April 18, 2018
Regulators and Pilots: Now for Our First Act
ADL Ventures partner Erik Desrosiers was featured in the Yale Clean Energy Finance Forum.
Written by Sara Harari and Ben Bovarnick
Testing a Technology or Solving a Problem
Even when a technology has demonstrated successes in the field, a positive result from preliminary testing may still not be enough to convince regulators or utilities to invest in a new pilot project. Pilots are typically developed from a research mindset in which vendors test technology to learn how it can be improved and refined. Meanwhile, utilities may want to see how a new technology would work with the grid.
Erik Desrosiers, formerly a technology-to-market advisor with Advanced #Research Projects Agency – Energy (ARPA-E), spoke with Clean Energy Finance Forum about this process. He said this split perspective may have either a “research” mindset or a “disruption” mindset. “Pilots should be organized differently. If it goes well, adopters should be saying ‘We’re going to put this everywhere.’”
Evaluating the Success of Pilots with a New Framework
Part of the problem in transitioning from research pilots to disruption pilots is that companies developing pilots may lack a clear goal to broadly replicate successful pilots.
To better understand how pilots can move to a disruption mindset, we need to specify a new vocabulary that differentiates the scale of disruptive technology pilots through three stages of adoption:
Stage 1 – Offline applications: In Stage 1, new technology is deployed and tested while the grid is offline, such as during planned maintenance of systems.
Stage 2 – Limited application: In Stage 2, new technology has some limited and controlled interaction with operations.
Stage 3 – Market transformation: In Stage 3, the technology is pervasive throughout the electric grid and completely changes the economics of the system, fundamentally altering grid geography.
Moving from Stage 1 to Stage 2 requires technical competence. If a technology can demonstrate both affordability and reliability, then there is more likely to be uptake by utilities.
However, moving from Stage 2 to Stage 3 is a much more difficult process than the previous step. This often requires direct stakeholder engagement that involves deciding how to calculate the risks and benefits of each technology and how and why it may improve the grid. This can be an extensive process, requiring time, patience and resources for both technology developers and utilities.
Taking a Pilot to Grid Scale
Why don’t more successful technologies reach Stage 3? According to Desrosiers, many face “death by pilot” as they languish waiting for support.
In truth, very few developers can hope to deploy potentially disruptive technology without support from regulators. State regulators interviewed by Clean Energy Finance Forum said how important it is to view pilots as opportunities to test solutions to existing problems. They also said how important it is to have a well-defined problem before testing new solutions. They requested that their comments be anonymous.
To adequately assess how a proposed pilot will provide solutions to the electric grid, regulators look for answers to questions like these:
• Why is this project necessary to meet the needs of the grid at this time?
• Who will be sharing the risk of the project?
• Who will benefit most?
• What technical precedent exists for the technology being proposed?
• How is this pilot tailored to the local grid?
Utilities and technology vendors must be prepared to clearly demonstrate how new pilots will remedy specific problems facing the grid now or in the future while also clearly justifying the value of upfront capital investments. For example, if a utility develops an energy storage pilot in a part of the grid that is operating well and is not scheduled for upgrades, regulators may wonder why such a pilot is necessary and why ratepayers should carry the financial burden.
Macky McCleary, administrator of the Rhode Island Division of Public Utilities and Carriers, said regulators must balance risk appropriately between the utility and the ratepayers. They shouldn’t remove all liability. It is unwise to encourage utilities to take on projects that haven’t undergone rigorous assessments.
At the same time, regulators don’t want to reward utilities only if the pilots are successful, because this would discourage pilots for all but the most mature technologies, which likely don’t need pilots to begin with. This balance will vary from region to region and from one utility to another, and thus leads to highly negotiated treatment of new pilots.
Furthermore, public utility commissions operate in different ways depending on the characteristics of their states and the physical conditions of their electric grids. In Rhode Island, for example, the state employs an escalating staircase of performance in which shareholders are increasingly rewarded for improvements.
The specialized nature of financing and implementing pilots that different states employ means that regulators might appreciate the technical lessons learned from pilots taking place in other states but will be hesitant to replicate programs outright.
Just as regulators seek to tailor compensation for pilots around the variable risk tolerance of specific utilities, the regulators Clean Energy Finance Forum interviewed also highlighted the customized way pilot technologies are often integrated into different electric grids.
The characteristics of electric grids vary considerably, so pilots often have to be customized to the utility service territories in order to maximize their impacts.
As a result, utilities may be hesitant to give significant weight to the results of pilots from other service territories. This increases the likelihood that a utility will prioritize conducting pilots of technologies already piloted elsewhere. This can further impede the ability of new technologies to reach Stage 3 of deployment.
Read more on the Yale Clean Energy Finance Forum