The Energy Optimist Episode 2: Out With the Old, In With the New: The Future of Energy

Episode Show Notes

Key Takeaways

1. Today’s guest, Priya Sreedharan, is a thought leader in the clean energy transition, from DER integration with the electric grid, to resource adequacy and power system modeling. Priya holds a PhD and MS in mechanical engineering from the University of California, Berkeley, where she developed “data science” (Bayesian statistics and optimization) techniques for environmental sensing and energy efficiency diagnostics applications. She brings her insights on electric sector transformation to today’s episode.
2. The episode walks through:
   • Why we regulate the energy sector the way we do, starting with a walk through history, all the way back to 1890’s Chicago;
   • Key decisions public service commissions—–-the regulators of the electricity sector—–-have to make in transitioning to clean and renewable energy;
   • How the future of energy is being shaped by distributed energy resources and electric distribution system planning.
3. Highlights:
   • “Regulators should adopt a crawl, walk, run approach, recognizing that you don’t need to solve every problem today, but you need to start making progress.”
   • “As we see billions of dollars in distribution system investments being proposed, regulators need to be able to sort through these proposals and decide what investments should be approved. We need to make sure that these investments are aligned with the policy goals that have been laid out by the state. Has the grid plan taken into account other incentives and programs for energy efficiency, electric vehicles? Does the grid modernization plan empower rather than hinder customers from adopting clean energy? Has the plan included backing with credible cost-effectiveness analysis?”
   • “We’re seeing more and more sophisticated ways of modeling decarbonized power systems. This means the old way of doing things, where you could more or less plan with a spreadsheet and a planning reserve margin, is over. The design space now is far more complex. We need modeling tools that take into account the complexities of renewable energy and storage and have better linkages between the different kinds of modeling that are conducted, like capacity expansion modeling and resource adequacy analysis.”

Resources and Further Readings

1. For a deeper dive into how California avoided power outages during a major heat wave using demand flexibility along with imports and storage, see Utility Dive.
2. In 2022, Advanced Energy United and GridLab published FERC Order 2222 Implementation: Preparing the Distribution System for DER Participation in Wholesale Markets. The report provides recommendations to support DER participation in wholesale markets and Federal Energy Regulatory Commission Order 2222 implementation. 
3. Priya notes the following report, an initiative led by the Energy Systems Integration Group, with participation from GridLab, and other stakeholders: The Transition to a High-DER Electricity System: Creating a National Initiative on DER Integration for the United States. The report “proposes a national initiative to develop greater consistency and consensus around DER [distributed energy resource] integration in the United States” (at p. 2).
4. 2035 Report (GridLab 2035 Part Two Transportation Study). The report shows that transitioning to having all new car and truck sales be electric by 2035 is technically and economically feasible.
5. In 2020, GridLab and IREC published the Grid Mod Playbook, a tool to help regulatory stakeholders evaluate and make more informed decisions about grid modernization proposals, distribution plans, and grid investments.

Episode Transcript

Radina Valova, IREC Regulatory Vice President and podcast host: Hello, and welcome to the Energy Optimist where we start with the bad news and end with what increasingly feels like a radical idea: that there are reasons for optimism. I’m your host Radina Valova, Regulatory Vice President with the Interstate Renewable Energy Council (or IREC), an independent nonprofit that’s been building the foundation for the rapid adoption of clean energy and energy efficiency for more than 40 years. Each episode, we tackle a thorny energy policy challenge in bite-sized interviews with leading experts.

If you’re totally new to energy policy, we’ll demystify it for you. If you’re a seasoned practitioner, we’ll hopefully leave you with renewed optimism to keep doing the work to improve our energy system—because hope is the fuel for change.

On today’s episode, we’re going to dive into the question, “What is the future of energy?” But in order to see where we’re headed, we need to understand where we started, how our current system was developed, and why it operates the way it does. So we begin with a walk through history.

Picture this. It’s 1898. You’re Samuel Insull, President of the Chicago Edison company. Technology is changing the world, from railroads to the telegraph, and it’s an exciting time in the energy industry, too. Just 18 years ago, Thomas Edison flipped on the first central station power plant at the Pearl Street Station in downtown Manhattan. And now everyone wants electricity. Your business is booming. But trouble is on the horizon. 

You’re set to give a speech at an energy industry dinner, and you say something so controversial you’re either a visionary, or you’ve gone off the rails. Spoiler alert: Samuel Insull was a visionary. For better or for worse, the way we regulate the utility sector today dates back to the speech he gave in 1898 in Chicago.

Here’s the story: At around the same time as the energy industry was starting to grow exponentially, the concept of holding companies also emerged. The railroad and oil barons were raking in millions of dollars, trillions in today’s currency, by consolidating their holdings across multiple businesses and trusts like Standard Oil, and the electric sector wasn’t far behind. But Samuel Insull and, more importantly, his shareholders at Chicago Edison company were starting to get worried.

By the time Insull gave his now famous speech in 1898, the federal government was beginning to crack down on monopolies because it was becoming increasingly clear that when there is no competition, the quality of products and services decreases while their costs increase. Rumors were emerging that Congress was getting ready to pass a massive new antitrust law that would break up conglomerates like Standard Oil.

Insull saw the writing on the wall that monopolies would not be allowed to continue growing unchecked, and decided to get the electric industry ahead of the curve. So he gave a speech to the energy industry in Chicago that must have ruffled the feathers of both antitrust law supporters and monopoly business owners. Insull argued that utilities should be allowed to be monopolies, to have exclusive government-granted franchises over their service territories, and that they should simultaneously be regulated by the government.

Here’s his argument: Utilities are natural monopolies. People want more and more electricity. But building out electric infrastructure—all those poles, wires, substations, transformers—is very expensive. It simply doesn’t make sense to have multiple companies investing money in the same service territory. That would drive up costs for customers and be extremely inefficient.

So in order to meet the growing demand for electricity efficiently, utilities should be allowed to operate as monopolies and build economies of scale to reduce costs. In exchange, state governments should be allowed to regulate them in the public interest by requiring that they provide safe and reliable service at just and reasonable rates. 

By operating as regulated monopolies in a stable and secure regulatory environment, utilities would also be an attractive investment to shareholders and banks so they can borrow money at cheaper rates and pass those savings down to their customers. Everybody wins.

That’s how we get to the present day. Both our federal and state utility regulations are based on Samuel Insull’s vision. In a society that, at least in theory, values competition over concentration, utilities—including electric, gas, telecom, and water—are among the very few types of businesses we’re willing to accept as monopolies. This vision worked for many years. It did, in fact, allow the energy industry to rapidly scale more cost effectively and efficiently.

But things are very different today than they were in the early to mid-1900s. Utility customers—you, me, your local hospital and grocery store—are increasingly interested in adopting solar, storage, and other renewable resources in order to have more control over our energy sustainability and costs. This means that the old model of utilities being the primary providers of energy services isn’t working as well anymore.

One of the biggest questions we’re asking now is, “What is the future of energy?” Are we still served by this system built on Samuel Insull’s vision, where electricity flows in one direction from the power plant to the customer, and where there is very little competition for energy services? Or would we see more environmental, community, and economic benefits if we reimagined the energy sector as a more competitive system, where renewables, electric vehicles, energy storage, and other resources meet our energy needs in a more reliable, affordable, and equitable way?

Today’s episode asks the question, “What is the future of energy, and what do we need to do to get there?”

Radina: We are joined today—I’m very excited to have on the podcast as our guest, Priya Sreedharan, Program Director with GridLab. Priya, would you like to briefly introduce yourself for our listeners?

Priya Sreedharan: Sure. Radina, thanks so much for giving me the opportunity to be here. I’m really, really excited about this conversation. Happy to say hello to all your listeners. As you mentioned, I’m a Program Director at GridLab. We’re a small nonprofit organization based in California, but we work across the United States to try to support an affordable and a reliable electricity sector transition. We do that by providing pro bono technical assistance to environmental organizations, as well as other organization types and governmental agencies and other decision makers.

Radina: Wonderful. I’m very excited to have you join us for today’s discussion of what is the future of energy. So let’s dive in. My first question to you is, in your view, what is the future of energy? And more specifically, what are some of the innovative new policies and solutions for getting us there?

Priya: Wow. That’s a huge question. I will do my best to do it justice. Well, I think at this point, it’s pretty widely accepted that our energy future includes widespread electrification of transportation and building sectors and decarbonization of the electricity sector, which is going to mean a lot of solar, a lot of wind, and a lot of storage.

The Inflation Reduction Act echoes this vision, incentivizes renewable energy and storage, as well as building and transportation, electrification, and lots of other goodies that should help situate us for reaching a new energy future in a reliable and an affordable way. But distributed energy resources [DERs] are an inherent part of this vision.

Radina: Can you define what you mean by DERs?

Priya: When I think about DERS, I think of a broad set of technologies. It can include distribution-level generation, storage, energy efficiency, demand response.

And in my view, there are two reasons why I think DERs are an important part of this vision. Well, first, consumers are demanding these kinds of resources. The IRA is only going to help propagate adoption of these resources. 

Second, as our electricity system becomes more clean and has more variable renewable energy and less dispatchable thermal generation, we’re going to need tools in our toolkit to make sure that we’re able to balance supply and demand and maintain reliability.

You can do that with supply side resources such as utility-scale storage, transmission, and markets. We’ve seen a lot of focus on both of those topics in recent years. But DERs give us the ability to shape our demand. And this is where I get personally really excited about the role of DERs.

Radina: Can you provide an example of what you mean by ‘shape our demand’?

Priya: Flexibility on the demand side has already proven to be a hugely valuable tool. For example, if you live in California, we experienced heat waves in recent years. DERs’ flexible demand definitely played a key role in mitigating those impacts. According to our GridLab 2035 Part 2 Transportation study—this was a study that we did that took a national view—we calculate that we’re going to have about 110 gigawatts of new peak load due to EVs, electric vehicles, in 2050.

If you can imagine, just having the ability to be able to manage just 10% of that load and treat it flexibly, that would give us 10 gigawatts of storage. So that’s huge. It’s a great opportunity.

Radina: We’ve talked a little about technologies or programs like demand management. What about the way we regulate the energy sector?

Priya: Our energy future is going to require changes to how we think about the role in the services from utilities, including utility programs. I think utilities will still need to play a core role in delivering a clean energy future through good bulk system and distribution system planning, and making it easier for customers to be a part of this future. But I’m hopeful that we can find synergies between different functions of the utility.

I personally think for this clean energy transition to be sustainable, it’s going to need to be affordable. That means that utilities are going to need to be careful and strategic with respect to their investments, with respect to grid modernization, and also how they support the adoption of building and transportation electrification.

So investments need to be based on robust cost-effectiveness analysis. We need to make sure we’re leveraging the tools that can help integrate DERs in efficient ways and smart ways. For example, using smart inverter technologies. 

But ultimately, the utility regulatory model may need to change. Can we envision a utility model where the focus is less on the rate of return on equity and investing in capital infrastructure but rather on delivering services? Can we make things like performance-based rate making a real thing in the U.S.?

I wanted to also address energy justice. The energy industry is not exempt from having to recognize that there are existing inequities in the system. We need to figure out how to deal with these. These inequities, they can range from, for example, disproportionate exposure to thermal or biomass power plant emissions, to higher levels of energy burden, and even disproportionate levels of utility disconnections for disadvantaged communities or communities of color. That is true even when you’re adjusting for income, which is really concerning.

Radina: Can you share a little more about what your vision is for energy equity?

Priya: When I think about an equitable energy future, I think about a future where all customers have opportunities to access the benefits of DERs, including local resilience. I also think about a future where buses and trucks are not emitting air pollution, which we know has disproportionate impacts on communities of color.

Radina: All right. Priya, that is, wow, a lot to work on. So there are clearly a lot of solutions involved in transforming the energy sector. And I feel like if we had to undertake all of them simultaneously, that could become really overwhelming for everyone involved—the regulators, utilities, clean energy developers, customers.

I know GridLab does a lot of technical assistance to stakeholders. So let’s say you are working with a state that has the goal of reaching 100% renewable electricity by 2050, and it’s already deploying some of the clean energy solutions you talked about. Maybe it has a good energy efficiency program that has some incentives for adopting solar and storage. What would you advise those regulators to do next towards grid modernization, towards this future of energy?

Priya: Radina, this is a great question. I want to just acknowledge that I think folks in our industry, especially including regulators, including utility personnel and others, we’re really “at capacity” in some sense in terms of how much work we have. It’s sort of like we have a great problem, right? There’s great opportunity to transform the system, but there’s just so much work that needs to be done.

I know your question was actually motivated by grid modernization. But I’m a systems thinker. I think it would be remiss if we didn’t at least pay a little bit of attention to the entire energy system as a whole, because I think there are low-hanging fruits and work to be done across the entire energy system for this all to work well together.

So with that in mind, I think there are a few key issues that I would advise state regulators to be thinking about from the big picture when it comes to the energy transition that go a little bit beyond grid modernization and distributed energy resources, which I do want to come back to on the bulk system planning side.

At GridLab, we’ve been super focused on ensuring that utility integrated resource plans or IRPs, as they’re referred to in shorthand, have strong and transparent modeling and analysis to back them up. By the way, this theme actually goes beyond IRP, this notion of good analysis and transparency. What we’re seeing more and more is that we need more sophisticated ways of modeling decarbonized power systems. This means the old way of doing things where you could more or less plan with a spreadsheet and a planning reserve margin is over.

The design space now is far more complex. We need modeling tools that take into account the complexities of renewable energy and storage and have better linkages between the different kinds of modeling that are conducted, like capacity expansion modeling and resource adequacy analysis. 

It’s important that regulators ask the key questions. They may not know the technical details, but asking the right questions is hugely important. For example, how do these plans consider the uncertainties in technology and fuel costs? How do they consider weather-related risk?

Second, as we talked about a bit earlier, I believe equity is becoming a front and center issue. There are a couple of suggestions that I have in this regard. First, a lot of states have equity-focused dockets, and this is fantastic. But I think it’s important for regulators to think about equity as an overarching theme, along with affordability, reliability, and sustainability, rather than some issue that’s over here on the side.

Your question references energy efficiency as a success example, but I might actually challenge whether most states have successful energy efficiency programs, especially when viewed through an equity lens. I would encourage regulators to do just that: really interrogate and explore how effective their programs have been when viewed through that lens, and to what extent have they focused on removing barriers for low-income consumers, or even multi-family homes, to adopt energy efficiency. Has a utility considered programs that could address local air pollution such as school bus electrification?

So let’s come back to grid modernization. I think there are various low-hanging fruits here such as requiring smart inverter capabilities for exporting distributed energy resources or DERs. But more fundamentally, as we see billions of dollars in distribution system investments being proposed, regulators need to be able to sort through these proposals and decide what investments should be approved.

In 2020, IREC and GridLab developed a report that is designed exactly for supporting this task. It’s meant to be, intended to be, regulator facing. We refer to it as the GridMod Playbook. It’s officially called A Playbook for Modernizing the Distribution Grid. Of course, like all of our reports, it’s available on our website, as well as on IREC’s website for download.

The report articulates a set of principles that regulators can use as initial screens to assess grid modernization proposals. For example, the very first principle is that grid mod should support and enable policy goals such as decarbonization and beneficial electrification. In other words, there has to be a policy-centric reason for these decisions, or at least we need to be making sure that these investments are aligned with the policy goals that have been laid out by the state.

Has the grid plan taken into account other incentives and programs for energy efficiency, electric vehicles? Does the grid modernization plan empower rather than hinder customers from adopting clean energy? Has the plan included backing with credible cost-effectiveness analysis, which I had alluded to earlier? 

And so we have this sort of checklist of questions that regulators can ask when they’re reviewing a grid mod plan. These questions are also specific to certain categories of investments. What are the key questions if, for example, advanced metering is being proposed or grid automation?

Radina: I really appreciate your detailed response for that. Thank you also for highlighting the Grid Mod Playbook as a resource that regulators and other stakeholders can use in building this clean energy future. Are there any other resources that you’d like to highlight that are currently available?

Priya: Sure. Actually, last year, GridLab was engaged in two national-level industry conversations or initiatives on DER integration. One was with Advanced Energy Economy — they’re now called Advanced Energy United—which brought together DER providers and utilities. The second one was in partnership with the Energy Systems Integration Group, also known as ESIG. 

Both of these initiatives were motivated by FERC order 2222, which requires RTOs and ISOs to allow DER aggregations to participate in their markets, in their wholesale markets. But they really are more generally useful to this topic of DER integration hand and have a lot of goodies for regulators.

For example, one recommendation in the new GridLab report was that regulators should adopt a “crawl-walk-run” approach, recognizing that you don’t need to solve every problem today but you do need to start making progress. For example, in the topic of controls, we advise that installations of DERs should be leveraging autonomous control features that have been adopted a standard, such as IEEE 1547, which can encourage DERs to be good grid citizens.

I also wanted to highlight that both of these initiatives contain many recommendations that are centered in process rather than recommending new hardware and software tools. I think that’s a really important point. For example, the need for utility interconnection rules to be transparent and fair, and the ESIG initiative also calls for a national dialogue on DER integration.

Radina: Great, thank you so much. Again, I really do appreciate your focus on both tangible solutions, as well as process—how we’re doing the evaluation, what lens we are screening various clean energy or grid modernization proposals through. I think that’s just as important as the solutions themselves. 

You mentioned a couple of times interconnection. I’m going to ask a really leading question here. If you’re a homeowner, for example, and you want to install solar on your rooftop but you want to remain connected to the grid—which most people who adopt solar want to do—you have to put in an application with your local utility to interconnect your solar system to the grid. 

How important is interconnection to empowering customers to adopt clean energy and support this bigger picture of clean energy transition that we’re talking about?

Priya: This absolutely is a leading question. Interconnection is really essential from a practical perspective for customers who wish to install their own solar or their solar and storage systems. That’s because it’s simply prohibitively expensive to go off the grid and rely on your own source of energy.

Quite frankly, from a broad societal perspective, it just doesn’t make sense to not leverage this really massive engineering marvel that we call the grid. So this means that for the most part, in the near future, at least, we are in an era where customers will need to interconnect their systems to the grid. That entails going through what can sometimes be a complicated or burdensome process. But this means that it’s really important that if we want to remove barriers to customers adopting their own clean energy resources with generation capabilities, we need to make interconnection smart, efficient, and transparent.

For example, IREC has developed these model interconnection procedures that can be helpful to utilities and regulators and others. They really are intended to streamline the development, the project development process, and save resources for everybody. 

There are also similar guidelines, for example, in California’s Rule 21 and the FERC’s Small Generator Interconnection Agreement and Procedures rule. They all have something in common which is that they contain these sorts of expedited reviews. So I think model guidelines are definitely an opportunity or a tool for regulators to try to standardize the process amongst the utilities in their state, and it also has advantages to customers.

I wanted to also talk about what might seem a little bit like a wonky topic in the field of interconnection, which is hosting capacity analysis. I think this is a really great tool that’s emerged over the last several years that can facilitate smart use of our distribution system and efficient interconnection. The idea is pretty simple. It basically involves calculating how much DERs can you accommodate on the distribution system at a particular time and location without having to trigger the requirement for new upgrades to the distribution system, which of course costs money.

Really, this is a segue to the last topic I wanted to mention in regards to interconnection. That’s on flexible interconnection. I really think this is probably the most exciting area when it comes to interconnection. So just real quickly, fixed interconnection—which is the opposite of flexible—assumes the maximum output worst case scenario in terms of potential impacts on the grid.

But the thing about this kind of analysis or assumption is that it may very rarely happen. It’s sort of like building a peaking generation unit when you just need capacity for maybe 10 hours of the year. It’s not necessarily the most efficient solution. \

So flexible interconnection implies that the output of the distributed energy resource can be managed or curtailed in worst case conditions so that you can avoid having to upgrade the grid.

Radina: All right. We have covered a lot of ground in this conversation and started to really get into the weeds of some of the solutions that will help us build towards this more dynamic, equitable, affordable clean energy future. I’d like to close with what gives you hope. In the midst of everything we have to do to get there and the scale of the challenge, what gives you hope? 

Priya: Well, this is a great question. To be honest, sometimes I think we are so absorbed in the challenges and what’s wrong with the way things are now and how far we have to go that it can all feel so overwhelming. We forget to sometimes pause and just look back and appreciate how far we’ve come. When we do that, I actually think there are a lot of things to be positive about.

So just from a big picture perspective, I think there’s a lot to be excited about with respect to how much momentum we’re seeing in terms of the clean energy transition. The U.S. power grid was 40% clean or carbon-free last year, which is huge. This is a global trend. We’re seeing increasing adoption of clean energy across the globe. Sales of electric vehicles are also up globally. I think there’s a reason to be optimistic on the policy trend. The fact that the U.S. Congress could pass the landmark climate legislation and, in fact, two more separate energy-focused bipartisan legislations all in one year is really incredible.

And lastly, it’s exciting that clean energy is rapidly becoming an everyday topic among people outside of our energy circles. I have friends that work in completely unrelated fields that are asking questions about purchasing electric vehicles or converting their hot water system to a heat pump—their gas-based hot water system that is—or wondering about installing solar panels on their roof. In one case, I had a friend who was motivated to install solar and a heat pump water heater because of their 13-year-old son who was asking them why they haven’t been considering this already.

So that’s what this is really all about, right? That’s why we do the work we’re doing. It’s about salvaging a future for our young generations and for, hopefully, several generations to come.

Radina: Your response is the reason that we wanted to do this podcast. Thank you so much for that much needed injection of hope.

Priya: We need the positivity, right?

Radina: Yes. Yes, we do. To keep doing the work, to keep showing up. I really appreciate everything you shared with us today. Thank you so much for joining us. And continue doing the amazing work that you do! 

And that’s it for today’s episode. A huge thank you to Priya Sreedharan for being our guest and to you for tuning in. Join us next month where we’ll dive into a crucial question, “How does the way we operate our energy system results in unjust and inequitable outcomes, and how do we make energy equity a core priority?” Until then, yours truly with optimism, Radina.

This episode of The Energy Optimist was produced and recorded by Radina Valova, edited by Mari Hernandez, Gwen Brown, and the team at Podcast Engineers. And graphic design was provided by Nicole Wilson. If you enjoyed this episode of The Energy Optimist, subscribe to our email announcements about new episodes by visiting IRECusa.org/TheEnergyOptimist. Or you can find us on your favorite podcast streaming service.