Commentary: Utility planning must keep pace with rapid changes in energy sector

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DTE Energy headquarters in Detroit, Michigan.

Laura Sherman is the President of the Michigan Energy Innovation Business Council.

DTE Energy’s integrated resource plan (IRP) is a stunning example of how quickly the U.S. energy sector has changed and continues to change. As recently as a decade ago, DTE Energy was nearly 80% reliant on coal-fired power plants for its energy supply and 1% reliant on renewables. 

Now, DTE’s fuel mix is approximately 64% coal and 8% renewables. The IRP proposed by DTE that is currently in the regulatory approval process would double the amount of energy the utility generates from wind and solar by 2024.

That is undeniably a dramatic change. But it is also true that many electric utilities, including those in the Midwest, have proposed much more ambitious shifts toward low-cost renewables.

Many stakeholders have described how DTE used unnecessarily high cost estimates for renewables in its modeling, thus limiting the amount of new wind and solar in the proposed plan.

But we think this criticism is part of a more fundamental issue: Energy in America is changing faster than any one company can estimate. Technological innovations in areas like solar panels, wind turbines, energy demand management software and energy storage are making higher and higher levels of advanced energy the best economic option.

These innovations can allow utilities like DTE to shift their generation toward more renewables — but for that to happen, utilities need to actively engage the private sector to understand and explore cutting-edge innovative technologies that can benefit customers, utilities, and the grid.

Here are some examples of how DTE’s recent IRP proposal could better embrace innovation in the advanced energy industry:

Energy storage is rapidly improving and innovating.

DTE’s IRP proposes 11 megawatts of pilot solar projects that would be combined with energy storage — a small amount in the context of the 1,169 MW to 1,419 MW of power capacity the utility plans to build from 2020 until 2024. But the IRP may have selected significantly more solar and storage projects had the utility’s modeling reflected recent advances in energy storage.

The costs of contemporary solar-plus-battery-storage systems are less than the summation of the individual solar array costs and battery system costs. Solar developers have figured out how to resize components like the inverter in order to reduce costs when solar and storage are combined, according to testimony from 5 Lakes Energy Partner Douglas Jester, submitted on behalf of Michigan EIBC and the Institute for Energy Innovation.

“DTE would have benefitted from these advances in design had the Company issued a request for proposals that included the combination of solar and storage,” Jester pointed out in the testimony. For example, bids for solar and storage solicited by a Colorado utility recently yielded a per-megawatt-hour price lower than DTE’s price for solar alone without storage. (Note: This comparison is as a ratio, not in terms of absolute numbers — Colorado is sunnier than Michigan, so in absolute terms the prices are lower in Colorado).

In addition to advancements in solar-plus-storage, there are many other new innovative energy storage projects that could be used to provide many different grid services and benefits. The technology is out there, but it often takes the financial certainty that comes with a contract with a utility to make those projects happen. For example, Michigan EIBC member NRStor has designed and operated many storage projects. One of those currently under construction, and expected to begin commercial operation later this year, will be the world’s first commercial fuel-free compressed air energy storage facility. NRStor developed the project atop an old underground salt cavern in Ontario, and air is injected and compressed in the cavern using electricity generated by wind turbines. The air is released at times of high energy demand to spin a turbine and generate electricity.

NRStor won the opportunity to develop this project through a competitive request for proposals issued by the province of Ontario’s Independent Electricity System Operator. This is the kind of highly specialized project that a utility cannot do by itself. Utilities in Michigan, like DTE, should consider the potential for innovation as a reason to issue a request for proposals as a crucial part of long-term planning efforts.

Renewable energy generation is changing rapidly.

There is also dynamism in more conventional energy sources that utilities must take into account. Solar energy technology has progressed greatly over the years, increasing the amount of energy that solar panels can generate and the predictability of power generation. One instance is solar tracking systems, which allow panels to shift position throughout the day to track the movement of the sun. Solar tracking is in contrast to fixed-tilt systems where the solar panel position stays tilted in one direction, which maximizes energy output at mid-day when the sun is high in the sky, but produces less energy at other times. Solar arrays that use tracking have more stable energy output throughout the day.

The modeling in DTE’s IRP treats fixed-tilt and single-axis tracking solar as the same when it comes to how much reliable energy solar can produce. DTE assumed that solar will produce energy around 50% of its nameplate capacity (which is the kilowatt or megawatt rating of the project). While fixed-tilt solar’s effective capacity is around 50%, for single-axis tracking it is around 69%. Essentially, DTE is proposing to build far less solar power than it otherwise would because it is not taking into account how efficient solar energy has become. This is an example of how solar technology is progressing and innovating. It’s critical for utilities to understand, recognize and take advantage of these cost-effective innovations to not miss out on opportunities to provide grid, customer, and economic benefits.

Energy policy is changing rapidly.

Renewable energy is also advancing in ways that are difficult to capture in a mathematical model — such as the development of new business strategies to expand renewables to places where they previously did not exist. One hurdle for the growth of wind and solar is the difficulty in finding suitable project sites.

In Michigan, until recently, farmers with land enrolled in the state’s farmland preservation program were unable to lease that land for commercial solar development. Michigan Gov. Gretchen Whitmer changed that policy earlier this year, a move that could increase farmers’ income and enable proposed solar projects to proceed. It could also help increase pollinator populations through the planting of pollinator habitats near solar arrays, thereby benefitting pollinator-dependent crops, as recent research has found.

Competition leads to lower costs for utilities and customers.

More than declining technology costs and changes in policy, businesses are innovating every day through competition. Utilities need to be open to proposals from independent developers that are finding new ways to make renewable energy work and doing it cheaper than ever before. A competitive bidding process in which third parties can propose projects from which the utility can purchase power — such as the process agreed to by Consumers Energy, the second-largest utility in Michigan, in its recently approved IRP — could place valuable projects on the utility’s radar.

As Jester explains in the testimony, “competitive bidding has long been viewed as definitively producing the least-cost, or best-value depending on selection criteria, provision of goods or services.” Competition leads to third-party developers bidding down the price of power the utility pays in the final long-term power purchase agreement, thus saving ratepayers money, and since another party handles engineering, design and construction, risk is transferred from the utility to the third party.

While improvements to the current IRP submitted by DTE are essential to deliver the most reliable and affordable energy to Michigan customers, simply changing the modeling will not address the underlying issue. The energy landscape is changing rapidly and there need to be new processes built into the utility planning process to help capture those innovations and put them to work for Michigan ratepayers. 

Dr. Laura Sherman is the President of the Michigan Energy Innovation Business Council, a trade organization of more than 120 advanced energy companies focused on improving the policy landscape for the advanced energy industry in Michigan.

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