Resilience as a Service Improves Utility Funding for Outage Prevention
- Mar 17, 2021 4:42 pm GMT
Hardening energy generation assets is an easy focus in discussions around Texas’ outages. However, the resilience challenge also produces a revenue-generating opportunity for utilities and partner vendors: Resilience as a service (RaaS), which has been piloted at the transmission and distribution level but now could be expanded to include building retrofits. A wide variety of energy management technologies stand to gain exposure as resilience investments, opening opportunities for vendors.
Getting Creative on Resilience Cost Recovery
Like many states, Texas has a rigid demand profile and high grid maintenance costs. However, in Texas and elsewhere, traditional ratemaking struggles to adequately fund grid-hardening investment. Some states, notably Florida, recently proposed rules that allow alternative cost recovery, opening the door to a RaaS model. Florida utilities could use RaaS to sell the following to large, primarily commercial and industrial end users:
- Traditional distribution network spending such as undergrounding lines
- Advanced metering infrastructure and distribution automation to larger commercial and industrial customers
With some adjustments, RaaS could be applied in the residential sector. The Federal Energy Regulatory Commission’s Order 2222 in late 2020 opens new revenue-generating opportunities for utilities. Acting as distributed energy resource aggregators, utilities can now sell demand response capacity at a wholesale level by combining residential assets beyond a 100 kW threshold.
Aside from adding wholesale revenue, this capacity can play a crucial role in outage prevention in Texas and across the southern US. For example, water heating is the source of 19%-32% of residential load and is often one of the more flexible end uses during peak events. A state electrification program installing heat pump water heaters that integrate low cost, grid-connected CTA 2045 controls could reduce evening peak load by 90%. Moreover, around 60% of Texas homes use highly inefficient resistance heating furnaces, a profile similar to other southern states. Updating these furnaces with today’s heat pump systems could lower loads by 50%. Even more could be achieved by improving insulation. Most Texas buildings are insulated for a summer 30°F differential preferably shedding heat, not a winter 60°F differential seeking to retain it.
High upfront costs for these technologies (insulation excepted) has been a barrier, but this can change—utilities could potentially sell grid-tied, efficient load management to homeowners under a RaaS model, with reduced pricing coming from DR-related cost recovery in wholesale markets.
Vendor Opportunities in Home Safety, Panel Upgrades
Another resilience investment that can be made with adjusted financing models is electrical fire prevention and home panel upgrades. Specifically, low upfront spending on related technologies can allow homeowners to pay back these retrofits with the money they save from reduced insurance premiums. The risk to insurers is clear—in peak events as people plug in space heaters, heating blankets, vaporizers, and anything else to stay warm, home electrical networks can easily be overwhelmed by the load spike, leading to hazardous arcing that can cause an electrical fire. Whisker Lab’s Ting sensor network in Texas monitored a 500% increase in home electrical fire hazard activity during the peak demand period in February.
Electrical panel upgrades also have fire prevention benefits, as older service panels may not have the amperage required to serve peak loads. Working with companies such as Bidgely and Opower on customer targeting, utilities can design rebates for panel upgrades for buildings older than 30 years old, many of which have 100 amp or 125 amp service panels. By expanding to 200 amps or larger, homeowners can reduce fire risk and create panel capacity for larger loads such as heat pumps and heat pump water heaters.
Insurance savings models have a strong track record within hurricane zones under the MyStrongHome program for rooftop replacement. Companies such as Hartford reduce premiums by up to 20% for homeowners who install a combination of security and fire prevention measures—while the model would require added consumer education and marketing, savings could be substantial enough for homeowners to buy in.
Cost recovery isn’t the only obstacle to effective outage resilience planning. New models need to be scaled and targeted based on expected benefits. This depends on effective customer rebate targeting and on improved climate data availability for accurate risk planning. For example, utilities often struggle to bridge the disconnect between macro-scale climate modeling and their own territorial risk profile. Data downscaling techniques have helped mitigate this problem, making it easier for utilities to reduce demand forecasting errors and project where investment is most needed.
A New Era in Resilience Planning, Along with Upside for Utilities
Climate-related resilience planning and investment is not an exercise in conjecture—unlike after the California wildfires, ratepayers around the US are likely to expect changes in the wake of the Texas crisis. Though no traditional natural disaster occurred in Texas, it was still the costliest storm in the state’s history and will likely saddle ratepayers with adjustment charges that could be spread out over 10 years or more given the size of the potential outage fees.
These consequences will be noted by ratepayers and related advocacy groups at utility commissions nationwide. A shift in priorities seems likely, which may lead to improved financial and physical resilience for utilities. A structural reform that electrifies end uses, alters the state demand profile, and embeds resilience within the building stock is highly challenging, but it would convert many buildings from demand sources to grid-tied resilience assets. Utilities stand to profit via RaaS and other low CAPEX models, as do vendors by increasing availability and installer training—particularly in the resistance-heated US South. Even better, the current economics of the RaaS approach stand to improve as the cold-weather performance, demand response capacity, and lifetime costs of heat pumps and other electrified technologies improve.
Even without new cost recovery mechanisms, however, these initiatives can also accelerate electricity load growth, which is projected to stagnate nationally in the next 5 years until more transport and building electrification takes off. The electrified home is also more easily convertible to net-zero with rooftop generation and storage. Profitability and sustainable investment and resilience can all align in electrification, with creativity and attention to contextual factors such as the price of electricity, regional climate, and other factors. For more information on the contextual factors influencing effective electrification, see Guidehouse Insights’ recent report, Home Electrification.
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