The NY REV: To Innovate, More R&D Spending By Utilities?
- Jul 7, 2018 10:00 pm GMT
On July 20th, the World Economic Forum in collaboration with the New York Governor’s office, organized a workshop focused on New York’s Reforming the Energy Vision (REV) initiative. A number of leading energy professionals participated, including representatives from the utility sector, capital markets experts, as well as current and former state utility regulators. Participants worked together to craft practical policy recommendations designed to advance the various REV goals.
Significant dialogue centered around the need for technology and business innovation, with concerns stemming from a lack of utility shareholder funded research and development (R&D). In 2015, Some utilities spent 0.2% of their revenues on R&D. Investor-owned utilities (IOUs) often feel constrained by their obligation to seek maximum financial returns as quickly as possible for the benefit of their shareholders. Many experts agreed that the lack of greater R&D investment by IOUs is largely the result of antiquated policies that have not changed to reflect the world of alternatives and distributed energy resources.
R&D investment is also sometimes overlooked because regulators may seek to ensure reliability by incentivizing utilities to install more infrastructure and capital projects which guarantees a return for ratepayers that can be amortized over a shorter period of time when compared to R&D costs. Further, R&D is expensive, time consuming, and, by definition, often has a low probability of success. Finally, R&D risk allocation is an especially difficult issue if ratepayers ultimately absorb R&D costs but utilities receive the benefits of any innovative breakthroughs.
In response to some of these challenges, participants attempted to craft policies intended to change the approach and incentivize utilities to undertake more R&D.
Some recommendations that were proposed during the working session include:
1. Allow utilities to have unlimited upside with successful R&D efforts that become commercialized innovations by removing any reward limitations designed to cap a utility’s revenue;
2. Implement policies that mandate for a specific percentage of a utility’s revenue to be dedicated towards R&D efforts.
Note: OurEnergyPolicy.org does not endorse or support one policy recommendation over another. OEP collaborated with WEF for this workshop simply to bring energy professionals together to generate focused dialogue and an exchange of ideas.
- How important is it to encourage utilities to undertake more R&D? What new policies, if any, should state regulators adopt on this subject?
- What would be some principal elements of a shareholder funded utility R&D effort? How can utilities develop confidence that they will be able to retain the financial benefits of these investments?
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