
Deep decarbonization won't be achieved
without a massive expansion of low-carbon
generation and electrification. Distributed generation cannot meet the first
of these requirements affordably and
does not address the second. While distributed generation has a role to play, it
cannot be the tail that wags the dog in
electricity policy. A grand bargain with
utilities is needed, in which they commit to a timely schedule for meeting
these goals (providing supporting infrastructure, such as vehicle charging,
in the case of electrification) in return
for the long-term assurance of a viable
business model.
Wholesale Electricity
Market Design
Deep decarbonization means an entirely new market environment for
electricity from what it has been historically. The economics of a decarbonized electricity sector need clear
articulation in scholarship and expression in regulation and wholesale market design. Some of the areas requiring
new theory, observation, and experimentation include the following:
✔ A very high renewables system
will be dominated by fixed costs,
with variable energy costs near
zero. Current wholesale electricity markets were not designed to
efficiently allocate fixed costs.
✔ In a system with very high levels of inflexible supply, such as
wind and solar, the demand side
may contribute as much to system balancing as the supply side.
Efficient wholesale ma rket s
must provide symmetric rewards
for flexible capacity without regard to supply or demand.
✔ Large-scale flexible loads such
as hydrogen electrolysis could
potentially play a major role in
addressing seasonal imbalance
while also providing low-carbon
fuel, but the economics of electricity-produced fuels is under-
theorized, including areas such
as long-term market signals,
ownership, and the relationship
to supply-side planning.
✔ The definition of asset utilization
from the utility and regulatory
perspective will need to change
when net load factors (i.e., net of
generation and load, especially
when generation is inflexible) replace ordinary load factors as the
utilization paradigm.
The wholesale market design problem is complicated by a transition period of two or three decades, in which
what works in the decarbonized future
also needs to work in the carbonized
present. One potential feature of the
transition that could provide benchmarks for the timing of future changes
is the changing time signal of energy
imbalances with increased penetration
of intermittent renewables, from hours
to days in low renewables systems to
weeks to months in high renewables
systems. The economics of decarbonized electricity will reflect this changing imbalance signature, as markets must
respond to it to keep the lights on.
The ea rl ier t hese problems are
thought th rough, the better future
obstacles can be anticipated and addressed before they sabotage the lowcarbon transition. This is already a
domain in which practice has moved
beyond theory, due, in part, to the
limitations of current analytical approaches. The 2050 time horizon has
little utility or regulatory motivation on
the power-system planning side, so it
is far outside of the usual scope; while
the limited granularity of integrated
assessments models, still the dominant
tool used to inform climate policy discussions at the national and international levels, undermines their ability
to engage in such discussions. Recent
progress in the long-term, multisector analysis of deep decarbonization
that also includes granular, bottom-up
treatment of both the supply and demand sides of the electricity sector is
an important first step toward bridging
these disparate worlds.
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Table of Contents for the Digital Edition of IEEE Power & Energy Magazine - July/August 2018
Contents
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