Raising Non-wires Alternatives: It Takes A Village, Or An Engaged MarketPosted to DNV GL
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- Jun 23, 2020 9:15 pm GMTJun 23, 2020 9:26 pm GMT
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This item is part of the Special Issue - 06/2020 - Grid Modernization, click here for more
Utilities today are faced with a number of challenges that disrupt their longstanding objective of delivering electricity to customers reliably and safely. Any single one of these challenges—grid modernization, renewable and DER integration, electrification, and resiliency to name a few—could keep a utility professional up at night, and, if addressed individually, could become insurmountable. However, if tackled in an integrated and creative fashion, these challenges can be turned into a unique opportunity for utilities to embrace market changes and further engage and serve their customers.
Managing these changes and challenges does not need to become a game of whack-a-mole. The concept behind non-wires alternatives, or NWAs, using demand side management and distributed energy resources to address a transmission or distribution need, could be a utility’s swiss army knife. NWAs can absorb the impacts of electrification by shifting or reducing peak demand, serve as back-up reliability resources during contingency conditions, and support policy goals by serving as another revenue source for DERs strategically located in constrained areas, all while deferring or avoiding costly upgrades to a utility’s grid.
Yet effectively implementing an NWA project, or implementing NWAs at scale across a utility’s grid, requires a level of coordination that is often unfamiliar to many in the utility world. Not only do effective NWA programs within a utility require collaboration and commitment amongst multiple departments within a utility--transmission and distribution planning, operations, asset management, customer solutions and programs, regulatory support, and procurement to name a few--successful NWA projects require effective market engagement as well. This is especially true in deregulated markets where the utility cannot own a generating asset or in jurisdictions with competing or congruent markets and policies, such as a storage order or ISO market, which compete for market attention.
But how can a utility ensure effective market engagement? Below are five things to consider when engaging the market in non-wires program planning and procurement.
Asking for Feedback on NWA Feasibility
Developers, solutions vendors, and even utility program providers can offer insights on NWA resource potential before a formal RFP is developed. These groups know the customers, know the potential, and know the conditions that must be met for NWA resources to be effective. By soliciting feedback through a request for information process or by providing hosting capacity maps that allow third parties to do a deeper dive on local grid conditions, utilities seeking NWAs can more quickly determine whether an NWA project is feasible and the types of solutions that offer the most potential for a specific location.
Having a sense of the feasibility early on will allow utilities to better focus their procurement efforts in the right place. Understanding whether an NWA can meet the entire project need before soliciting the market for formal proposals can allow the utility to examine the potential for hybrid NWA solutions and look at the potential their existing behind-the-meter programs can provide. Focusing an RFP on specific technologies that are expected to effectively address the project need, given the timing or location of the need, can also provide clarity to the market and better facilitate bid decisions amongst developers as well.
Driving an Informed and Effective Procurement Process
Developers and vendors are looking for transparency and specificity during the procurement process and the more information a utility can provide in an RFP or other procurement documentation, the better. Discussions with developers that have responded to NWA RFPs revealed two critical pieces of information for when developing a bid: costs and local conditions.
As most NWA decisions will ultimately be based on cost-effectiveness, developers and vendors need to know the cost of the wires solution to determine whether their solution is competitive. The utility should be clear about what this cost represents and note any assumptions they made in developing the cost. Without knowing the cost, developers are left blind to their competition and cannot effectively assess whether they should bid on a project. A utility may be concerned that releasing a project cost will result in bids at the same cost, but market competition amongst bidders offering similar solutions should prevent this from happening.
Similarly, in order to effectively price their solutions and determine whether they can realistically meet the project need, developers and vendors need a sufficient understanding of the project drivers and the customer and energy demographics of the area. While a utility cannot realistically provide customer-level or customer-identifying information to the market due to confidentiality concerns, developers and vendors need as much data as possible to develop their solution including:
- Project Drivers: What issue, such as load growth, voltage overloads, and asset degradation, is the utility trying to address with the proposed project?
- Need Specifics: What is the size of the need? What is the frequency and duration of the need? What is the time of day or year of the need?
- Customer and Energy Demographics: What is the customer mix? Can the utility provide load profiles by customer segment or at the circuit level?
- Interconnection availability: Is this area set up to facilitate DER interconnections? Are there any barriers to DER interconnections developers should be aware of?
Facilitating Creative and Integrated Solutions
Developing an effective NWA program also requires an appetite for creativity, both in how system planning is conducted and in the procurement and market engagement processes. Looking for an opportunity to utilize a hybird NWA solution can bring more projects to the table where NWAs alone cannot meet the project need, or cannot meet the need cost-effectively. However, utility planners will need to be engaged in developing the wires portion of the solution and integrating the proposed NWA resources into the hybrid solution. Soliciting the market for NWA resources that can support a hybrid solution may require more collaboration between utility planners and developers during or after an RFP and may require additional information in the RFP itself to support developers in designing solutions for a hybrid approach. It will be important for any utility pursuing hybrid solutions to seek feedback from the market on what information they need and how to effectively facilitate collaboration between planners and developers in a way that is open and transparent for everyone.
Developer and vendor partnerships can faciliate more creative or integrated solutions that a single party may not be able to provide on their own. Utilities can support partnerships by distributing information about upcoming RFPs in advance of their formal release to allow developers additional time to seek potential partnerships for a specific project. Developing processes or resources to support partnerships, such as certified developer lists, documentation on past bidders, or a website for interested companies to connect can also facilitate these partnerships and integrated solution opportunities.
Solving the Economics Problem
The true costs and benefits of any NWA project goes beyond comparing the comparing the cost of the traditional solution to the cost of the NWA project. However, determining whether an NWA project is cost-effective in comparison to the traditional wires solution has proven to be extremely challenging for the market. As we’ve already discussed, including the cost of the wires solution, and any assumptions made to get that cost, is critical. However, in the absence of defining a formal benefit-cost framework, which likely requires regulatory approval, and/or providing the market with a benefit-cost calculator, utilities can provide other information to assist developers in evaluating their projects cost-effectiveness.
Providing detailed information on the timing, frequency, and duration of events supports the developer in not only determining whether their solution can meet the need, but also allows bidders to determine whether they can earn revenue from other sources or markets when not needed for an NWA event. Developers can then factor this revenue into their bid and reduce the cost of their solution; without the ability to estimate other revenue streams bidders will need to use their full solution cost in their proposal, making their solution appear more costly than it may be in reality.
Keeping the Market Engaged
There are many aspects of a utilities’ NWA procurement and market strategy that can be finessed to effectively engage the market, but market engagement should be an iterative process with an eye for continual improvements. While the market for NWAs is developing and declining solution costs and increased flexibility is expected to support greater NWA implementation in the future, utilities should ensure their market stays engaged and does not suffer from proposal fatigue. Developers in jurisdictions that have solicited bids for numerous NWA projects have noted they are starting to question whether it is worthwhile to continue submitting bids if no contracts are awarded. While supporting the market in developing cost-effective bids or determining whether their solution is cost-effective before they bid, is a key step in keeping developers engaged in NWA procurements, utilities can do more to keep their market engaged. Ensuring the proposal process is efficient and transparent, providing opportunities for direct interaction between the utility and developers, and providing feedback on why a proposal was not selected can go a long way in keeping the market happy while everyone figures out how to make NWAs successful together.