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Pathway to a 21st Century Electric Utility
National Conference of State LegislatorsDecember 8, 2015
Full Report can downloaded from:
www.ceres.org
Who We Are
Ceres is a non-profit organization advocating for sustainability
leadership. Our mission is to mobilize investors and business
to build a thriving, sustainable global economy
Company Network65 members in more than 20
sectors
Investor Network100+ members representing
$13 trillion AUM
The Ceres Coalition130+ organizations
Business for Innovative
Climate and Energy
Policy (BICEP)30+ members
Vision
• Enhanced reliability and resilience of the electric grid while retaining affordability
• An increase in cleaner energy to protect our environment and global strategic interests
• Optimized system energy loads and electric-system efficiency to enhance cost effectiveness and sustainability
• A focus on customer value, including new service choices and ease of adoption.
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Pathway to a 21st Century Electric Utility
Foundational Principles
• Financially viable utilities are essential to
fund and support an enhanced electric grid
• Policymakers must promote clear policy
goals as part of a comprehensive,
integrated jurisdictional energy policy or
21st Century Utility model
• Commitment to engaging and empowering
customers can help them make intelligent
energy choices, including third-party
engagement and access to necessary data
• Equitable tariff structures promote fairness
and policy goals
1. Engage the distribution utility to be at the center of integrating
resources and stakeholder collaboration to achieve customer and
policy objectives through accountability and incentives;
2. Shift regulatory oversight to focus on integrated distribution
system planning and development of transparent accountability
metrics;
3. Ensure that utility revenues will reflect incentives (or penalties)
earned for accountability of results and new energy management
services sourced through new resources, such as energy
management “app” store; and
4. Pursue cost-effective planning to identify the most efficient
technologies to be employed, and cap customer incentives based
on the most economical alternatives to achieve policy goals.
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Pathway to a 21st Century Electric Utility:
Key Differentiators
Pathway to a 21st Century Electric Utility:
Disruptive Forces Challenge the Business Model
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Pathway to a 21st Century Electric Utility:
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Rising US Solar Capacity & Average
Price for a New Solar System
Sources: Bloomberg New Energy Finance & Solar Electric Power Association
7
Sources: Goldman Sachs, Future of clean Energy, November 2015
Pathway to a 21st Century Electric Utility:
Goldman Sachs on the Future of Clean Energy
• Between 2015 and 2020, solar and onshore wind will likely add more to the global energy supply than US shale oil production did from 2010 to 2015
• Between 2009 and 2014, more than $1 trillion was invested in solar and wind capacity globally, corresponding to a decrease in costs that is set to accelerate further over the next decade.
• In 2015 the world is expected to add > 100 GW of new solar PV and wind capacity (combined) for the first time ever.
• By 2025, the market for hybrid and electric vehicles could multiply tenfold to 25 million
• By 2020, 6 in 10 lightbulbs will be LEDs
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Pathway to a 21st Century Electric Utility
Corporate Commitments are Driving RE Demand
Source: Ceres, Power Forward 2.0
• 43% of the Fortune 500 companies have targets
in one of three categories: 1) greenhouse gas
reduction commitments, 2) energy efficiency, and
3) renewable energy
• The Fortune 100 continues lead with 60% of
companies setting clean energy goals
• These companies are conservatively saving $1.1 billion
annually through their emissions reduction and
renewable energy initiatives
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Pathway to a 21st Century Electric Utility
Corporate Commitments are Driving RE Demand
© 2015 Clean Edge, Inc. (www .cleanedge.com). This r eport, and the models and analysis contained her ein, are the property of Clean Edge and may not be reproduced, published, or summarized for distribution or incorporation into a r eport or other document without prior appr oval. 13GETTING TO 100
COMPANY GEOGRAPHIES COVERED DATE ACHIEVED
U.S., all data centers worldwide
2012 for data centers, 2014 for U.S. operations
U.S. 2013
U.S. 2010
All global energy use FY 2014
All U.S. stores, headquarters and distribution center, and business travel for North American employees
2008
Global 2014
U.S., Canada, and Europe 2013
U.S. 2007
U.S., Canada 2006
Source: Clean Edge research. Note: Clean Edge makes no claim to the logos in the above table. All trademarks are the property of the respective companies.
TABLE 1: SELECT COMPANIES THAT HAVE ACHIEVED 100% RENEWABLE ELECTRICITY (FOR SELECT GEOGRAPHIES/OPERATIONS)
A growing number of large global corporations, both in the United States and
abroad, have made commitments for all or portions of their operations to be
powered by 100% renewable energy. And the trend is accelerating.
There are a number of reasons that a company may choose to go 100% renew-
able. Customer satisfaction, for one. As the public increasingly demands environ-
mentally friendly goods and services, businesses are making public commitments
to “ green” their operations – sourcing renewable energy, meeting recycling goals,
conserving virgin forestland. A second reason for using renewable energy is to
help reach mandated RE goals. As more jurisdictions set binding RE targets, it
makes sense that companies doing business in those places would change their
operations in response.
But perhaps the biggest reason for sourcing renewable energy is that it is simply
good business. Early efforts toward 100% RE, such as those of Whole Foods and
The North Face in the previous decade, were largely driven by corporate social
responsibility goals – with targets often met by the purchase of RECs. Now, rms
are nding that rapid cost declines are making direct deployment and procurement
of renewables an increasingly attractive nancial proposition.
Traditional and virtual power purchase agreements (PPAs) for wind power – and
increasingly, large-scale solar as well – can allow companies to lock in low electric-
ity prices for decades at a time, with little to no up-front investment. This creates
CORPORATE INITIATIVES DRIVING THE 100% RENEWABLES TREND
© 2015 Clean Edge, Inc. (www .cleanedge.com). This r eport, and the models and analysis contained her ein, are the property of Clean Edge and may not be reproduced, published, or summarized for distribution or incorporation into a r eport or other document without prior appr oval. 14GETTING TO 100
COMPANY GEOGRAPHIES COVERED
TARGET DATE
INTERIM DATE
MOST RECENT REPORTED %
Global Long-term; Not Specified
50% by end of 2018
21% (2014)
Global 2020 N/A N/A
Global Long-term; Not specified.
N/A 37% (2014)
Global 2020 N/A 59% (2014)
Global 2040 Reduce fossil fuel energy use by 25% by 2015
N/A
Global 2025 N/A N/A
All data centers Long-term; Not Specified
N/A 43% (2015)
Global Long-term; Not Specified
N/A N/A
Global Long-term; Not Specified
Produce or procure 7 bill ion kWh of renewable electricity globally by 2020
26% (2014)
Source: Clean Edge research. Note: Clean Edge makes no claim to the logos in the above table. All trademarks are the property of the respective companies.
TABLE 2: SELECT COMPANIES SEEKING 100% RENEWABLE ELECTRICITY
cost certainty, which businesses love. And they have a myriad of ways to procure
renewable power, including PPAs and onsite renewables such as rooftop solar ar-
rays, in addition to RECs. The movement away from unbundled RECs (which allow
a company to receive the bene ts of renewable energy without actually receiving
the energy itself) is in part due to concerns over additionality: unbundled RECs
by themselves do not provide much impetus for further growth in renewables.
By using onsite renewables or PPA-purchased off-site generation (and retaining
the RECs generated by this power), businesses can also take direct credit for the
environmental bene ts that renewable energy offers. These and other sourcing
strategies – and the challenges that accompany them – will be examined in greater
detail in the 100% Renewables Toolkit section on page 17.
While it is admittedly still early days for the 100% RE movement, the list of rms
that have pledged to get 100% of their energy from renewable sources is growing.
Data centers, for instance, require massive amounts of energy, so it makes sense
that many of the world’s largest and most prominent technology companies, like
Apple, Facebook, Google, Intel, and Salesforce, have all targeted (or even partially
achieved) the 100% RE goal (and made huge investments in renewable energy). But
it isn’t just tech rms: The list of companies with 100% RE commitments includes
Whole Foods, Nestle, Walmart, Kohl’s, IKEA, and Starbucks, among many others.
Many of these rms are members of an increasing number of non-governmental
organizations that have sprung up to help them achieve their goals, such as the
Rocky Mountain Institute’s Business Renewables Center; the Corporate Renewable
Energy Buyer’s Principles, founded by WWF and World Resources Institute (WRI);
and RE100, which is led by The Climate Group and CDP. The business community
is starting to get the message: 100% RE is not just the right thing to do, but it’s
becoming the pro table thing to do as well.
Source: Clean Edge, Getting to 100
Pathway to a 21st Century Electric Utility
Utilities Are Valued Above 15-year Averages
and Comparable to S&P 500
10
Pathway to a 21st Century Electric Utility:
Credit Rating Agency Actions
Suggest Improving Credit Quality
11
Pathway to a 21st Century Electric Utility:
Unsubsidized Levelized Cost of Energy Comparison—
September 2017
12
Pathway to a 21st Century Electric Utility:
Mandatory Fee Proposals Timing Map
13
• Do not promote efficiency of energy resource demand
and capital investment;
• Reduce customer control over energy costs;
• Have a negative impact on low- or fixed-income
customers; and
• Impact all customers when a subset of customers adopt
DERs and potentially exit the system altogether,
• if high fixed charges are approved, the bill for utility services
increases and thus encourages customer grid exit
14
Pathway to a 21st Century Electric Utility: Rate Design: Problems with Fixed Charges
State policymakers pursue legislation to outline the model for a 21st Century
Utility, to include:
• providing objectives and transitional targets;
• refining building standards;
• accountability metrics;
• reform of the regulatory oversight approach; and
• outlining distribution utilities participation.
Regulatory reform is enacted to support efficient resource deployment and
accountability:
• multiyear integrated T&D system planning process;
• transparent and sustainable accountability metrics to be set;
• transparent and sustainable incentives (and penalties) for accountability;
• multiyear rate proceedings; and
• structure of utility revenue potential for integrating new customer services.
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Pathway to a 21st Century Electric Utility:
The Pathway Proposed
Tariff structures are refined to support price signals and financial viability
requirements, including:
• inclining block rates;
• bidirectional meters installed for all DER customers;
• transition to highest economic value renewable rate;
• demand response to be bid into capacity planning to encourage load
resource optimization; and
• time-of-use rates to be implemented to manage peaks and enhance
system optimization.
Utilities are empowered and accountable for managing the transition, and are:
• held accountable for controllable results;
• encouraged to lead the integration of new technologies and given incentives;
• responsible for educating customers; and
• the potential owners of renewables, new technologies, or DERs.
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Pathway to a 21st Century Electric Utility:
The Pathway Proposed
Benefits to Customers
• high level of recognized trust in utility providers;
• access to customer and electric system information;
• increased quality control oversight;
• enhanced information analytics;
• lowest system-wide cost of deploying optimal located investments with
scale technologies.
Benefits to Policymakers
• acceleration of defined policy objectives through properly structured
incentives and accountability;
• ability to enhance accountability via regulatory oversight of utilities; and
• opportunity to mitigate the level of utility rate increases required by
allowing utilities to earn additional revenues related to facilitating,
integrating or owning new services, including behind-the-meter assets.
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Pathway to a 21st Century Electric Utility:
Engaging Utilities to Drive a 21st Century Model
Benefits to Competitive Marketplace Service Providers
• endorsement of best-in-class providers and technologies;
• increased adoption of new value-add technologies; and
• Reduce customer acquisition costs and thus enhance profitability
(through reduced cost and increased volumes).
Benefits to Utilities
• enhanced customer service by increasing interactions with customers;
• optimized investment and reduce costs and risks;
• enhanced regional economic growth;
• enhanced citizenship profile;
• potential to earn incentives for achieving accountability goals; and
• ability to earn additional revenues from participation and thus offset rate-
increase needs and earn incremental returns for investors.
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Pathway to a 21st Century Electric Utility:
Engaging Utilities to Drive a 21st Century Model
Pathway to a 21st Century Electric Utility:
Energy Management Applications Store
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Pathway to a 21st Century Electric Utility:
Responses to Evolving Electric Utility Models
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Pathway to a 21st Century Electric Utility:
The Pathway
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• State policymakers pursue legislation to outline the model for a 21st
Century Utility;
• Regulatory reform to support efficient resource deployment and
accountability;
• Tariff structures refined to support price signals and financial viability
requirements;
• Utilities empowered and accountable for managing the Transition.
Thank You!
Dan BakalDirector, Electric Power Program
Ceres
617-247-0700 ext. 113