Grid expansion usually means more power stations and wires. Far from simple, and very expensive. Non-Wires Alternatives (NWA) solve the problem differently by reducing net demand. Modern methods of energy efficiency, demand response, storage, and distributed generation are coordinated and used instead, under the banner of Distributed Energy Resources (DER). Crucially, it can cast utility firms in the role of market makers, not just generators and distributors. It’s a small but rapidly growing strategy in the U.S. and it has important lessons for Europe, say Karoline Steinbacher and Tim Stanton at Navigant. Their article covers new regulations, improvements in predicting demand, and more robust methods for procurement and managing implementation risk. They give examples from New York, California, the UK, the Netherlands and Germany. Decentralisation and the integration of multiple solutions to tackle grid expansion seem inevitable, so we need to plan ahead. The Energy Cloud is coming.
Non-Wires Alternatives in the US
The need for grid expansion is growing in many network areas. Factors like the integration of distributed renewable electricity generation and new loads such as EVs and heat pumps add to traditional drivers for grid expansion like ageing infrastructure and population growth.
While most of the necessary investments in network expansion will be classic poles and wires, this is not always the most feasible (topology, public opposition) or economically advantageous solution. Alternatives to grid expansion are therefore increasingly promoted, with the US leading globally in the use of non-wires alternatives (NWAs). In NWAs, utilities procure distributed energy resources (DER) such as energy efficiency, demand response, storage, or distributed generation instead of building or upgrading new lines and substations. These resources are used to reduce net demand at peak times in congested areas and thereby reduce required grid capacity.
Compared to total capital investment in the distribution grid in the US (more than $25 billion in 2017), NWAs still only represent a small portion, but according to Navigant Research the niche is expected to rapidly expand at a 20% compound annual growth over the next decade. Navigant Research’s new report, Non-Wires Alternatives Tracker 3Q19, estimates NWA spending in the US to reach $333 million by 2028.
EU “unbundling” rules make NWA trickier
Interest in addressing grid congestion and other system needs through the procurement and use of flexible DER (flexibility procurement) is also growing among European grid operators and regulators. Since European transmission system operators (TSOs) as well as distribution system operators (DSOs) are bound by unbundling rules, the implementation of NWA-type programs is not straightforward. Unbundling means that system operation activities need to be separate from competitive activities linked to electricity supply and generation, which are used as alternatives to grid expansion in NWAs. In the US the situation is often different, as vertically integrated utilities own and operate grid assets while also being able to directly procure, access, and control DER to defer or avoid grid investments.
The EU’s Clean Energy for All Europeans legislative package nuances the separation between distribution grid infrastructure and the use of DER. It both recognises a role for DSOs in procuring flexibility to mitigate CAPEX-heavy grid investments and recognises the barrier in procuring flexibility based on current grid regulation and electricity market structures. The recently adopted Directive on Common Rules for the Internal Market on Electricity requires EU member states to incentivise DSOs to “use services from DER such as demand response and energy storage, based on market procedures, in order […] to avoid costly network expansions.”
Three lessons from the US
Despite differences in electricity sector structures, the US experience with NWAs can be used to derive insights for utilities and policymakers in Europe:
Insight 1: NWAs require innovative regulatory frameworks, departing from traditional incentives
In the US, as in Europe, grid operators traditionally make a return from investing in and operating physical infrastructure. An innovative regulatory framework is needed to incentivise the use of alternatives to grid expansion and is already in place in several US states. New York and California are at the forefront of regulatory innovation in this field and host the majority of NWA programs.
The California Public Utilities Commission provides incentives for grid operators who defer or avoid traditional grid investments as part of its Distribution Investment Deferral Framework. To increase interest in the use of NWAs, distribution grid operators need to be allowed to recoup costs and keep some of the savings the programs bring to ratepayers in a benefit-sharing mechanism. New York is leading with the development of a benefit-cost analysis handbook that enables the use of NWAs as part of the state’s energy system transformation plan, Reforming the Energy Vision.
Insight 2: Utility processes need to be adapted to make NWAs work
To implement NWAs, grid operators need to gain a precise understanding of system peaks and the exact location of bottlenecks to define for what times of the day, for how many hours, and during what seasons additional capacity is needed. These forecasts are subject to uncertainties; changing load growth patterns and temperature variations can affect capacity needs substantially. Grid operators may be reluctant to rely on comparatively new and variable resources to meet their obligation to supply safe and reliable electricity.
Organisational change, capacity building, and enhanced modelling capabilities within utilities are often prerequisites for successful NWA implementation, as is knowledge transfer from pilot projects. To gain experience with non-traditional resources to avoid grid investments, Southern California Edison uses its Preferred Resources Pilot to procure 200 MW of DER by 2021 to meet growing load and ensure grid reliability. Some of the lessons learnt from this programme include combining RFPs and customer programs, adopting a dynamic, probabilistic load forecasting approach and closely monitoring the ability of distributed resources to effectively decrease peak load.
Insight 3: NWA design should consider implementation risks
Carefully designing the procurement mechanism for resources within NWAs is crucial to avoid risks of non-availability of resources, non-realisation of awarded projects, and local market power. Since NWAs often address local grid bottlenecks (although some examples at the transmission level exist), only a limited number of resources can provide capacity where it is needed. To mitigate local market power and resulting higher prices, it is essential to ensure strong participation both in RFPs and in customer-side programs. Sufficient lead times can create market depth by making it easier for a greater variety of resources to participate. Awareness and information campaigns can raise participation in efficiency and demand response programs that reduce peak load.
While most NWAs rely on RFPs for specific technologies, technology-open competitive procurement has received significant attention following the implementation of Con Edison‘s Brooklyn Queens Demand Management Program (BQDM). In BQDM, Con Edison procured 41 MW of customer-side resources in an open auction to defer investment in a substation. Although generally considered a successful programme—it was extended after its initial round—several cases of non-realisation of successful storage bids occurred due to permitting issues. This points to the need for sufficient prequalification requirements and consideration of local framework conditions.
The future: from NWAs to Flexibility Procurement Platforms in the Energy Cloud
Underlying the increased interest of DSOs in the US and Europe to use DER to procure flexibility and remedy grid congestion, is a profound transformation of the role DSOs will play in a changing energy landscape. This transformation from infrastructure operators to potential market facilitators is evidenced by the growing number of flexibility platform pilots. Like the NWA programs, these emerging platforms also aim at mitigating grid congestion through the use of flexible energy resources, but rely on market mechanisms rather than on utility programs and individual RFPs.
In the UK, the industrywide Open Networks Project initiative is making it easier for flexibility providers to offer resources to grid operators who look to address grid bottlenecks. By the end of 2019, the initiative projects that over 400 MW each of demand side and generation flexibility will have been procured through new market mechanisms such as the Piclo platform. In the Netherlands, a common effort by the TSO, TenneT, and regional DSOs has led to the emergence of GOPACS, a joint market platform to address grid congestion. Other major markets are also experimenting with local flexibility platforms in pilot projects to address local bottlenecks, such as Germany’s €200 million SINTEG energy showcases funding programme that tests new flexibility and digital distribution grid solutions.
While flexibility procurement by DSOs will likely take other forms in Europe due to fundamental differences in market setup and regulation, overarching lessons can be drawn from NWA implementation in the US. Using distributed resources and the flexibility they provide to address grid needs can be an important element in the transition from a central, top-down energy system to a more decentral, interconnected one—the Energy Cloud. To fully capture this opportunity, programs must be designed in a way that speeds up the integration of low carbon resources and benefits ratepayers and utilities alike.
Navigant Research, Non-Wires Alternatives, 2017.
Navigant Research, Non-Wires Alternatives Tracker 3Q19, 2019.
Tim Stanton is an Associate Director at Navigant