New business model sees SDG&E taking control of customer storage

SDG&E wants to incentivize customers with a ‘special’ rate which will reward customers for sharing their stored energy with the utility.
Published: Tue 28 Jul 2015

We have long argued that the opportunity for a utility lies in the ability to control distributed assets in the home ones that, generate, store or can shift demand.  San Diego Gas & Electric (SDG&E) has found a novel way to do just this targeting, initially, energy storage and is testing the business model in an innovative pilot.

The forward-thinking utility wants to encourage customers to install behind-the-meter batteries so that it can draw power from them at certain, pre-agreed peak demand periods. To get customers to do this, the utility is proposing a “bring your own battery” tariff. To get the ball rolling, SDG&E has asked the California Public Utilities Commission (CPUC) to approve a reduced electricity rate for these customers.

The tariff is aimed at rewarding customers who give the utility control over their batteries during certain times. The rate is envisioned by the utility to reflect a forecasted system and circuit conditions on a day-ahead basis, and through hourly price signals. The financial incentives from this ‘special’ rate will be tiered, with higher payments for customers who accept higher levels of utility control.

The incentive forms parts of the utility’s distributed energy resources management system, or DERMS- a multi-million-dollar investment in technology to help it monitor and manage the solar panels, plug-in electric vehicles, energy storage assets and demand response capabilities on the customer side of its grid.

Special rate to reduce distributed energy resources (DER) pressure

The "residential energy storage rate" pilot programme is, according to the filing, intended to test whether customer-located energy storage can reduce utility costs for distribution system upgrades, postpone the need for additional traditional generation to meet demand spikes, as well as provide ancillary supply-demand grid balancing services.

The new plan will help utilities better handle the increase in DERs. The idea is that the savings, from drawing on customers’ stored electricity, offsets the cost of the special rate.

But, in order for the programme to be successful, rate savings must be high enough to get customers to join it, while the utility needs to tap into the batteries often enough (and during the right demand periods) to get an adequate return.

As firms like SolarCity and Tesla make batteries more affordable through payment plans coupling this with a tariff incentive makes immense sense.

According to SDG&E, the pilot will provide the opportunity to test the ability of customer-owned, behind-the-meter storage assets to potentially defer circuit upgrades. The project will also give the utility the chance to pilot a new residential energy storage rate and test a new business model for third party ownership of distributed resources. The model differs from the proposed utility-owned, behind-the-meter storage solution piloted in other demonstrations and provides an opportunity to contrast two different approaches for integrating DER to defer a traditional capital infrastructure project, provided it meets certain requirements.

Incentive to replace lost income  

The new business model has the potential to support the growth of DERs that may otherwise lead to fewer distribution-level infrastructure projects on which utilities like SDG&E would earn a traditional source of income. The new, performance-based utility incentive will partially replace lost income and gives utilities the ability to be active partners in identifying and incenting optimal location of DER solutions on the distribution grid.

The special tariff could open up the utility-DER value-sharing proposition to a much broader range of customers, compared to contracting with third-party DER providers.

The new plan is described by James Fine, senior economist with the Environmental Defense Fund as a “little ray of light through the darkness of the traditional utility business model.” He says that it is a new way of sustaining and supporting utility operations and reducing the need for “more steel in the ground.”

SDG&E joins a number of utilities in states such as Hawaii, California and New York, as it challenges traditional regulatory models. [Hawaii Encourages Energy Storage Development and Microgrid Technologies and Learning From the Solar State-Hawaii and Distributed Generation – Utility’s Main Revenue, Reforming New York's Energy Vision; New York Energy Vision Reform A Step Closer]

What makes SDG&E stand out in the crowd is the fact that they have developed a comprehensive strategy for integrating customer-owned energy storage with utility needs.

Time will tell whether or not SDG&E has found a way for utilities to wriggle free of the so-called “death spiral.”