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Illinois Has Invested Billions In Grid Modernization. Is It Paying Off For Utilities And Customers?

Illinois has invested billions in electricity grid infrastructure, and now ranks 2nd nationally on grid modernization, but are these bulky efforts actually paying off nearly six years into the state’s initiative?

State utilities have markedly improved reliability and operational efficiency through innovative smart grid technologies, but Illinois’ ambitious goal of adding more than 4 gigawatts (GW) of new wind and solar requires more than a modern grid – it requires more flexibility from customers.

Fortunately, realistic policy solutions are within reach. The Future Energy Jobs Act (FEJA) lays a solid foundation, creating incentives for utility efficiency and demand response investment while decarbonizing Illinois’ power sector. By removing market barriers to expand “real-time” power pricing options and maximize the benefits of smart meter investments, customers could save billions and create a flexible grid capable of handling a massive expected influx of renewable energy by 2030.

Illinois A National Grid Modernization Leader, But At What Cost?

Illinois ranks 2nd in the GridWise Alliance’s latest Grid Modernization Index, scoring highly on technology driven by its rapid smart meter roll-out, policy support after passing grid modernization bills in 2011 and 2016, renewed engagement by the Illinois Commerce Commission (ICC), and customer engagement.

U.S. Grid Modernization Index overall results

 

These efforts have made Illinois a national leader on grid modernization, but electricity customers had to pay billions to get there.  The 2011 Energy Infrastructure Modernization Act earmarked roughly $3 billion for grid modernization infrastructure.  Nuclear subsidies in the FEJA added another $235 million annually for customers, coupled with similar surcharges to support wind and solar contracts to meet Illinois’ expanded renewable energy goals.

Are electricity customers benefiting from this large grid modernization effort?  Illinois’ power prices have remained below the national average since 2011, but it’s unclear whether cheaper power from shale gas is offsetting the increased cost of grid modernization.  In its 2016 annual report, ComEd claims $1.4 billion in societal savings for avoiding outages since 2012, which it ties to its grid modernization investments – but these savings likely won’t show up in power prices.

Dynamic Pricing Unlocks Economic Benefits

To get the most out of grid modernization, particularly billions in smart meter investments, Illinois utilities must sign up additional customers for real-time pricing programs.  Energy costs vary during the day, tending to rise when demand is high, and fall when demand is low and power supply is plentiful.  Infrastructure costs are similar – wires reach their capacity during peak hours, driving the need to upgrade system components.

Unlike old meters, smart meters store customer energy usage data, which enables the utility to bill customers based on the real-time price of the electricity the utility buys at wholesale.  If customers respond to these pricing signals, they can reduce their bills and the need for more infrastructure, lowering the average wholesale price and the cost of grid investment.

Illinois is one of the only states to offer hourly “real-time” pricing options to residential customers, but benefits have been limited by program participation.  Even though 27,000 customers have signed up for real-time pricing and saved $27 million on energy costs so far, those customers represent less than 1% of the statewide population.  Get this number up to half of Illinois’ electricity customers, and potential savings run into the billions and could approach the state’s total smart meter roll-out cost.

This is partially a legislative problem – retail competition rules have prohibited incumbent utilities from marketing hourly pricing programs to customers, and retail competitors have been unsuccessful or unwilling to provide the same programs.  To the extent these barriers remain, getting customers onto time-varying rates, particularly real-time pricing, are key to maximizing grid modernization benefits.

Historically, low-income advocates have opposed moving to real-time pricing for fear that they would be unable to respond, but a new study from consumer advocate Illinois Citizens Utility Board (CUB) and Environmental Defense Fund (EDF) shows nearly all state customers would benefit from real-time pricing, regardless of income level. Smart meter data from over 300,000 ComEd customers showed that 97% of customers would benefit from real-time pricing without changing their consumption habits.  Average customer savings would have totaled $86.63 annually, or 13.2% of the average bill.

The customers with the highest levels of savings would have cut their annual costs an average of 31%, for $104 in savings, reflecting what might be possible if consumers adjusted behavior and installed programmable appliances to respond to changing prices.  Even among the 3% of customers who would have seen higher bills on hourly pricing, the median customer lost an estimated $6.23 on the year; 90% of such customers would have lost less than 5.3% compared to their annual bill.

Real-time pricing is not limited to Illinois, but customer uptake has been slow.  Customers in Texas, another state with retail competition, can opt into real-time pricing programs as well.  So far, only 9,000 Texas customers have taken advantage of real-time pricing programs, reflecting aversion to perceived risk.  However, there’s no particular reason why the efficiencies demonstrated in Illinois would not apply in Texas.

Getting The Most Out Of Grid Modernization

These are just the results of doing nothing – a baseline against which any improvements can be measured.  We know that customers on dynamic pricing reduce overall energy consumption, especially during peak hours when electricity prices are highest and benefits are most widely shared.  Strong customer education and deploying technologies like programmable thermostats can amplify the response to dynamic pricing, and a massive dynamic pricing roll-out could dramatically improve grid efficiency– incenting customers to shift their consumption to times when energy is plentiful and cheap.

Other policy actions can ensure Illinois is getting the most out of grid modernization. The Q3 2017 50 States of Grid Modernization report cites the ICC’s “NextGrid” proceeding to comprehensively update state energy policy and the Open Data Access Framework (ODAF) as positive policy developments.  The ODAF not only enabled CUB and EDF to access anonymous meter data and study real-time pricing’s potential effects on consumers, it also improves customer protections when sharing smart meter data with utilities and third party providers. Utilities should use this data to offer better real-time pricing programs, simpler time-of-use rates, and improved efficiency programs.

Grid modernization and the CUB-EDF study also have major implications for Illinois’ transition to clean energy.  Achieving the 25% renewables envisioned by the FEJA will add around 1.3 GW of new wind and up to 4 GW of new solar. Wind and solar are currently the cheapest forms of new generation, but they require demand flexibility to complement their variable generation patterns.  A large-scale roll-out of dynamic pricing coupled with customer education and enabling technology may be the most crucial step enabling Illinois to lead the U.S. in clean energy and grid modernization while maximizing customer benefits.

By Mike O’Boyle, Energy Innovation’s Power Sector Transformation Expert

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