Kaitlyn Rohnert: Household purchases of smart home appliances, solar and storage systems, and electric vehicles are rapidly increasing the number of distributed energy resources — resources that can generate, store, or flexibly draw energy from the grid. But is there an opportunity to be intentional about planning for DERs in an holistic, integrated manner? I hope so.
If utilities can successfully engage their customers, they could harness DER to help meet peak demand, provide essential grid services, and possibly even help us save money.
I’m Kaitlyn Rohnert. I manage the credit team for CoBank’s Project Finance group and I have had a front-row seat in evaluating how demand aggregation can participate in wholesale markets. So I’m particularly interested in this conversation. And of course I’m joined by your favorite Power Plays co-hosts, Teri Viswanath and Tamra Reynolds. Hey Teri and Tamra.
Tamra Reynolds: Hey Kaitlyn, I couldn’t agree more with you, especially as discussions within our electric co-op community are currently hyper-focused on meeting power supply challenges. And there are a number of terrific examples of innovation in this space. I know that Guadalupe Valley Electric Cooperative is involved in a pilot project for virtual power plants in Texas, aimed to bolster the grid’s reliability and flexibility by aggregating distributed energy resources.
Teri Viswanath: That’s fantastic. Kaitlyn, I’m glad that we finally get to have you on this program and involved in the discussion about the power of demand aggregation. It’s absolutely the right one to engage you on. On the innovation front, I recently engaged in a great conversation about this topic at the Colorado Solar and Storage Association’s Annual Meeting, where I had the privilege of sitting down with San Isabel’s general manager, Ryan Elarton and that co-op’s former GM, now the chief innovation officer at Tri-State, Reg Rudolph. I’ve been particularly interested in lifting up examples or blueprints for integration that we’re going to talk about today.
So, let’s begin today’s conversation at the beginning with San Isabel’s Ryan Elarton.
Ryan Elarton: We’ve got a broad set of product offerings for our members. It ranges from water heaters to electric thermal storage heaters, the whole suite of HVAC offerings to rooftop solar, and getting into behind-the-meter battery storage. But this really started decades ago when San Isabel Electric had an appliance store and folks in rural areas didn’t have good access to refrigerators and ranges and those types of things. They could go to the San Isabel Electric appliance store, and using on-bill financing decades ago we’re able to get what they need, and at that time we would deliver it and install.
With the advent of the big box stores, it really became less of a need, and so we went away from that, but that’s really where it started decades ago with on-bill financing which is today a buzzword, but it’s been something we’ve been doing here for a very long time.
Viswanath: That’s fascinating. I think it was the first time I heard from both you and Reg about this San Isabel appliance store and access not only to the equipment for their homes but also the services in which to install. Reg, so you joined Tri-State to develop similar programs. I want to broaden out the lens of the importance of these types of programs and your vision on what we can do at the electric distribution level.
Reg Rudolph: Teri, one of the things that we learned at the distribution level is that it all scales up. Coming from the G&T side, historically we’ve had this focus of just being a supply-side resource-only organization. But when we look to the future, distributed energy resources are going to play an important role in our portfolio. Putting these things together like on-bill repayment are still very important. When we look at it from a G&T perspective with 41 members across our footprint, we ask ourselves, “What are the barriers to make that happen?”
The same barriers that we identified at San Isabel Electric, we’re working our way through here at Tri-State, which is you need to have access to capital for the end-use consumers, that’s where on-bill repayment comes in. You need to build a trade-ally network because plumbers, electricians, and mechanical contractors have not historically covered rural America as well as they should. Then finally, that last barrier, just educating members and the trades on how electric products can be beneficial.
Rohnert: Reg Rudolph from Tri-State highlights one initial “gating” problems — which is even when households have made the decision to make an investment in these critical smart appliances, who is going to do the installation? Especially, as we consider rural communities where there might be more limited service-providers. But there is also the actual investment being made. EnergySage just updated their guidance, telling us that it costs around $29,000 to install solar panels on your home. That’s a big number, but incentives usually lower it significantly. The average cost of an 11 kW solar panel installation on EnergySage is $20,552 after federal tax credits. $20,000 is still a sizeable investment. This is where the next important “gating” criteria, such as on-bill financing might help out, as Ryan explains.
Elarton: The main thing that we see there is on-bill financing lets them upgrade a mechanical system or add solar or do things to improve their energy efficiency where quite often they may not have the upfront money to do that. We connect them with a reputable contractor. We help them through the install process, and we provide that financing that otherwise they might have to look at really high-interest things, even credit cards to get some of these things done. We’re doing it at interest rates that are below 5% typically, really keeping affordability at the forefront for the members.
Viswanath: I think that’s a really good point because when we think about the money we have available for energy assistance, it seems like this Band-Aid that we can never fix the real problem.
Elarton: It’s really part of the foundation of the program is not only potentially talking with the members about solar but talking to them about improving their building envelope. Maybe they need to add insulation, maybe they need to replace a mechanical system, maybe they need to do some other things to become more efficient before installing solar, and the on-bill financing really provides the avenue to do that.
Viswanath: Are we at a really important crossroad as we think about how consumers are adopting, maybe changing out appliances, because it used to be we had this decision every 10 years we change out an HVAC system. But are we seeing some important change which makes this part of that larger supply story more meaningful to take a look at and to not ignore what’s occurring at the consumer member level?
Rudolph: There’s definitely a broader awareness of electrical products, especially when it comes to home heating and water heating. From that perspective, I just put a heat pump water heater in my house and the plumber that came in said, “Wow, these things are really neat.” I asked him, “What do you mean really neat?” Well, this is the fourth one I’ve installed, and I live in the Denver metro area. It’s part of those barriers, that education process that we need to get to because the consumers are pulling and demanding these products.
Ryan and I both know that, for example, on the on-bill repayment side, you have to eliminate all the barriers. When we look at beneficial electrification, energy efficiency, and distributed energy resources, from my perspective at the supply level, these are all part of a resource that we want to put in our portfolio. Not only does it help the end-use consumer save money, it helps San Isabel Electric optimize their supply and demand with their power supply. For us, it’s a load-shaped product that really helps us with what we need to accomplish on the supply side, not only from a regulatory perspective but also from a resource perspective.
Viswanath: So let’s talk a little bit about the energy service, the membership education, and what you’re doing with member outreach.
Elarton: We’ve got an inside salesperson that really manages our two outside salespeople, setting appointments and facilitating paperwork, so we’ve got three in our energy services department. We know that for a co-op to be successful in this type of venture, the board and the management has to commit to it, and it’s a financial commitment. We don’t look at our energy services department in a silo of, “Well, are they paying their own way?” They are because when they sell something through the beneficial electrification lens, we know it’s improving our sales and improving our load factor and helping the greater co-op membership to reduce our power costs.
My point there, if you want to be successful with a program like this, you’ve got to commit to it. We’ve got unique marketing opportunities, and we use the full suite of available tools for marketing, whether it’s print or radio or Facebook or those types of things, but then we also try to meet our members where they are with our food trailer. We go out into our communities and shake hands and see if our members have needs that we can help meet through our energy services department.
Rudolph: From a broader context, it seems like it’s this new and innovative concept that cooperatives, whether it’s at the distribution level or the G&T level, are working with their members door-to-door to help improve their members’ lives.
At the end of the day, that’s basic cooperative principles, and we’re going back to that basic cooperative principle of helping our members, improving their lives, and getting deeper into that. The whole idea of just sending out a bill, keeping the power on, that’s still critically important, still important to keep it affordable. But with the aspect of on-bill repayment in developing trade ally networks and so forth, that’s the piece that I think is new and innovative, is that the relationship that we’re developing with our members, the end-use consumer, needs to become more efficient and more transactional so that we can create that value. It’s broadening that relationship with the member.
We look at the relationship for our members and look at it from a Tri-State perspective, is that we have some members with five total employees, and then you have a co-op like San Isabel Electric that has a defined energy services group that is out there interfacing with the members. Whether it’s a residential rate class or C&I, building these programs in the back office at the supply level allows us to help support all of our members and give them a cafeteria-style platform of things from on-bill repayment and building the trade ally network is that Ryan and his folks are out building relationships with plumbers and electricians.
What we’re trying to do is actually move upstream and work with the developers and the distributors so that they’re spreading that knowledge. For the most part, efficient program design and leveraging resources is so critically important to make sure that rural Americans at the end-use consumer level get those products and services that they need.
Reynolds: I think that from a coordination perspective, having someone like Reg Rudolph — who has experience at the distribution level — be able to identify programming upstream is really helpful. From the statistics, we know that distributed energy resources will play an increasingly important role with solving the nation’s future power supply needs. According to WoodMac’s updated guidance, U.S. distributed energy resource capacity will grow by 217 GW through 2028, equivalent to 70% of anticipated bulk generation additions during the period. In other words, near-term power supply additions will likely come from small agile resources —like DER — or solar additions simply based on what we can quickly deploy. But let’s consider what that agility looks like at San Isabel.
Viswanath: Ryan, there were two graphics that you provided, I think that was really helpful for us to understand, you showed that net meter growth from 2010 then the year-on-year changes just to show some of the changes that have occurred at San Isabel. If you could tell our audience so they get a sense of that pace of evolution you’ve experienced in the last 10 years.
Elarton: Teri, it’s been significant in recent years. If you go back to 2010, we had about 26 net meter accounts, and so we had a process if somebody wanted solar, we went through that application, making sure everything went well for them. All of a sudden it exploded in the 2015, ‘16, ‘17 range, and we were seeing growth rates in excess of 50% in the number of net meter accounts. The average over that time is about a 35% growth rate in number of net meter accounts.
We went from having like one-tenth of a percent of our membership that had solar to today where we’ve got nearly 5.5% percent of our residential members have solar. Clearly, it became something we needed to pay attention to from a rates perspective. Just focusing on those members, we wanted to make sure that they had a good experience, and that’s where we started to offer the financing for solar, suggesting reputable local contractors that members should be involved with. We’re very rural, and our demographic doesn’t necessarily signal renewables as a priority, but our net meter penetration here is on par with very green communities across the country.
Viswanath: I think what was surprising is when you talked a little bit about the storage aspect, so offering up battery storage, you had mentioned that was a bit of a surprise, I think?
Elarton: We started informally in a pilot phase offering that six months ago, and it just took off. In one month we had, I think, 22 members that have solar today that signed up and said, “We want to add a 10kW behind-the-meter battery and get a little backup.” Those folks typically live in an area that outages are rare, and so if they had a couple hours of backup from a behind-the-meter battery, it’s probably going to help keep the power on them in the event that they did have a shortened outage.
Viswanath: I’d like to hear your comments just in terms of managing these programs and then really from a standpoint of managing supply.
Rudolph: Well, Tri-State has had policies in place for a couple decades that promoted distributed generation. We’ve had programs that supported electrification and efficiency programs. To scale that up, one of the things that we look at, especially in the cooperative industry, you want to have resources in your portfolio that create value but don’t shift costs. Here, again, efficient program design becomes very critical because you get people that will participate in a program and non-participants, and you want it to be equitable.
I think, Teri, to your question, member-facing resources or distributed resources can create value, but it requires a different mindset. It requires a different mindset from the G&T, and it also requires a different mindset at the distribution system because what’s fundamentally different is it becomes very transactional. As an example, Tri-State and across our membership, we will process anywhere from 8,000 to 10,000 rebates a year, so that process needs to be much more efficient than it’s been in the past.
The other thing is that you’re dealing with smaller-scale projects. Here, again, that door-to-door mentality. Then with the distributed energy resources, you need to have visibility into those assets so that you can harness that value. At the end of the day, if you do all of those things right, you will help build a stronger relationship with your end-use consumers and for us as a G&T, with our member systems.
Elarton: We’re working with Reg and the team at Tri-State on distributed resource programs that can provide value for the end-use consumer, for the distribution co-op, and for Tri-State and try to capitalize on the synergies without shifting costs. I think Tri-State’s been very proactive in this, and Reg’s team under his leadership taking really an innovative approach to helping our member-consumers help the distribution co-ops and help Tri-State together.
Viswanath: We were asked to talk about both the opportunities, which we’ve talked about, and the challenges. Reg, in terms of this area, in terms of greater solar development, some of the challenges we’re facing now, I’d like to hear what your thoughts are there.
Rudolph: Some of the challenges that we’re seeing, and I think everybody sees it across every piece of the economy, but supply chain issues and increasing costs of material has really changed how economical resources can be brought onto a system, whether it’s the grid level or at the distributed level. So that’s a major issue that has really reset expectations. Increased interest costs has slowed down, and Ryan can attest to this-- has really slowed down net metering of rooftop solar, that’s a major driver of the penetration.
One of the things that we’ve spent a lot of time trying to understand is more front of the meter, not necessarily the rooftop, but when we look at solar, why have distributed generation projects really slowed down? It really comes down to the business model needs to go through an evolution. As we’ve dissected these projects, we see business development costs, builder profits probably being more than they should be for them to be competitive. Now with these rising costs, increased interest rates, it’s stalled the development of distributed generation, so re-scoping and redefining what that business model should look like is going to be critically important.
Another aspect is that direct pay tax credits has really opened up who can own and develop projects There’s a lot that comes into play. One of the challenges that we see is on the distributed side, there is a lack of physical hosting capacity. You eventually get to a point where a renewable resource creates the duck curve. Basically, the supply doesn’t equal the demand, and now you’ve got physical limitations. As we said before, Teri, at the conference, is that it’s very, very important to talk to the utility as a developer, whether it’s rooftop or distributed generation, and work with the utility to collaborate for a solution.
Elarton: I certainly want to echo what Reg just said about developers. We want to encourage them to contact the utility first. We’re going to know, for example, that this piece of land you’re looking at, this circuit that feeds that, it might be full, and we might be getting to a spot where we’ve got some power quality issues, so we might want to encourage them to look at maybe a different area, that’s just one aspect of it. I think the further we get along in the industry, the more important planning is at the distribution level and coordinating efforts with developers. I just think that’s critically important.
More recently there’s been some pause at the federal level with funding. I haven’t heard of any issues around tax credits, but what does the future of tax credits for solar look like? Certainly, not something we can answer today, but something to consider.
Viswanath: A lot of moving parts. Guys, I want to just open up more broadly, I want to know what we’ve missed in the conversation. Reg, what do you think is important in the conversation as we have on distributed resources? What’s been missed? What do we need to spotlight?
Rudolph: Well, part of our strategic plan is we have four core principles. Reliability is the top of mind for every member and every end-use consumer that always drives the discussion, and then you fall into affordability, flexibility, and responsibility. Weighing those other aspects, the affordability, flexibility, and responsibility, as I mentioned earlier, is that if the resources can create value, we should pursue them. That’s something that we have done with our group, is that what is the true value of a distributed energy resource?
Some people don’t like to hear what that math looks like, but if you come at it from a very impartial perspective of, “We’re trying to build a reliable and affordable portfolio, this is what you need to do to get into that game,” it puts everybody at par. Over the course of communications, it disarms the conversation. You have to compete with the other resources. When we look at the distributed energy resource world that’s developing, that’s how we measure what creates value.
Elarton: We’ve mentioned battery storage, but I think really our focus today is if somebody calls to talk to us about solar, we quickly add storage to that conversation just to try to optimize resources. For the San Isabel Electric members, they have told us over and over that reliability is most important. If we can use these tools to improve reliability, then certainly it’s something we want to do.
Of course, when we think about that, we’re talking about a larger capital outlay, but at the end of the day, we want to make sure that we’re trying to reduce costs for our members by adding a storage resource that might help us to defer the Tri-State level larger resources. Again, just think about reliability and cost, but that looks a little different today when we’re routinely talking about storage as part of that conversation.
Rohnert: I want to bring our conversation full circle about some of the challenges with integration. What we’ve showcased today is really a “blueprint” for that integration. Every grid is seeing a sharp increase in the number of DERs connecting to them. Increasingly, utilities must cope with complex bi-directional power flows. If too much energy is generated by consumers and sent back to the grid, this leads to its own problems in the way of grid imbalances. Grid coordination or “orchestration” allows utilities to control the amount of downstream DER data sent back to the grid and it will be an increasingly important part of the discussion that Reg and Ryan opened up for us today.
Reynolds: And I know that there is no “one-size meets all” fit solution but establishing a strong member-focused approach like we discussed today is certainly a step in the right direction.
Viswanath: I do hope all of you have enjoyed this conversation and will join us next month as Spearmint Energy CEO Andrew Waranch and that firm’s Senior Vice President of Strategy and Project Development Gina Wolf join us for a master class on the U.S. wholesale power markets. Hopefully, providing us with a better understanding whether the marketplace is signaling growth to our utility-scale power plant developers.
Reynolds: Goodbye for now!
