Could distributed energy get a boost if it’s managed like wholesale power? Maine intends to become the first state to answer that question as it explores the creation of a distribution system operator (DSO).
It’s not a new concept. Distributed energy supporters have been mulling the DSO approach for years. But no state was ready to brave its complexity until now.
It was a first-term state legislator, Rep. Gerry Runte, a Democrat, who moved the DSO idea forward in Maine. Runte was elected last year after 45 years of working in utilities and energy technology, including fuel cells and hydrogen. His DSO bill (LD 952) became law in June. It requires that the state examine if a DSO could reduce electricity costs, improve electric reliability and accelerate climate goals.
As a next step, the Governor’s Energy Office will issue a solicitation before the end of 2023 to secure a contractor for the study.
The idea’s appeal is apparent. Two decades ago, the US did something similar for wholesale power by creating independent system operators (ISOs) and regional transmission organizations (RTOs) that serve two-thirds of the population. Competitive markets opened and independent companies proliferated, building and operating power plants outside of the conventional utility model.
Maine wants to see if the mechanisms that catalyzed independent power could now do the same for small local energy systems, like rooftop solar, energy storage, electric vehicles and energy efficiency.
Fair pay for distributed energy?
The DSO would address a frequent criticism of today’s electric grid — it operates under old rules that preclude society from using distributed energy to its fullest value.
Here’s the problem with how things work now — and what the DSO would attempt to correct. In many cases, distributed energy can be aggregated to provide power or services to bolster the central grid, but it’s hard to make that happen. Few organizational mechanisms exist for the grid to capture the energy and provide fair payment for the services to the homes, businesses or communities that own it. If that could be done, the payments could offset the costs of distributed energy and lead to greater adoption.
Not harnessing these resources leaves energy capacity on the table when electricity demand is growing, and it’s becoming increasingly difficult to build conventional power plants and transmission lines to meet the need.
Making life easier for DER providers
In a recent interview, Runte cited several benefits a DSO could offer distributed energy providers, including:
- Functional distribution system planning
- Information about where on the grid distributed energy offers the most value and where interconnection will be easy or difficult
- A market with transparent pricing
As conceived, the DSO would operate an open access, multi-directional, real time market for distributed energy and act as the sole interface with ISO New England, the regional grid operator. While the DSO would control Maine’s distribution grid, it would not own the infrastructure — that would remain in the hands of utilities. The DSO would also be charged with reviewing and approving plans by Maine utilities to manage resources on their distribution systems.
As conceived, the DSO also would use smart meter data that is now available but not always employed for demand management and energy efficiency programs.
In addition, the DSO could serve as a way for ISO New England to comply with FERC 2222, a federal law that requires that grid operators develop plans to give distributed energy access to wholesale markets. (Note: ISO NE said it has taken no stand on the Maine DSO.)
Will it really happen?
Maine’s RTO study will proceed in two phases. The first phase, expected to be complete by January 2025, will determine if a DSO would work for Maine. If the study sanctions the idea, the second phase kicks in, and a consultant puts together details about how the DSO would operate.
Runte acknowledges that the law could lead to a study and nothing more — the fate of many energy policy endeavors.
But so far, it’s been clear sailing for the idea. The DSO bill moved quickly through the Maine House and Senate June 13 and was signed into law by Gov. Janet Mills, a Democrat, shortly after.
A few months earlier, when the bill came before the state legislature’s Committee on Energy, Utilities and Technology, testimony was mostly neutral or positive.
Central Maine Power, the largest utility in the state, neither opposed nor supported the bill. The Industrial Energy Group, an advocacy organization for large energy users, sanctioned the idea, as did the Sierra Club and the Natural Resources Council of Maine, both environmental groups. NRCM said in testimony: “This bill seeks to take a hard look at one of the most substantial and debilitating roadblocks in our clean energy transition: an outdated utility business model for the electric distribution system.”
However, Dirigo Electric Cooperative Companies came out against the DSO, saying it would “add an unnecessary layer of bureaucracy” that would impede cooperatives from performing “in a timely, efficient, and effective manner.”
Runte believes that if all goes well in the study, Maine could have a DSO in 2026. The technologies to create the DSO “are readily available,” he said in testimony to his legislative colleagues. “What’s needed is a solid plan, the will to execute it and the willingness to become a leader in grid modernization.”
Variations on the idea
Maine’s plan to form a DSO is just one way being debated in the US to realize the full value of distributed energy.
Lorenzo Kristov, who has championed the DSO concept for years, offers an approach that changes the way utilities operate the distribution grid.
Kristov was previously with the California Independent System Operator and is now an independent consultant who focuses on electric system policy, structure and market design. His argument starts with the idea that distributed energy is necessary if society is to achieve three of its main energy goals: decarbonization, resilience and energy equity.
“When it comes to equity, my third major pillar, well, we live in an economy where you accumulate wealth by owning assets. So DERs enable you to distribute the ownership of the assets that produce electricity and enable you to distribute the business of electricity supply. So let’s create an environment where local co-ops and municipal governments and tribes can actually have energy supply businesses based on assets that they own — and generate wealth for their communities,” he said.
To accomplish this goal, Kristov calls for developing a DSO that differs in a key way from the Maine model. Rather than set up an independent third party to run the distributed energy network, he’d like to see distribution utilities recreated into DSOs.
His proposal is similar to Maine’s in that the DSO would offer open access, meaning it would provide the same service to any distributed energy provider that wants to use the network.
The DSO “stands for that bundle of possibilities,” a future distribution utility that supports the proliferation of locally owned and operated distributed energy, he said. Under his model, today’s grid wouldn’t go away but would act as a residual provider when the distributed grid resources are exhausted.
Another key thinker in the space is Kay Aikin, CEO of Introspective Systems, who recommends a more technology-driven solution to the problem of capturing full value for distributed energy. She is now working with the Regulatory Assistance Project “to come at the same result from a different direction.”
Aikin is concerned about what it will take to coordinate the mixed missions of various distributed energy projects — serving both the grid and their customers — and how communications will work under a model that creates a third-party entity to run the DSO.
“The big problem I see with DSOs is the shared responsibility issue. Who is in charge? I have the same problem with multiple aggregators under FERC 2222 working on the same distribution grid but not having responsibility for the energy balancing and maintenance of the distribution grid,” she said.
Aikin, who specializes in transactive energy, is working on building a technical foundation that would let electric utilities properly price and integrate distributed energy.
Getting from here to there
For now, all eyes are on Maine as potential bidders watch for the release of the solicitation seeking contractors to conduct the study.
One such company is platform provider Agile Fractal Grid, which held a two-day workshop with potential partners to see who might be interested in the project. Thirty-five companies attended, with 26 contributing ideas on how to make this “complex systems of systems,” according to Chuck Speicher, the company’s board chairman.
Speicher said he is confident, “Maine will come up with the right model and then every state in the country will follow.”
But he urged the state to move on the plan. “You don’t learn anything until you build it.”