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Wednesday, October 2, 2013

Time Varying Rates

Smart meters don't offer much value to consumers unless coupled with dynamic pricing, and only voluntary programs with proper consumer education and tools are likely to meet regulatory approval and market success. Retail electric rates that reflect actual wholesale market conditions will produce the most economic use of energy. During times of extreme peak usage, the rate should be much higher than a normal peak price.


If consumers are willing to accept more variability in price, they can get a discount from a flat base rate because the cost of delivering service goes down

  • The Smart Grid is not all about technology and consumers will not be engaged to change their energy use behavior without financial motivation. Today most consumers pay the same rate for electricity regardless of when they use it or the actual cost.

  • However, no customer is calling saying "I want smart pricing." Educating customers, offering them tools, providing temporary bill protection and offering a menu of dynamic pricing rates needs to be part of the solution.


2. Acronyms/Definitions
  1. Climate Zone – Based on altitude and temperatures for summer and winter, utility service territories are divided into climate zones that reflect the average energy consumption within each zone. Different climates create different energy needs, so baseline allowances vary by climate zone.

  2. Baseline – The starting point in tiered pricing rates. Baseline allowances account for 50% to 70% of the average residential consumption within a baseline zone. Additional baseline allowances are available for customers with special medical requirements.

  3. CARE - California Alternate Rates for Energy - CARE rates are discounted for low income customers

  4. Contract Demand - . At the outset of starting a commercial or industrial account, you may be required to sign a document committing to a specified demand.

  5. CPP – Critical Peak Pricing - Critical Peak Pricing programs offers lower electricity rates in return for setting a rate 3 to 5 times higher than the regular rate on up to twelve "Critical Peak" afternoons during the summer. Generally, the declaration is made one day in advance, but in some cases it is made just an hour before the higher rate goes into effect. Generally, the retail provider is limited – either by regulation or contract – in the number of peak days it can call in a year. At all other times, CPP customers are charged a non-dynamic rate, which may be time-invariant or may be time-of-use (TOU) based. Some CPP programs have multiple levels of critical peaks and associated retail prices, such as “peak” days and “super-peak” days, with the expectation that the higher-price days would be called less frequently. In California, Most classes have optional CPP rates.

  6. CRL – Customer Specific Reference Level - Used to calculate PTR discounts

  7. Demand Limit - Configurable limit by customer subscription Not a common pricing structure in US, but it is in Europe

  8. Demand Charges - Recover capacity-related costs. In California, demand charges are only used for larger customers. For smaller customers, demand charges are recovered through energy charges

  9. Economic Efficiency - Value created by the economy that goes to someone.  When we create rates that are not economically efficient, we incent behavior that destroys value.

    Economist argue you can have too much energy efficiency.  If you charge $0.50 per KWh, people will reduce their energy use in ways that are very costly.   People will do things that use a lot of social resources in order to avoid using electricity that did not cost society, even counting for externalities, ;nearly as much.

  10. Energy Charges - Recover variable costs of generation. Energy charges vary by TOU period based on old PX hourly price variation; this may change with MRTU

  11. Externality - A cost or benefit that results from an activity or transaction and that affects an otherwise uninvolved party who did not choose to incur that cost or benefit.

    For example, energy generation activities which cause air pollution impose health and clean-up costs on the whole society, while the neighbors of an individual who chooses to fire-proof his home may benefit from a reduced risk of a fire spreading to their own houses.

  12. Fixed Charge - According to Severin Borenstein, Director of the Energy Institute at UC Berkeley, the point of a fixed charge is not to account for fixed costs, but rather it's economic efficiency function is to make up any difference that occurs between efficient marginal pricing and total cost through a revenue source that has a minimal impact on consumption.  Since everyone needs electricity, a fixed charge will cause very few people to drop off the system.

    Borenstein says that when you account for externalities, efficient marginal costs may be higher than average costs and you don't need much of a fixed charge.

  13. Free Rider Savings - Structural savings in a PTR program. These are rebates that customers would receive as a consequence of ordinary variation in their daily energy usage (e.g., if they happen to be on vacation on the day a PTR event is called, but were home during the period reflected in their CRL allowance). Customers will realize additional bill savings under the PTR program if they initiate real demand reduction efforts in response to PTR calls. In practice, each customer will realize a combination of bill savings under PTR (structural and demand response), although such effects must be estimated statistically and could never be measured independently for each household.

  14. IHD – In Home Display - With respect to TURN’s assumption that a customer must purchase an IHD to participate in PTR, PG&E indicates that it has budgeted funds to provide continued support of education and event notification, such as public service messages and press releases. Thus, according to PG&E, although IHDs are critical as an additional notification channel, a portion of PG&E’s customers (particularly in high density urban areas like the San Francisco Bay Area) may learn about PTR events through other media.

  15. Net Contributor - A tool for quantifying a customer’s mitigation of grid/system expenses. 
    1. Points are earned based on quantified mitigation of system expenses
    2. Points directly translate to avoidance of fixed charge.
    3. Points apply to specific category of costs e.g. earning points for peak-energy does not allow avoidance of peak-ramp fixed costs 
    4. Smart Inverters for Prosumer.
    5. EV energy storage

  16. OAT – Ordinarily Applicable Tariff - Base rate from which CCP and PTR are calculated.

  17. Peak Demand - A measure of the capacity you require and that your utility is committed to meet under its franchise charter. Your electric meter makes measurements recorded at 15 minute intervals and the peak recorded demand in a billing cycle is what your utility will charge you for. Think of demand as the diameter of a water pipe and the current as water flowing through it.

    That said, tariffs can get a little intricate. There can be time of day rates where you can be billed for peak demands measured during on-peak, shoulder-peak and off-peak hours. Also in regions where capacity is tight, you may find yourself subject to a ratchet whereby your peak annual demand may impact your cost for the next year. Example: If your peak annual demand is 100 kW and there is an 80% ratchet, your minimum billing demand from that billing cycle forward for the next 11 months will be 80 kW. Now if your actual metered demand during those cycles is >=80 kW, no issue - you pay for what you used. But if demand is <80 kW, you pay for the capacity that the utility has obligated itself to meet. The higher the percent of the ratchet the more likely the ratchet will be invoked as the minimum billing demand.

  18. PDP - Peak Day Pricing - A new pricing plan in response to a statewide initiative led by the California Public Utilities Commission (CPUC) for the reduction of peak energy demand. PDP encourages customers to conserve energy when the grid is at or near capacity by rewarding customers who are able to reduce and/or shift their energy use to non-peak periods. PDP offers customers the option of getting power at a reduced price most of the time, if they agree to pay higher prices when the utility is facing peak demand.

  19. PTR - Peak Time Rebate - An incentive for load reduction equivalent to the penalty for increased use under a CPP rate. This formula will be used for California Residential customers instead of a CPP because of legal restrictions in AB1x. Peak time rebate (PTR) is sometimes described as an inverted CPP rate and provides rebates to participants to reduce electricity use during days when electricity demand is the highest (critical peak days). PTR could also be considered a mass-market equivalent of the emergency DR option. The dispatch for PTR is the same as that for CPP. If customers fail to curtail during the event, there is no penalty; the customer simply does not receive the rebate. Like CPP, participants can be notified of critical peak days either a day in advance or on the day of the event

  20. RTP – Real Time Pricing - Under RTP programs, the retail customer is charged prices that change at short intervals, generally each hour, but in some cases as often as every five minutes. In most cases, those prices are set one day in advance, but in some cases the price is set an hour or less in advance, and reflects real-time supply/demand balance even more accurately. RTP requires hourly market price signals to be sent to the end-use customer. This in turn requires a wholesale hourly electricity market which poses difficulties for implementing RTP.

  21. Tiered Pricing – Higher rates for higher use. The more you use, the more you pay. The starting point is “Baseline” amount.

    In California, increasing-block tariffs differ by region. Baseline quantities are set to cover same percentage of average usage (55%-65%) for each regions. Even though inland consumers use more electricity than coastal consumers primarily due to air conditioning, they don't pay a higher average rate because their baseline and tiers are adjusted accordingly.  If you got rid of tiered pricing, there would be no change in the average prices paid by inland or coastal customers.



  22. Two-Tier PTR Incentive Design - Participants with enabling technology such as automated load reductions devices will be paid a higher incentives to than participants without such devices or displays. Designed to minimize free-ridership. Approved for SDG&E, SCE and PG&E. PG&E is concerned about practical issues for establishing, enforcing and monitoring a two-tier incentive program. For instance:
    1. How will the required technology measures be identified (and updated)?
    2. How will individual customers’ adoption of such measures be known and confirmed?

  23. TOU – Time of Use - Higher Rates in peak and part peak, lower rates in off-peak

    1. PG&E and SCE have 6-hour summer on-peak. SDG&E has 7-hour summer on-peak. There are no winter on-peak periods

    2. Customers over 200 kW have TOU rates, 100 kW for SDG&E. There are optional TOU rates for most customers
    3. SCE and PG&E have interruptible rates for large customers and A/C cycling; SCE has agricultural pump cycling PG&E’s AC cycling is new

  24. TURN – Toward Utility Rate Normalization - Consumer Advocacy Group which questions the business cases of smart grid investments.

  25. Seasonal Rate – In California, summer demand is higher than winter, so rates are higher. All California utilities have seasonal rates. SDG&E is changing its summer season to May-October. SCE’s summer is June-Sept. PG&E’s summer is May-October

  26. VPP – Variable Peak Pricing - Options to buy electricity at a fixed price. A form of a TOU pricing that allows customers to purchase their generation supply from at prices set on a daily basis. Standard on-peak and off-peak time-of-use rates are in effect throughout the month. Under the VPP program, the on-peak price for each weekday will be available the previous day (typically late afternoon) on the utility’s web site. The customers is billed for actual consumption during the billing cycle at these prices.


Policy and Economic Issues in Dynamic Electricity Pricing - Severin Borenstein Professor UC Berkeley Haas School of Business Director UC Energy Institute April 11, 2007

Advances in metering, sensors, and automated response continue to lower the costs and raise the potential benefits of dynamic retail electricity pricing. Political opposition, however, has slowed the transition to these more efficient pricing policies. This webinar analyzes the potential benefits from dynamic pricing and the concerns about wealth transfers and risk to customers and utilities.


3. Business Case
  • Research from the Energy Institute at UC Berkeley has shown that Tiered Block pricing does not reduce consumer consumption of electricity any more than average pricing for consumer decision making.
    • Most customers have no idea what block they are on
    • Thinking that energy consumption is more expensive at the end of a month is more expensive than the beginning of a month is a fallacy.  Energy consumption at any time during the month contributes to the block you're on at the end.
    • Given that average price is what motivates consumers, since half the customers pay more than average under tiered block pricing and half pay less than average, the end result is you're back where you started and tiered block pricing has no effect on conservation overall compared to a flat rate.

  • TOU pricing with a peak and an off-peak can be understandable to consumers.  For example, in the old days, everyone knew it was less expensive to make a long distance telephone call in the evening and the cheapest after 11pm.
  • Ask people to describe the smart grid’s two biggest benefits and they will typically answer “demand response” and “energy efficiency.” Trouble is, both of them depend on dynamic pricing for maximum impact. People really start changing behavior when prices give them incentives and penalties.

    But here’s the problem -- very few jurisdictions have implemented dynamic pricing for residential customers. Even though there’s lots of objective data about the benefits, most PUCs are afraid to approve dynamic pricing due to potential consumer backlash. Not that it matters, since most utilities don’t ask for it.

  • A Smart Grid is a key enabler in communicating peak prices to consumers; with the goal of peak reduction. Tariffs should reflect the cost of service at different times of day and create the incentives to respond. For example:
    1. Off-peak (9pm-10am) 3 cents
    2. Intermediate(10am -12pm and 7pm – 9pm) 6 cents
    3. On-peak (12pm – 7pm) 13 cents
    4. Critical (5 hrs/day max 120 hrs/yr max) 60 cents




  • Ahmad Faruqui (principal of The Brattle Group)is an economist and leading expert on dynamic pricing. At a recent conference, he outlined these dynamic pricing myths - and truths:
    • Myth 1: Residential consumers don’t reduce peak demand in response to dynamic pricing? As proven in over 70 pilots, the reduction ranges up to 58% and averages about 20%.

    • Myth 2: Customer response does not persist over time? Since 1990, a half million customers at two Arizona utilities (Salt River Project and Arizona Public Service) have been on time-of-use prices, taking action to reduce their peak load, etc. Other programs have shown persistent response to critical peak prices and rebates for heat waves lasting two or three consecutive days.

    • Myth 3: Dynamic pricing hurts low income customers? Over 90% of low income customers saved money in the various pilots. For PowerCentsDC, where low income customers participated only in the critical peak rebate option, 100% of these customers saved money.

    • Myth 4: Customers don’t understand dynamic pricing? Historically many examples of popular dynamically priced services abound — from long distance phone call charges (remember that?), to cell phones, air fares, hotel rooms, and more. Dynamic pricing is even in parking meters, which often specify a daytime price and free nighttime use.

    • Myth 5: Customers don’t want dynamic pricing? Surveys of customers who have no experience with dynamic electricity pricing show that 40-80% report that they do want this option. Similarly, in pilot and ongoing dynamic pricing programs, typically 80% of participating consumers report that they like dynamic prices — and about 90% would recommend it to family and friends.

    • Myth 6: Customers have never encountered Dynamic Pricing ? DP is common in everyday life: the plain old parking meter and daytime parking in large cities, tolls on major bridges, sporting events, airline seats, hotel rooms, rental cars and cell phones.

    • Myth 7: Customers don’t want Dynamic Pricing? ;When customers are asked if they want DP, the majority say no since they only think of high prices and volatile prices. However, when they have lived through it, either in fullscale programs or in pilot settings, the vast majority say yes. There have been over 100 dynamic pricing pilot programs in the US. In follow-up surveys, 80% of the customers prefer the new prices to their old rates.

    • Myth 8: Dynamic Pricing does not work in restructured markets? It has been tested and offered in a variety of markets. The most recent examples come from Connecticut, the
      District of Columbia, Illinois and Maryland.

    • Myth 9: Dynamic Pricing pilots are invalid because of selection bias? In the best pilots, treatments groups and control groups were picked randomly to be representative of the population at large. Pre-treatment measurements were taken to net out any preexisting differences between the treatment and control groups. Analysis of three recent pilots shows that the impacts are not affected when the control group is removed from the estimation of impact.

    • Myth 10: It is much better to pursue direct load control? Direct load control (DLC) only applies to customers who have air conditioning or water heating; other end-uses in the home are not incentivized to respond during critical events. Payments are made whether or not events are called and without smart meters, it is hard to verify that the controlled load has actually responded. Traditionally, direct load control is only triggered by reliability events. In general, Dynamic Pricing can yield higher load responsiveness when combined with enabling technology than DLC and it can be triggered by either economic or reliability event.


The Clash of the Dynamic Pricing Titans: Faruqui v Toney - Part 1 from Judith Schwartz on Vimeo.
A spirited debate on the pros, cons, and common ground for Smart Meter, Smart Grid and dynamic pricing deployment. Featuring Dr. Ahmad Faruqui of The Brattle Group and Dr. Mark Toney of TURN. The discussion is moderated by Judith Schwartz of To the Point.

The event was sponsored by the Kellogg Alumni Club. Recorded in San Francisco 2.17.2011

4. Benefits
  • Save Consumers Money - We are all paying an insurance premium to make energy available in the peak. Dynamic pricing also provides customers with a chance to lower their energy bills by curtailing peak period usage and/or shifting it to off-peak periods. They can also help to lower prices in wholesale markets and to mitigate market power being exercised by a few generators.

    Wholesale electricity prices vary as often as every hour. However, these prices are up to 15% lower than the energy component of retail prices, according to research by Dr. Bernie Neenan, an economist with the Electric Power Research Institute.  This is because retail prices include a premium to cover the retailer’s cost of hedging the wholesale price risk.


  • Improves Reliability by reducing peak demand

  • Increases Equity - Provides a more equitable pricing by reducing costs to customers with lower-than-average peak usage who are currently subsidizing customers with higher-than- average peak usage. Communicates actual system costs more clearly. In the current rate structure, consumers in an area that may require an investment receive no signal in their retail rates that their growing electric use is leading to a significant cost that will be borne by all ratepayers in the franchise area.

  • Encourages energy efficiency and conservation

  • Reduces Capital Requirements – By reduces use on peak, dynamic pricing offsets the need for expensive peaking capacity. If regulators recognize the need for some grid investment long before they are actually asked to permit a transmission line, they can design rates that send a signal to consumers. For example, they can authorize the utility to offer credits to customers who take certain actions to delay the need for the line.

  • Optimize Solar Orientation - Peak solar energy occurs at 1pm in summer daylight savings time, but peak energy usage occurs much later in the afternoon. Paying solar a higher rate in the later afternoon would result in economic incentives for a western orientation of solar panels.

  • Help Cut Greenhouse Gas Emissions. In California, when wholesale energy prices are high, the most inefficient and polluting power plants are operating. Dynamic pricing can discourage consumers from using power at peak times, and thus utilities won’t have to fire up those less efficient power plants. Also, if the state’s wind turbines are spinning at full speed, a customer on dynamic pricing could see low prices, letting them know that it’s a good time to run their equipment.

  • Leverages Smart Meters - Dynamic pricing will enable consumers to get significant value from their new meters. PG&E needs to put in place dynamic pricing rates now because PG&E is rolling out new Smart Meters to all of its customers. PG&E expects to finish deployment of its Smart Meters by 2012.

  • Benefits from Future Enabling Technology - Over the long run, customers may have access to more enabling technology allowing them to respond more easily to PTR rates and increase their resulting demand response. For these reasons, the CPUC concluded that the demand elasticity for the SCE PTR settlement agreement business case could be based on elasticity calculated from CPP rates and are assumed to remain stable over time, and are reasonable for the purposes of estimating future energy savings from PTR rates and their associated benefits.

5. Risks/Issues
  • Legal Constraints - Some customers need to be protected from free market. New York law prohibits mandatory time-of-use rates. Enacted during California utility crisis of 2000-01, AB 1X prohibited residential customers to be placed on a mandatory rate schedule or overlay that can result in higher bills for Tier 1 and Tier 2 usage. The limitations created by AB 1X meant that dynamic pricing programs that could potentially increase customer bills (e.g., CPP) may only be offered to residential customers on a voluntary basis.

    In October 2009, Governor Schwarzenegger signed bill, SB695, allows rates to rise again in those first two tiers, to a limited degree. Bills can rise by the same amount as the rate of inflation - as tracked by the consumer price index - plus 1 percent. The total increase can not exceed 5 percent per year.

    The same bill also allows a limited return to a policy called direct access, which let power customers buy from companies other than the utilities. Direct access was part of California's disastrous experiment with electricity deregulation in the 1990s, but the state suspended it in the wake of the electricity crisis. Under SB695, the state will now allow direct access to grow again, but only to the level it reached before the crisis, as measured by the total amount of electricity sold under direct access contracts. Importantly, the Act does not eliminate the existing prohibition on Direct Access; it merely directs the California Public Utilities Commission to consider and develop limited Direct Access rules in the coming months.

  • Winners and Losers - Some customers may have concerns about dynamic pricing increasing their rates. Dynamic Pricing has become a political football. Low cost electricity any time the consumer wants to use it can be seen as an entitlement. Using ratemaking and retail incentives to address system needs appears to some as undue price discrimination, and is thus a controversial topic in some parts of the country.

    It should be noted that any change to electricity tariffs will create winners and losers within different sub-groups.

  • Unfair Impact on Low Income Consumers - Consumer groups argue that dynamic pricing  will disproportionately affect the unemployed, the poor, and the elderly, who may be less able to reorder their energy usage or purchase expensive smart appliances that could facilitate more use of off-peak power.  Electricity is an essential service. Heating and/or cooling in different climates are essential to life. If the cost of electricity at peak times is too much for some consumers to pay, is it better that:
    (a) All consumers pay less for electricity at peak times; or
    (b) The price of electricity is set based on actual costs , and social / hardship policies are in place to help those who are vulnerable in society to pay for their electricity.

    According to a study by Severin Borenstein, Director of the Energy Institute at UC Berkeley, changing from a tiered structure to flat rates would increase the average bill of lower income customers by $9 - $10 per month.  These are not the very poorest customers who qualify for a discounted CARE rate, but the next group up.

    However, the same study shows that tiered pricing does a poor job of targeting poor customers because poorer customers use a wide range of amounts of electricity.

    Borenstein also found that fixed charges would clearly have a negative impact on lower income customers because they on average consume less.  He estimated a $5 fixed surcharge would increase rates on poorer customers by $3.50 to $4.00.

  • TOU and Tiered Rates Options are Incompatible
    Given the choice, higher use customers will opt out of tiered rates,  leaving the tiered program with only lower use customers.  Similar issue as healthy people opting out of health insurance.

  • Consumer Cynicism - Basically, utility consumers don't trust the utilities. When rates change, they assume that the utilities are trying to gouge them. The gist of a cynical view is, "We'll use your taxes to pay to install expensive meters that utilities cannot cost-justify, and these meters have the sole value of enabling TOU readings.

    "Then our lobbyists will lean on rate-setting bodies to raise your rates. Then you consumers will pay for it all, first with your taxes, then with higher electric bills ever afterwards."
    "Finally, we vendors will try to sell you gizmos that enable you to turn off the juice when prices are highest, to soften the impact."

  • Electricity Seen as a Right - Many factions who traditionally claim to staunchly support the value of free market forces seem to be very vocal that market pricing of electricity via TOU rates is some sort of government/utility conspiracy to deprive people of their inalienable right to electricity and the pursuit of happiness.

  • Transparency - Customers are not really aware that the price they pay for electricity today includes a significant risk premium for insuring them against wholesale price volatility. Effectively, policy-makers have made this choice for them. What the policy-makers have failed to communicate to customers is that the average price of electricity will go down if dynamic pricing is introduced.
  • Lack of Feedback - Today consumers have very little information about their energy use

  • Cost/Benefit Analysis - How will the costs and benefits of dynamic pricing be evaluated? Are the tests that have long been used to evaluate other demand side programs sufficient or should they be modified by including the concept of consumer surplus in the net benefits equation?

  • Customer Participation - Not all customers aware of PTR events are likely to reduce load in response to a program event. SCE argues that the figure is 50%, while TURN counters it is more likely to be 25% TURN calls into question the applicability of participation rates from the State Pilot Program (SPP) because the SPP population differs from the general population of the state in that they have already shown a willingness to voluntarily participate in demand response programs, and are therefore more likely to participate than typical customers.

  • PTR Incentives Unproven - Current evidence does not provide a definite picture of customer behavior under a PTR rate, since such rates are not currently in widespread use.

  • Load Curve Changes - Afternoon peak electricity usage in California is shifting later.

6. Case Studies
  1. Victoria, Australia - The state of Victoria has a mandatory Smart Meter rollout plan and it is on its way to over 3 million meters. In March, 2010, the government placed a moratorium on TOU.

    In Australia, critical peak is due to air conditioners. Peak demand is around noon. Consumer advocacy groups raised hell about pensioners, disabled, infirm, etc. Those who cannot reduce power consumption at that time. They account for 15% of the consumer population. The lesson?
    Utilities are charged with implementing energy policy. Social policy is someone else's role, but if left unresolved substantial criticism, bad press and backlash will be the result.

    In 2004, the Essential Services Commission of Victoria, Australia (ESC) mandated interval meters for 2.6 million Victorian electricity customers. The rollout commenced in mid 2009 and is forecast to be completed by the end of 2013. In 2009 the Victorian Auditor General undertook a review of the program and found that there were "significant inadequacies" in advice to Government and that project governance "has not been appropriate". In May 2010 it was reported that the program was expected to cost $500 million more than originally estimated with a total cost of $1.6 billion

    In March 2010, the Victorian Energy Minister Peter Batchelor announced that there will be a moratorium on the introduction of Time of Use tariffs because of concerns pensioners and the poor would be hardest hit by higher electricity prices. Mr Batchelor made the announcement, an election-year embarrassment for the government, after meeting representatives of the poor, including St Vincent de Paul and the Victorian Council of Social Service (VCSS). Consequently meters installed in Victoria have limited smart functionality with neither interval data nor the Home Area Network being available for households making realising consumer benefits uncertain.

    Charity groups estimate the meters, dubbed "dumb meters" by the state opposition could increase a household's annual electricity bill by more than $250 a year. Victorian Auditor-General Des Pearson savaged the scheme in a report to Parliament late in 2009, saying "There has been insufficient analysis to fully understand potential perverse outcomes, risks and unintended consequences for consumers," VCOSS chief executive Cath Smith said Mr Batchelor had recognised that people who spend a lot of time at home during the day or who could not shift their energy use to off-peak times could suffer. Ms Smith said the elderly, long-term unemployed and people with disabilities might be hit hardest by the new pricing plan. "It's imperative the impacts of time-of-use pricing are investigated and measures are put in place to ensure low-income and disadvantaged households are not worse off," she said.

    In November 2010 the Victorian Labor Party was voted out of State Government. The incoming Coalition Party stated that the program would be reviewed and the Auditor General's recommendations implemented specifically commenting on program governance, customer data protection and cost recovery. In January 2011 the Energy Minister Michael O'Brien said he was not ruling out a suspension of the program.

  2. California Dynamic Pricing Plan - To efficiently manage the impacts of heightened demand for electricity, the California Public Utilities Commission (CPUC) has mandated that all Investor Owned Utilities pursue Time Varying Pricing as a way to support the state's energy and greenhouse gas reduction requirements. This mandate transitions all business customers in the state from flat pricing plans to time varying pricing plans that align customers' price of energy with the cost of energy at the time it is used.

    In February 2010, The California Public Utilities Commission (CPUC) adopted new rate structures for commercial, industrial, and agricultural customers of PG&E as part of an effort to implement dynamic electricity prices for all California consumers. These rates are designed to reflect the cost of electricity production during periods of high demand. When combined with PG&E's Smart Meters, these rates will provide an opportunity for customers to lower their bills while improving system reliability and reducing greenhouse gas emissions. Click here for the complete proposal.

    Beginning November 1, 2011, many commercial and industrial customers will begin moving to new Peak Day Pricing rates. Customers on these rates will pay different prices for electricity depending on the time of day. On the few hottest days of the year, prices for electricity used between 2 p.m. and 6 p.m. will increase further. However, PG&E will notify customers about these peak days one day in advance, so customers can plan accordingly. All customers who participate in the Peak Day Pricing program will have options to reduce the uncertainty that these rates may cause. For example, customers will have an option that protects them for the first year they are on the new rate if their electricity costs for the year are higher because they are on the Peak Day Pricing rate versus when they were on their old rate structure. Customers can also opt out of the Peak Day Pricing rate anytime within the first year of participation if they feel the rate is not working for them. Customers that choose to stay on the rate can also use conservation efforts or move their usage to other times to limit their exposure to these peak time rates.
    • There will be between nine and 15 Peak Day Pricing event days per calendar year.
    • All customers that are defaulted to, or choose, Peak Day Pricing rates will be afforded bill stabilization for the first year, unless they choose to waive such protection. All customers subject to Peak Day Pricing will have a hedging option to reduce bill volatility.
    • Customers who are on Peak Day Pricing rates may opt out any time during the first year they are on such rates.

    PG&E PDP Transition Schedule
  3. California Opposition to Peak Day Pricing - In February 2011 The Division of Ratepayer Advocates (DRA), an independent consumer advocacy division of the California Public Utilities Commission (CPUC), and the California Small Business Association (CSBA), a non-profit small business advocacy group, requested that the CPUC revisit its decision to direct PG&E to place 500,000 small business customers on a dynamic pricing program beginning in November 2011. They claimed program will likely lead to disruption and higher costs to small businesses.

    They noted that more than 90 percent of PG&E’s small business customers currently pay a flat electric rate, and the vast majority of small business customers have had no experience with time-varying electric rates. Yet, the dynamic pricing program is extremely complex for customers to understand and prevents small businesses from being able to plan for the cost of electricity. DRA and CSBA favor rate design programs where electricity prices are predictable and easy to understand.

    Regarding why her organization is petitioning the CPUC, Betty Jo Toccoli, President of CSBA, said, “California lost 1.4 million jobs over the last four years and the state’s unemployment rate is over 12 percent. With dynamic pricing, small businesses will send workers home, tell workers not to come into work or pay large electric bills for using power on peak days. Small business is the engine of our economy. We need policies that will promote job retention and job growth by small businesses, promote economic recovery, and help small businesses use electricity efficiently every day, not just on peak days.”

    Despite an intensive utility education campaign, 62 percent of large business customers have opted out of dynamic pricing in favor of a simpler time-of-use (TOU) pricing largely based on businesses’ own experience with time-varying rates. PG&E has reported many difficulties in communicating the features of dynamic pricing to even its largest business customers, many of which have dedicated energy experts on staff. Additionally, one of the assumptions underlying mandatory dynamic pricing was that there would be a variety of new products, services, and programs that would enable small business owners to reduce their usage during peak periods. This has yet to happen.

    The joint petition filed by DRA and CSBA asks the CPUC to consider a gradual transition to the more customer-friendly time-of-use pricing for small businesses, rather than implement dynamic pricing on a fixed timetable beginning in November 2011. Customers should not be transitioned until certain readiness conditions are met, including customer understanding of the rate structure, a reasonable level of voluntary participation, and a low level of customer complaints. Furthermore, the availability of reasonably-priced supporting technologies such as “smart appliances” could provide customers the ability to change their electricity use in order to take advantage of or not be harmed by rates that vary by time.

    Current evidence does not provide a definite picture of customer behavior under a PTR rate, since such rates are not currently in widespread use. TURN argues that a priori one would expect customers to consume less under a CPP rate than under a PTR rate because the consequence of peak consumption under CPP rates is likely to be more attention getting for the customer, and that expensive consumption will run into the customer’s budget constraint. On the other hand, the customer under PTR rates faces no adverse consequence from continuing to consume, and that extra consumption at the lower OAT does not impact budget constraint.

    Under a CPP rate, the charge on each kWh consumed during the peak period on an event day is the OAT plus the CPP adder of 60¢/kWh. So if the OAT is 16¢, a customer would be charged 76¢ for each kWh consumed during the peak event (a “stick,” accompanied by a “carrot” of tariff reductions on other kWh consumed). Under a PTR rate, the customer is charged the OAT on each kWh consumed during the event peak period (e.g., 16¢), but receives a credit of 60¢/kWh for each kWh saved compared to a reference level. TURN states that while the marginal incentive to save a kWh is the same between the CPP and PTR rates, the marginal price to consume a kWh is far higher under the CPP rate (76¢) versus the PTR rate (16¢).

    TURN also argues that quantitative evidence supports the theory that a combination of a lack of a penalty for increased use combined with a low absolute level of savings available under a PTR rate would over time discourage customers from reducing usage under a PTR rate. SCE counters that TURN's position has no empirical basis, and provides analyses that the demand elasticity computed for CPP under the SPP are "statistically indistinguishable" from the elasticity of PTR pilots conducted elsewhere.

  4. PowerCentsDC - was an advanced or "smart" meter pilot program for approximately 800 to 900 residential customers. The program began in mid-July 2008, and ended in October 2009. It was sponsored by Smart Meter Pilot Program, Inc., a non-profit organization comprised of the Consumer Utility Board, the District of Columbia Office of the People's Counsel, the District of Columbia Public Service Commission, the International Brotherhood of Electrical Workers and Pepco.

    PowerCentsDC ended in October 2009 after operating for two summers and one winter. It gathered sufficient information regarding customer response to residential smart pricing to serve as a guide to future program design. SMPPI documented the results in the final report and shared their findings with District and national policymakers who are exploring long-term policy options involving smart metering.
    Results
    • Consistent with other pilots, PowerCentsDC showed more consumers reduced summer usage in response to dynamic prices, energy information and automatic control.
    • CPP prices led to the greatest reduction in peak demand
    • CPR prices were the most popular
    • Customers with limited-income signed up at a greater rate than others, reduced peak demand very slightly less than others, and saved money on the program.
    • Summer peak reductions were greater than winter implying greater discretionary load
    •  Automated response via smart thermostats increased the reduction
    • The vast majority of participants saved money even though the program was designed to be revenue neutral.
    • Over 93% of participants who expressed a preference preferred PowerCentsDC to over Pepco's standard offer service.
7. Success Factors To avoid the consumer backlash that has made headlines for two years, utilities must proactively educate their customer base on how dynamic pricing can be managed to control energy bills, provide tools such as web portals with customer energy use feedback and maintain trust and transparency as core values,
  • Offer flexibility and options - Under dynamic pricing, customers would face higher prices during a small number of hours during the year but lower prices during other times. Applicants should consider offering “price protection” products that allow customers to pre-purchase set quantities of electricity at fixed prices. These products substantially reduce bill volatility without distorting the price signal from dynamic pricing.

  • Offer an online comparison tool - For example, here’s one from the Ontario Energy Board. It helps Ontario consumers understand how their energy costs might change if they switched from standard to time-of-use pricing.

  • Marketing - Market smart pricing to attract those customers who stand to gain the most from it and who would also give me the most benefits. It would not be a good situation if the only customers who joined the program are the ones who would get lower bills simply by switching over to dynamic pricing rates and not making any reductions in their peak loads. This has to involve utilities learning a whole new way to talk to – and listen to –their customers.

  • Value for Consumers - While we are interested in getting customers to reduce energy use during the few peak price times, it is only worthwhile to the customer if their peak time costs are more than offset by low electricity prices at many other times. If you let basic laws of supply and demand in the electric markets work then this will be the case. However, utility rate-making often finds ways to nickel and dime customers to the point where they end up on a rate that charges high prices but not low ones. But this isn’t inevitable. Consumer advocates and regulatory agencies need to work with utilities to develop new dynamic pricing options that provide real value to consumers, not just price shocks.

  • Smooth Transition - Minimize “sticker” shock in the transition from one rate design to another. To minimize distributional concerns and to facilitate the transition to dynamic pricing it is important that customers facing dynamic pricing not subsidize customers facing traditional price schedules. In particular, price schedules for non-dynamic pricing should continue to reflect the average cost per kilowatt-hour of serving that group, which is likely to be higher than for customers on dynamic pricing.
    • Bill Protection (“shadow billing”) is a way to phase in dynamic pricing. This means that consumers are placed on the new prices, but guaranteed not to have a higher bill for the first year. For example, PG&E has a bill protection option that prevents participants in CPP from paying more than they would have under their previous rate during their first year of CPP participation. Participants may also opt for technical assistance to help them better take advantage of the program.

  • Education - There will be short periods when energy prices will be high and customers have higher bills, but there will be many more times when consumers will save money because of they have access to lower prices. Giving customers smart meters and new rates will change their monthly bills. If introduced correctly and paired with the right high-quality education and information tools, customers will make the adjustment. If done wrong, customers won’t understand the changes and will be angry about having to pay for new technologies that they don’t see benefiting them. Regulators and others will have to be diligent that the introduction of smart meters and new rates is well managed and that any transitional hiccups are not overblown.

  • Simplicity - Be simple and easy to understand. The rate has to be friendly. Traditionally, utilities are not very good at marketing new services to customers. Just compare your utility bill or other information that you receive from them to what you get from a more dynamic one like the cellular industry. “Friends and Family” and “Nights and Weekends” phone plans are a lot easier to understand than a long complicated tariff sheet that includes references to critical peak periods, demand charges and lots of terms, conditions and disclaimers. Utilities tend to think that these types of rate sheets are what they should provide to customers, but they tend to be nearly impossible for customers to understand and riddled with terms that sound intimidating or just plain scary. We don’t need to hide the details, but we need to articulate what we are doing in ways that people can understand. Again, this sort of confusion isn’t inevitable, but we need to build a new type of relationship between utilities and consumers.

  • Equity - Meet the needs of people with fixed incomes and severe medical conditions. Equitably allocate costs across customer classes.

  • Enabling Technology - CPP and PTR usually require notification a day in advance of the DR event occurrence. Enabling technology such as Auto-DR can facilitate end-use load response within a much shorter timeframe. Therefore, pricing options coupled with enabling technology can respond to DR events with an hour notification.

8. Next Steps
  • The Smart Grid Investment Grant Program suggests conducting randomized control trials involving smart meters and dynamic pricing. In the ideal trial, smart meters would first be installed for all customers within a particular geographic area. This might be any well-defined part of the applicant’s service area or, alternatively, a set of zip codes. Selection of this area would be at the discretion of the applicant and could be based on where it would be easiest to install smart meters. Next, customers within this geographic area would be randomly assigned start dates for dynamic pricing. There would probably need to be a significant period of time between start dates. For example, a randomly-selected sample of 50% of all customers might begin dynamic pricing on March 1, 2010, while the other 50% begins on March 1, 2012. The DOE is most interested in applications in which some customers would remain on default tariffs for at least two years. The randomization would need to take place at the customer level so all customers within the geographic area are equally likely to be in each group.

9. Links
  1. CPUC Workshop on Time Varying and Dynamic Rates - June 25, 2013 - Order Instituting Rulemaking on the CPUC’s Own Motion to Conduct a Comprehensive Examination of Investor Owned Electric Utilities’ Residential Rate Structures, the Transition to Time Varying and Dynamic Rates, and Other Statutory Obligations (R.12-06-013)

    [Agenda]
    [Archive Video Part 1]
    [Archive Video Part 2]


  2. LBL - TAP - Tariff Analysis Project -A comprehensive data warehouse of electric tariffs combined with a variety of query and analytical tools. T.A.P. contains a growing library of hundreds of tariffs, from over a hundred utilities, for residential, commercial-industrial, agricultural and public sector customers. A generic data model has been developed to concisely represent all varieties of tariff structures, capturing seasonal charges, time-of-use rates, and complex block structures.

  3. PG&E - Smart Grid Rate Case with PTR Plans

  4. SCE Smart Grid Rate Case -Overview -PTR Plans

  5. The Brattle Group - From Smart Metering to Smart Pricing - Smart meters, such as those being implemented by a number of utilities in Canada, Italy and the United States under the rubric of advanced metering infrastructure (AMI), provide many operational benefits to the utility such as lower meter reading costs, theft detection, faster outage detection and remote customer connect/disconnect.

  6. The Brattle Group - The Power of Experimentation - New evidence on residential demand response. - This paper reviews evidence from the fourteen most recent pricing experiments with dynamic pricing. It finds that, on average, customers respond to higher prices by lowering usage. The magnitude of price response depends on several factors, such as the magnitude of the price increase, the presence of central air conditioning and the availability of enabling technologies such as two-way communicating thermostats and gateway systems. For the average customer, time-of-use rates are likely to induce a drop in peak usage of under 5% while critical peak pricing tariffs a drop of around 10-25%. Customers with central air conditioning are likely to display responses in the 15-20% range while those with enabling technologies in the 25-45% range.

  7. Dynamic Pricing in a Smart Grid World NARUC Webinar January 26, 2010 Chuck Goldman, Project Manager Electricity Markets and Policy Group Lawrence Berkeley National Laboratory; Theresa Flaim, Energy Resource Economics, LLC; Roger Levy, Levy Associates

  8. xxx

Thursday, September 26, 2013

Smart Inverters

Grids built to deliver power one way at constant voltages and frequencies have trouble accommodating two-way, intermittent flow. Achieving high penetrations of distribution connected PV will require the utilization of increasingly advanced inverters

Navigate this Report
Back to Stimulus & Regulation Index
1. Background

2. Acronyms/Definitions
3. Business Case
4. Benefits
5. Risks/Issues
6. Case Studies
7. Companies
8. Next Steps
9. Links



1.Background
  • California Governor Brown has called for the implementation of 12,000 MW of “localized electricity generation”, namely DER, which can help the State reach its goal to acquire 33 percent of its energy from eligible renewable energy resources by 2020. However, high penetrations of these DER systems, located within distribution grids which were designed only for handling customer loads, could adversely affect utility operations.

  • Smart inverters could be a low-cost way to mitigate the voltage changes caused by the fluctuating solar generation, thus preventing potential power quality problems. Achieving high penetrations of distribution connected PV will require the utilization of increasingly advanced inverters

  • Voltage/VAR controls are a basic requirement for all electric distribution feeders to maintain acceptable voltage at all points along the feeder and to maintain a high power factor. In addition to increased PV on the grid, recent efforts by utilities to improve efficiency, reduce demand, and achieve better asset utilization, have indicated the importance of voltage/VAR control and optimization. Utilities continue to face system losses from increasing reactive load, such as air conditioners. By optimizing voltage/VAR control great efficiencies can be realized. EPRI estimates 55% of the 566,000 distribution feeders will include voltage/VAR control by 2030, at an average cost of $258,000/feeder. See my post Improved Volt/Var Control

SDG&E has about 1,000 distribution circuits.  Problems might start to pop up when penetration reaches 20% - 30%, forecast to be more than 20% of circuits by 2016  Source: CPUC Presentation Jun 13, 2013

2. Acronyms/Definitions
  1. AC Power – Produced by an Alternator (commonly referred to as a generator) that functions by rotating an energized magnetic field adjacent to a coil of wire. The energized field has a flux around it. When the magnetic field cuts across the coil of wire, electrons are induced to flow and AC electricity is produced. (Therefore the name, Induction Generator) Since AC power has a varying voltage, efficient power systems must therefore vary the current in synchrony with the voltage.
    • The polarity of the voltage across the wire coils reverses as the opposite poles of the rotating magnet pass by. When the direction of the AC voltage changes 60 times per second, it is called 60 Hertz (60 Hz) AC Power, the standard in North America
    • System operators can adjust the output of “real” and “reactive” power at short notice to meet changing conditions.
    • Numerically, the sine wave plot is:
      Angle Sine (angle) in degrees
      0 ............... 0.0000 -- zero
      45 ............... 0.7071
      90 ............... 1.0000 -- positive peak
      135 .............. 0.7071
      180 .............. 0.0000 -- zero
      225 .............. -0.7071
      270 .............. -1.0000 -- negative peak
      315 .............. -0.7071
      360 .............. 0.0000 -- zero
      The height of the plot (Y Axis) represents the voltage being produced. The peak of the plot does NOT measure the voltage output. Because the voltage varies through the entire cycle, and even goes negative for 1/2 the cycle, output voltage is actually a calculation of the RMS of the Phase Angle. The procedure consists of squaring all the positive and negative points on a waveform graph, averaging those squared values, then taking the square root of that average to obtain the final answer. A shorter equation is to take the sine of the voltage at 45 degrees. Sine 45 = 0.7071. Therefore, the RMS voltage is about 70% of the peak voltage plot.

  2. Active Power – see Real Power

  3. Amperage - Current is the rate of flow of electrons - A unit of measure for the rate of current flow. Symbol: I

  4. Apparent Power - The product of the current and voltage of the circuit. Due to energy stored in the load and returned to the source, or due to a non-linear load that distorts the wave shape of the current drawn from the source, the apparent power can be greater than the real power.

  5. Capacitor Banks- An array of capacitors connected into a circuit. Capacitors are used to control the voltage that is supplied to the customer by eliminating the voltage drop in the system caused by inductive reactive loads. Capacitors are considered to generate reactive power. This is the fundamental mechanism for controlling the power factor in electric power transmission; capacitors are inserted in a circuit to partially cancel reactive power of the load.
    • An automatic power factor correction unit is used to improve power factor. A power factor correction unit usually consists of a number of capacitors that are switched by means of contactors. These contactors are controlled by a regulator that measures power factor in an electrical network. To be able to measure power factor, the regulator uses a current transformer to measure the current in one phase.
    • Depending on the load and power factor of the network, the power factor controller will switch the necessary blocks of capacitors in steps to make sure the power factor stays above a selected value (usually demanded by the energy supplier), say 0.9.

  6. Capacitance - The ability of a body to hold an electrical charge.

  7. DNP3 - Distributed Network Protocol - A set of communications protocols used between components in process automation systems. It was developed for communications between various types of data acquisition and control equipment. It plays a crucial role in SCADA systems, where it is used by SCADA Master Stations (aka Control Centers), Remote Terminal Units (RTUs), and Intelligent Electronic Devices (IEDs)

    The IEEE adopted DNP3 as IEEE Std 1815-2010 on the Jul 23, 2010. In April of 2012, the IEEE approved Std 1815-2012 for publication. The 2012 version of the standard includes features for Secure Authentication Version 5.

  8. IEEE 1547 - Standards governing solar-grid connections in the United States. Under IEEE 1547 guidelines, the general practice for small PV inverters is that they will not attempt to directly regulate the voltage on the distribution system. IEEE 1547 requires that PV inverters disconnect any time the grid gets unstable for safety, to make sure solar power doesn't flow through a downed power line and shock a utility worker, for example.

    But that safety measure also prevents solar inverters from helping out in cases in which the instability isn’t caused by a downed line. Indeed, turning off lots of inverters all at once, can destabilize the grid even more.
    • 1547 prohibits DER systems from actively regulating the voltage at the Point of Common Coupling (the interconnection to the grid)),  limits the voltage “ride-through” range and limits the frequency “ride-through” range
    • 1547 is rapidly being “updated” to IEEE 1547a where these limitations are being revised to allow (but not mandate) more flexibility:  1547a may be published by the end of this year
    • 1547.1a (testing) also needs to be updated
    • UL 1741 safety requirements need to cover these new functions

  9. IEEE P1547.8 - Recommended Practice for Establishing Methods and Procedures that Provide Supplemental Support for Implementation Strategies for Expanded Use of IEEE Standard 1547

    Solar inverters in the United States are not allowed to perform certain functions, such as power ramping and volt/VAR control. It is hoped P1547.8 will allow inverter manufacturers to provide those smart grid features,

  10. Inverter - An electrical power converter that changes direct current (DC) to alternating current (AC). Photovoltaic systems generate DC power. Inverters convert this DC power to AC power so these systems can interconnect with the grid.

    An inverter can produce square wave, modified sine wave, pulsed sine wave, or sine wave depending on circuit design. The two dominant commercialized waveform types of inverters as of 2007 are modified sine wave and sine wave. Modern inverters use software-driven electronics to flip and smooth the output into standard 60 Hz waves. Since inverters are software driven, their output can be modified to benefit the grid.

    Grid-interactive inverters must produce AC power that matches the voltage, frequency and phase of the power line it connects to. There are numerous technical requirements to the accuracy of this tracking.

  11. Islanding - A distributed (DG) generator continues to power a location even though electrical grid power from the electric utility is no longer present. Islanding can be dangerous to utility workers, who may not realize that a circuit is still powered, and it may prevent automatic re-connection of devices. For that reason, distributed generators must detect islanding and immediately stop producing power; this is referred to as anti-islanding.

  12. LVRT - Low Voltage Ride Through - A capability of electrical devices, especially wind generators, to be able to operate through periods of lower grid voltage. Similar requirements for critical loads such as computer systems and industrial processes are often handled through the use of an uninterruptible power supply (UPS) to supply make-up power during these events.

    Many generator designs use electrical current flowing through windings to produce the magnetic field that the motor or generator operates on. Such devices may have a minimum working voltage, below which the device does not work correctly, or does so at greatly reduced efficiency. Some will cut themselves out of the circuit when these conditions apply.

    In a grid containing many distributed generators subject to low-voltage disconnect, it is possible to create a chain reaction that takes other generators offline as well. This can occur in the event of a voltage dip that causes one of the generators to disconnect from the grid. As voltage dips are often caused by too little generation for the load, removing generation can cause the voltage to drop further. This may bring the voltage low enough to cause another generator to trip out, lower it further, and causing a cascading failure.

    Modern large-scale wind turbines, typically 1 MW and larger, are normally required to include systems that allow them to operate through such an event, and thereby "ride through" the low voltage. Similar requirements are now becoming common on large solar power installations that likewise might cause instability in the event of a disconnect. Depending on the application the device may, during and after the dip, be required to:

    • Disconnect temporarily from the grid, but reconnect and continue operation after the dip
    • Stay operational and not disconnect from the grid
    • Stay connected and support the grid with reactive power

  13. Microinverter - an inverter integrated to each solar panel module. The output of each module can be paralleled to combine the capacity and interconnected to the grid.

    While more expensive than central inverters that use multiple modules connected in series, this arrangement provides easier installation, redundancy and more effective capture of energy when they're partially shaded.

    In 2009 panels were generally around $2.00 to $2.50/W, and inverters around 50 to 65 cents/W. By the end of 2012, panels were widely available in wholesale at 65 to 70 cents, and string inverters around 30 to 35 cents/W. In comparison, micro-inverters have proven relatively immune to these same sorts of price declines, moving from about 65 cents/W to 50 to 55 once cabling is factored in.

  14. OpenDSS - - A comprehensive electrical power system simulation tool created by EPRI primarly for electric utility power distribution systems. It supports nearly all frequency domain (sinusoidal steady‐state) analyses commonly performed on electric utility power distribution systems. In addition, it supports many new types of analyses that are designed to meet future needs related to smart grid, grid modernization, and renewable energy research. The OpenDSS tool has been used since 1997 in support of various research and consulting projects requiring distribution system analysis. Many of the features found in the program were originally intended to support the analysis of distributed generation interconnected to utility distribution systems and that continues to be a common use. Other features support analysis of such things as energy efficiency in power delivery and harmonic current flow. The OpenDSS is designed to be indefinitely expandable so that it can be easily modified to meet future needs.

  15. Phase Angle - In the context of periodic phenomena, such as a sine wave found in electricity, phase angle is synonymous with phase. The phase of an oscillation or wave is the fraction of a complete cycle corresponding to an offset in the displacement from a specified reference point at time t = 0.

  16. Phase Shift - Current (amps) lags behind the voltage. When volts and amps no longer cycle together, it takes more of them to get the same effective power, that is, to do the same amount of work.

  17. Power – The rate of flow of energy past a given point. It is measured in watts. Electric power (watts) is transmitted by the simultaneous product of electric voltage and current in a wire. If large amounts of current are present when there is less voltage, the wires, transformers and other power equipment are heated, but less power is transmitted by the equipment. Since equipment is designed to remain cool up to a certain amount of current, vars waste some of the power unnecessarily as excess heat.

  18. PF - Power Factor - The ratio between real power and apparent power in a circuit. The equation for Power Factor is: PF = kVA / kVAR
    • Where the waveforms are purely sinusoidal, the power factor is the cosine of the phase angle (φ) between the current and voltage sinusoid waveforms. Equipment data sheets and nameplates often will abbreviate power factor as "cosφ" for this reason.
    • Power factor equals 1 when the voltage and current are in phase, and is zero when the current leads or lags the voltage by 90 degrees. Power factors are usually stated as "leading" or "lagging" to show the sign of the phase angle, where leading indicates a negative sign.
    • For two systems transmitting the same amount of real power, the system with the lower power factor will have higher circulating currents due to energy that returns to the source from energy storage in the load. These higher currents in a practical system will produce higher losses and reduce overall transmission efficiency. A lower power factor circuit will have a higher apparent power and higher losses for the same amount of real power transfer.

  19. PFC - Power Factor Correction - Achieved by switching in or out banks of inductors or capacitors. For example the inductive effect of motor loads may be offset by locally connected capacitors. When reactive elements supply or absorb reactive power near the load, the apparent power is reduced. Power factor correction may be applied by an electrical power transmission utility to improve the stability and efficiency of the transmission network. Correction equipment may be installed by individual electrical customers to reduce the costs charged to them by their electricity supplier. A high power factor is generally desirable in a transmission system to reduce transmission losses and improve voltage regulation at the load.

  20. Ramp-Up - If a slow enough ramp up is specified, there may not be a need for random reconnect timing. Most inverters can be designed to have soft start ramp up capability relatively easily.

  21. Ramp down capability - May be employed to coordinate with existing voltage regulation equipment and minimize adverse voltage impact. But ramp down may require some local storage.

  22. Reactive Power - The portion of power flow which returns to the source in each cycle. Reactive power flows backwards and forwards in an alternating current. Reactive power, measured in volt-amperes reactive (VAR), is the energy supplied to create or be stored in electric or magnetic fields in and around electrical equipment.
    • Reactive Power is measured in 'kVAR' pronounced as 'kaye-VARs'
    • Reactive power is particularly important for equipment that relies on magnetic fields for the production of induced electric currents (e.g., motors, transformers, pumps and air conditioning). It also must supply the reactive losses on transmission facilities.
    • Reactive power can be transmitted only over relatively short distances, and thus must be supplied as needed from nearby generators. If reactive power cannot be supplied promptly and in sufficient quantity, voltages decay and, in extreme cases, a “voltage collapse” may result. The power grid needs enough reactive power to maintain reliable service.
    • Reactive power is provided by generators, synchronous condensers or electrostatic equipment such as capacitors and directly influences electric system voltage. Examples of reactive loads include capacitors and inductors.
    • If the load is purely reactive, then the voltage and current are 90 degrees out of phase and there is no net power flow. A practical load will have resistive, inductive, and capacitive parts, and so both real and reactive power will flow to the load.

  23. Real Power - (aka active power) The portion of power flow that, averaged over a complete cycle of the AC waveform, results in net transfer of energy in one direction. Real Power flows one way, from generator to load. It is the rate at which work is performed or that energy is transferred and is usually expressed in kilowatts (kW) or megawatts (MW).

  24. Ride Thru Capability -

  25. Rule 21- Electric Rule 21 is a tariff that describes the interconnection, operating and metering requirements for generation facilities to be connected to a utility’s distribution system, over which the California Public Utilities Commission (CPUC) has jurisdiction. The Rule 21 tariff for each of California’s large investor owned utilities (IOUs) is available on each IOU’s website. The CPUC's open interconnection proceeding is R.11-09-011.

    Sep 13, 2012: Rule 21 Settlement Approved - In Decision 12-09-018 the Commission approved the full set of reforms to Rule 21 proposed via a multi-party settlement. The Commission anticipates that the significant reforms achieved in Rule 21 will advance the Commission's goals of ensuring a timely, non-discriminatory, cost-effective, and transparent interconnection process for distributed generation in California.

  26. Rule 21 Phase 2- Item #6 - The CEC initiated a joint effort with the CPUC to update Rule 21 to provide a consistent set of mandated and
    recommended DER functions
    – Initiated the “Smart Inverter” project in January 2013
    – Used experiences from the California utilities and the Europeans, as well as certain international standards
    – Discussed which DER functions should be mandated in bi-weekly meetings
    – Developed recommendations for a phased approach for Rule 21 mandates for DER functions

  27. Rule 21 Proceeding

  28. Var - Volt-Ampere Reactive power -  Measures h out-of-phase voltage and current  Unit used to measure reactive power in an AC electric power system. 1 var = 1 V•A. Vars measure unsynchronized "leading" or "lagging" currents. These currents are usually caused by the side effects of powering equipment that behaves like coils (e.g. motors) or capacitors (e.g. arc welders).


  29. VDE AR-N 4105 - German rules requiring its solar inverters to perform certain functions, such as power ramping and volt/VAR control, which lead to more stability that came into effect for medium-voltage connected solar in 2008 and for low-voltage solar as of January 2012.

  30. Voltage - Electromotive force - An electrical measurement of potential
    difference, electrical pressure, or electromotive force (EMF). Symbol: E

  31. VVO - Voltage and VAR Optimization - Improving on the traditional approach using uncoordinated local controls, VVO uses real-time information and online system modeling to provide optimized and coordinated control for unbalanced distribution networks with discrete controls.


3. Business Case
  • RPS target calls for increasing the amount of renewable electricity in California’s power mix to 33 percent by 2020.

  • To support this target, Governor Brown’s Clean Energy Jobs Plan called for adding 20,000 megawatts (MW) of new renewable capacity by 2020, including 8,000 MW of large-scale wind, solar, and geothermal resources and 12,000 MW of localized renewable generation close to consumer loads and transmission and distribution

  • Achieving high penetrations of distribution connected PV will require the utilization of increasingly advanced inverters.

  • Candidate Phase 1 Mandatory Autonomous DER Functions
    • Support anti-islanding to trip off under extended anomalous conditions
    • Provide ride-through of low/high voltage excursions beyond normal limits (L/HVRT)
    •  Provide ride-through of low/high frequency excursions beyond normal limits (L/HFRT)
    • Provide volt/var control by dynamic reactive power injection through autonomous responses to local voltage measurements (VV)
    • Counteract frequency excursions beyond normal limits by decreasing or increasing real power (FW)
    • Counteract voltage excursions beyond normal limits by providing dynamic current support
    •  Reconnect randomly within a preset time window after grid power is restored
    •  Limit maximum real power output at the PCC to a preset value
    •  Modify real power output autonomously in response to local voltage variations
    •  Provide reactive power by a fixed power factor
    • Set actual real power output at the PCC
    •  Schedule actual or maximum real power output at specific times


4. Benefits
  • Improve Existing Conditions - Smart Inverters could improve existing conditions:
    • Voltage drops on a power line as you move farther away from the substation. The end of a distribution power line can have very low voltage
      Voltage drops on a power line as you move farther away from the substation – The end of a distribution power line can have very low voltage

    • Lagging Voltage - Air conditioners and other motors cause lagging voltage. Increasing vars is wasted energy

  • Smart inverters can use their software-driven electronics to:
    • Ride-through wide ranges of voltage or frequency anomalies to improve resiliency and avoid unnecessary outages
    • Respond to emergency commands to improve reliability
    • Counteract excess vars by shifting the voltage-current phase
    • Counteract voltage spikes and sags to improve quality of service
    • Counteract frequency deviations to smooth frequency changes
    • Respond to demand response pricing signals to improve efficiency

    How much PV capacity a distribution feeder can handle depends on many factors.  Results of many simulations of PV penetration on one distribution feeder with  EPRI's Hosting Capacity Model.    In the Volt/var control scenarios, inverters react autonomously based on the interconnective voltage it sees.   Minimum hosting capacity was increased ~60%, maximum ~100%  Source:  EPRI CPUC Smart Inverter Presentation
  • Randomized Disconnect - Distributed generation resources are require them to disconnect at the first sign of trouble -- typically, when frequencies fall outside normal operating boundaries -- so they don’t feed dangerous and unexpected power back up downed or de-energized power lines.

    But that simple safety feature can actually backfire on the grid, by suddenly disconnecting whole neighborhoods of solar power during momentary grid power blips or faults, causing even more instability. In Germany, that problem was dealt with by randomizing the timing and specific frequency levels at which they tripped, as well as when they reconnected, to shift what would have been a concentrated impact to a more spread-out one.

  • Low Voltage Ride-Through - Prevents inverters from tripping during voltage drops caused by momentary grid disruptions.

5. Risks/Issues
  • Problems from High Penetration Problems of PV
    • Ride-through Problems -

    • Distribution Overvoltage - Too much solar power, and local grid voltage could rise, causing potential problems for motors, lights and other equipment.

    • Local secondary overvoltage - Too little solar power and voltage can sag. That may only flicker light bulbs at home, but it can lead to million-dollar work stoppages for customers like semiconductor manufacturers and server farms that need clean power at a near-to-constant voltage and frequency.

    • Variability and Excessive Cycling of Taps -

    • Plants Have Been Curtailed/Limited -

    • Unintentional Islands Have Formed -


  • Technological Uncertainty - It’s a bit hard to quantify the costs and benefits of making all new solar inverters smarter, versus taking other approaches based on adding new grid equipment, because for the most part, the problem of too much solar is a hypothetical one.

  • Manufacturing Cost - Smart Inverters could add about 10 percent to manufacturing costs to inverters, which make up roughly 5 percent to 10 percent of total solar system installation costs. However, adding a smart inverter at $150 per installation for each rooftop, for an inverter system with a typical cost of about $1,500 or more, is a smart investment.

  • Retrofit Cost - A 2011 study by German utilities and energy agencies estimated that retrofitting the country’s installed solar base will cost €175 million ($234 million), and adding administrative costs could ring that cost up to $300 million. That’s a price tag that could be avoided in the United States, if regulators and the industry can get ahead of it.

  • Reactive Power Costs - For example, a 150 kW solar facility with a 10 percent oversized inverter set at a 0.9 power factor can draw 15 kW of real power from the grid to convert to reactive power even when the solar facility is producing a full 150 kW of real power. While the costs of oversizing inverters are less than installing and maintaining capacitor banks, they are can still be significant for smaller generators. Therefore, generators should either be compensated for the costs of oversizing inverters or for the value of real power converted to reactive power, which can be easily accomplished by compensating based on KVA instead of KWh.

  • Maintenance - Inverters are only warranted for 10 years, so chances are at least two inverters are required over the course of a 25-30 year panel lifetime.

  • Compensation - If we want inverters to produce reactive instead of real power, capabilities for metering of ancilliary services must be developed.

  • Electro- Mechanical Voltage Control Equipment Can't Keep up with second to second changes

  • Communications -  How can utilities coordinate thousands or millions of DER systems,  located at customer sites and owned by non-utilities?
    • Most DER systems must operate autonomously most of the time.  Based on pre-established settings to meet utility requirements and taking into account the DER owner preferences
    •  Communications with utilities are required for::
      • Emergency situations
      • Market signals for demand response
      • Updating the DER settings used for autonomous operation

  • Field Experience with Smart Inverters is Lacking (And is Expensive)
    • What settings are optimal?
    • Whether or not one setting (for a given function) will benefit everywhere
    •  Response timing & control loop settings (typically not specified by standards) and associated stability among many devices 
    • How to manage smart inverter capabilities in coordination with other distribution controls
    • How will functions and multiple autonomous devices work together?
6. Case Studies
  • Germany

    The US is not entirely analogous to Germany. Most of the US is much hotter than Germany, which means that in summer, consumption and generation are much better matched than in Germany. In most German homes, in summer basically there is only the fridge running. In the US, hello non-stop air conditioning. In the US, oversupply of solar will come much later than 40GW solar for 82 Million inhabitants.

    European experience with high penetrations of DER has shown that the implementation of some DER functions can costeffectively improve the reliability and efficiency of the power grid.

    Waiting to implement these functions may lead to costly upgrades and replacements – which actually occurred in Germany
  • 3 phase, large capacity, large conductor primary voltage
    • •300-500 kVA service transformer
    •  Hundreds of customers per transformer
    • Large secondary network - 400 V, 3 phase much bigger than typical US Distribution network.
  • Obliged to provide an technically appropriate PCC for PV connection Obliged to provide an technically appropriate PCC for PV connection
    • 25% of cost on UDC
    • Control units 100 kWp and above
    • Still obligated to pay the FIT amount Still obligated to pay the FIT amount
    • Voltage tolerance +-10%
  • Voltage regulation issues on secondary network
  • Low load,, high PV output
  • Solution network upgrades
  • German Grid Code
    • Require PV systems to support the grid
    • Minimize network upgrade costs
  • California
    • Phase 1 -  Start with autonomous DER systems which provide volt/var management, low/high voltage ridethrough, responses to frequency anomalies, etc. Use interconnection agreements to ensure appropriate autonomous settings.
    • Phase 2 -   Expand to situational awareness with hierarchical communication networks, monitoring ggregated smaller DER and direct monitoring of larger DER. Issue broadcast requests (pricing signal and/or tariff-based) and/or direct commands
    • Phase 3-  Combine field and virtual modeling through power flow-based analysis, state estimation,  contingency analysis, and other analysis applications to assess economics and reliability.
    • Phase 4 -  Ultimately integrate DER management with distribution automation, load management, and demand response for optimal power system management.
  • PG & E - PG&E is seeing "some localized issues" with grid instability in neighborhoods where rooftop solar penetration has grown to around 5 percent, said Hal LaFlash, the utility's director of emerging clean technolog.

  • Current Rule 21 Installation Status
    2,407 PV inverters >30 kW, total of 514 MW
    85,264 inverters <= 30 kW, total of 443 MW Recommend to grandfather the existing units <= 30 kW due to the relatively low system impact and high retrofit costs. The existing units > 30 kW may need retrofitting to include the ride through capabilities and to avoid inadvertent tripping during major system disturbances.

  • SDG & E - has about 6,600 customers with solar rooftops. While that's growing by about 60 customers a month, it still only represents about 50 megawatts of generation, or about 1 percent of the utility's 5,000-megawatt total load. The utility can't monitor or control it, but there isn't enough of it to matter that much.

7. Companies/Organizations
  1. Advanced Energy - (NASDAQ: AEIS) Fort Collins, Colorado (Solar - San Jose, Calif)- AE(which recently acquired PV Powered) is working to address these challenges with partners Portland General Electric (PGE), Schweitzer Engineering Laboratories (SEL), and Northern Plains Power Technologies (NPPT) under the Solar Energy Grid Integration System (SEGIS) program

    Advanced Energy claims, "The SEGIS program advancements will help lay the foundation for an “intelligent” or smart inverter capable of integrating large-scale photovoltaic power generation into the smart grid with greater stability and protection,


  2. California Energy Commission - Rule 21 Phase 2 Inverter Settings Technical Working Group - For more information on these documents contact Rachel A. MacDonald
    Electricity Supply and Analysis Division
    California Energy Commission
    1516 Ninth Street
    Sacramento, CA 95814
    (916) 654-4862
    rachel.macdonald@energy.ca.gov



  3. Enphase - Petaluma, California - Leader in microinverters

  4. Fronius - German Inverter Manufacturer

  5. Petra Solar - South Plainfield, NJ - Pole-mounted, solar panel-connected microinverter arrays Their microinverter provides reactive voltage injection capability, allowing the modules to balance the sometimes grid-destabilizing character of solar power.

    In July 2009, Petra Solar signed a $200 million agreement with New Jersey utility Public Service Electric and Gas (PSE&G) to supply 200,000 utility pole-mounted units over three and a half years. Many of Petra’s pole-mounted systems utilize Suntech PV panels.

    Dr. Shihab Kuran, the CEO and founder of Petra is Jordanian as are some of the other senior staff at the firm, hence the name Petra. That connection to Jordan has also initiated Petra's next large project -- working with Jordan's utility to roll out more than 100 megawatts of solar on power poles and rooftops.

  6. Power One (Symbol was PWER) - Camarillo, California - Recently purchased by multinational power sector giant ABB, ranks as the second largest international inverter manufacturer.

    Purchased venture-backed Fat Spaniel Technologies in 2010.

  7. Satcon (OTCMKTS: SATCQ) - (Satcon, formerly a leader in the U.S. inverter space, filed for bankruptcy late in 2012 and was liquidated.)

  8. SMA - The inverter market's international leader, recently made a big investment in Zeversolar, a major Chinese supplier.

  9. SolarBridge - Austin, Texas

  10. SunSpec Alliance- A trade alliance of solar photovoltaic industry participants, together pursuing information standards for the renewable energy industry. SunSpec standards address operational aspects of PV power plants on the smart grid—including residential, commercial, and utility-scale systems—thus reducing cost, promoting technology innovation, and accelerating industry growth.

    SunSpec establishes open information standards that solar PV manufacturers use to achieve plug-and-play interoperability between solar PV power plant components and software applications. SunSpec publishes a series of specifications, each consisting of a data model and transport protocol map (Modbus®, SEP 2.0, XML ), for all components in the PV plant system hierarch

  11. Energy Recommence - Provide hardware and software for consumers to monitor their systems.
8. Next Steps
  1. Fill in Research Gaps
    • What settings are optimal

    • Whether or not one setting (for a given function) will benefit everywhere

    • Response timing & control loop settings (typically not specified by standards) and associated stability among many devices

    • How to manage smart inverter capabilities in coordination with other distribution controls

9. Links
  1. Smart Inverter Functionalities Workshop - CPUC (R.11-09-011) - June 21, 2013
    This workshop discussed the first phase of California's smart inverter implementation plan that recommends smart inverter capabilities that could be required to ensure the long-term safety, reliability, and efficiency of the power grid with high penetration distributed generation. Workshop discussions covered smart inverter functionality recommendations and a proposed testing and implementation plan for validating the recommended functions.

    Video Webcast


  2. CPUC Documents supporting Smart Inverters
    • 2012 Renewable Action Plan
    • 2012 California’s Transition to Local Renewable Energy: 12,000 Megawatts by 2020 (staff contribution).
    • 2011 Integrated Energy Policy Report, June 22, 2011-IEPR Workshop on Distribution connected DG
    • 2011 Energy Commission KEMA study of PV in Europe

  3. SunShot Initiative High Penetration Solar Portal - DOE EERE - High penetration solar research helps DOE understand, anticipate, and minimize grid operation impacts as more solar resources are added to the electric power system.