What If… Dominion Pursued a Solar+Smart Grid Strategy?

After proposing an end to the freeze on base electricity rates and a reinvestment of excess profits into modernization of the electric grid, Dominion Energy Virginia has produced an ad touting renewable energy and the smart grid.

What if more of the energy we used came from renewable resources?

What if the electric grid could detect, fix and even prevent power outages?

What if our grid were less vulnerable, more secure?

What if all these “what ifs” became a reality?

Well, they are. At Dominion Energy, we’re completely transforming our power grid and the way we think about energy to move from “what if” to “what’s next?”

The ad appears on Youtube. I don’ t know if Dominion has purchased any air time yet. (Hat tip: Steve Haner.)

Bacon’s bottom line: As I read the tea leaves, Dominion’s push to modernize the electric grid may represent more than a tactical bid to shore up short-term profits and may reflect a deeper change in strategic thinking about the shift in the relative advantage of solar versus other sources of electric power.

Critics have asserted that the 2015 rate freeze has allowed Dominion to retain hundreds of millions of dollars in profits that it otherwise would have had to reimburse to rate payers. Dominion’s response was to concede that, yes, it has enjoyed higher profitability since the freeze but that critics over-emphasized the amount and under-emphasized the risks the company faced from absorbing the cost of massive weather events and regulatory burdens such as coal ash disposal.

Thus, it came as a surprise two weeks ago when Dominion executive Mark O. Webb announced that it was time to “transition away from the rate freeze as the outlines of state carbon regulation have become more clear and the need and the opportunity to reinvest in grid transformation becomes more pressing.” He proposed plowing back surplus profits into investments in the electric grid, which are needed to maintain reliability as more solar generation comes online and also to guard against cyber-security threats.

There is more at stake than a couple hundred million dollars (depending on whose estimate you believe) in excess profits. A bolstered commitment to solar energy and the smart grid would affect billions of dollars of future investment. Only a couple of years ago, emphasizing the difficulty of integrating intermittent renewable energy sources into the electric grid, the utility saw only a modest future for solar. In its 2017 Integrated Resource Plan, however, Dominion outlined a long-term future in which 5,200 megawatts of electric capacity would be produced by solar  — the  equivalent of four or five state-of-the-art natural gas power stations. Could Webb’s comments indicate a willingness by Dominion to tilt even more aggressively toward solar?

The major source of demand growth in Dominion’s service territory is coming from data centers, and leading data-center companies are committed to the use of green energy (either solar or wind). At the same time, the pooling of electricity through PJM Interconnection, the interstate transmission organization of which Virginia is a part, makes it easier to balance electric output and loads at the macro level of the high-voltage transmission grid, while smart-grid technology is making it easier to handle power fluctuations at the level of the lower-voltage distribution grid.

As an organization, Dominion Energy Virginia has two overriding imperatives — its public service mission of keeping the lights on, and its obligation to shareholders to maximize profits. The path to increasing profits has been to invest in new capital-intensive projects that generate a regulated rate of return on shareholder equity. It makes no difference to shareholders whether Dominion invests in gas-fired power stations, extending the life of its nuclear units, utility-scale solar, building new transmission lines, building pumped-storage dams, or upgrading the IQ of its transmission and distribution lines.

In a nod to the changing political climate in Virginia, Webb’s remarks and the new ad suggest that Dominion Energy Virginia is leaning more toward a growth formula of solar+smart grid. Such a view is bolstered by the utility’s pursuit of a pumped-storage facility in Southwest Virginia, which could provide an offset to the variability of solar output.

Dominion Energy Virginia’s strategy as a regulated utility must be viewed, however, in the context of the fact that parent company Dominion Energy has committed heavily to natural gas as an energy source of the future in Virginia and North Carolina, and potentially even in South Carolina. Insofar as gas-fired combustion turbines can be quickly ramped up and down in response to fluctuations in solar power, Dominion can claim that gas is a natural complement to solar. How all these moving parts — solar, smart grid, gas, pumped storage, pipelines, and massive sunk investments in coal and nuclear — come together is not yet clear. I would not be surprised if Dominion’s senior executives are still thinking it through.

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9 responses to “What If… Dominion Pursued a Solar+Smart Grid Strategy?

  1. Dominion wants to remain “totally in charge” and it recognizes that the public supports solar. It knows people think it has ill-gotten gains and wants to stem the tide of negative public opinion. However, note that it will not give the money back to the rate payers or allow competitors that might push solar faster to benefit. If it didn’t have this extra money, would it make such a proposal?

    If Dominion put solar on the same number of acres of land on my farm as it will “take” and use for 50+ years for the pipeline, instead of “just” a one-time payment, it would have to pay us for annual rent on the land – more fair but costing them more. Also, no solar investment brings with it a guaranteed 14% ROI for 30 years – paid for by rate payers. Unfortunately, the incentives in today’s marketplace favor natural gas extremely ahead of all other fuels, allow Dominion to push for maximum stockholder benefit over total societal benefit, and allow it to milk rate payers for more than is fair. When it wants to claim utility status, it gets protection from loss and the highest return as it ensures its future. Many businesses would like to have it so easy.

  2. The excess profits, or a substantial portion of them, belong to us. Under a state law going back to 2007, if the SCC finds excess earnings above a certain point 70 percent is returned to ratepayers. Such refunds since that law have totalled $824 million. The SCC has said that absent the 2015 bill that ended its authority, another $133-$175 million would have been returned to ratepayers in 2017. We wuz robbed. Diverting that money, and any other future excess earnings, to grid modernization or any other purpose will be no different that the General Assembly raising your taxes.

    Every industry in every corner of America is working on upgrading its infrastructure and integrating modern control systems and digital operations. Dominion will do so because it lowers the cost of operation, which means it should benefit ratepayers – not cost them. The company needs neither General Assembly nor SCC approval to do so – but they will need General Assembly approval to abandon the practice of ratepayer refunds.

    Oh yes, the air is running on TV. I saw it on NBC 12 last night. This is one step in a classic Dominion legislative/PR strategy to talk the General Assembly into something.

  3. Every utility is faced with upgrading an aging, one-way, electro-mechanically controlled grid into a modern, two-way, digitally controlled grid. Dominion has a skilled grid services subsidiary that could upgrade Dominion’s service territory and perhaps earn more by helping others, such as the co-ops, do the same.

    Dominion’s advertising shows them doing this in the same way they have done for over a century, by owning and controlling it all. This is not surprising. That is how they get paid and currently there is no better way for them to do it.

    One of the great benefits of a modern grid is that it facilitates the development of distributed generation and networks of micro-grids that increase grid resiliency and reliability. Many of these new resources are installed by third-parties, often at customer’s locations. This does not fit in Dominion’s plan. At least until we give them a more flexible and potentially more profitable way of doing business.

    All Virginia utilities are moving in this direction, at different speeds. Dominion has sharp, capable people. They can do Virginia a great service if given the right opportunity. Right now Dominion is moving in a “good” direction. We owe it to the families and businesses throughout the state to create the possibility for them to create “better” and “best” outcomes. Unleashing third-party participation and innovation is the spark that will ignite significant job growth and an influx of young, well-paid professionals. This has been the experience of other states that are a bit farther ahead with the transition to a modern energy economy.

    It would take a great deal of collaboration and innovation on the part of many stakeholders in Virginia. It would also require resetting the role of our utilities and the way they are paid for the 21st century, as other states are doing. If we do it right, it will be better for the utilities and all Virginians.

  4. Dominion could have and should have done this all along as part of a fiscally responsible business practice – without being “encouraged” by changing public attitudes. It had the responsibility and duty to take a leadership role and go to the public and the legislators with the changes needed to go forward.

    No points for this.. they just did the usual thing of looking out for their investors first … and engaging in truly rancid PR to pat themselves on the back for helping some little old ladies upgrade their insulation and other lame PR.

    But first and foremost – they owe all of us a conscientious approach to the coal ash issue… no more PR and no more “high-balling” the costs.. just some straight-forward honest talk about the best way to put the coal ash issue behind us without a fear it will come back later with the excuse that “we did not know” . We don’t know and our typical response has been to gamble that doing things on the cheap now.. won’t come back on us later.. and just about every time.. it does.. so let’s do the right thing.. and all of us pay our fair share of the cleanup.. and not divert the issue to grid modernization as if we can’t do both anyhow.

  5. FirstEnergy is building a $37 million center for Advanced Energy Technology in Ohio. This 88,000 sq.ft. facility will help to evaluate new technologies and train staff to modernize the electric grid over a six-state region that includes Virginia.

    If Dominion had been a little faster in being willing to let go of its windfall from the rate freeze, perhaps we could have had something like that here. Virginia needs to be a leader, not a follower in this endeavor. Many other states already have quite a jump on us. Dominion has deep pockets and a skilled workforce. Modernizing the grid is something that can benefit both shareholders and ratepayers.

    If the energy and resources that have been put toward the Atlantic Coast Pipeline that will benefit only shareholders had been invested in grid modernization, we would be much farther along. There is still an opportunity to change that.

    Dominion is highly regarded for their financial acumen and their ability to maintain high dividends and share prices, why can’t that same dedication be applied to creating a modern energy system?

  6. Re: “Dominion is still thinking this through”

    Oh Vey!

    Like Tom, my wish is for Dominion to prosper and remain a profitable company but a company that does that not by using it’s monopoly to hold back the disruption of the energy industry by technology and renewables.

    I want to see them as leaders who find and exploit opportunities that they have a inherent advantage with their size and monopoly.

    You do not need a pipeline from Pennsylvania to North Carolina to build more gas plants for the Middle Atlantic and it’s not like gas is not already available for economic development already throughout the region.

    What might be going on is that in order to modernize the grid and use more renewables you might need more distributed gas plants that can be closer to where solar will be deployed so that those plants are close enough to provide power to those areas when regional solar is not providing enough power.

    Although informed commenters here have said that electricity can be generated and put into the grid – far from where there is a need… and it’s the distribution system that needs to allow additional power to get through to the needed places.. and is at least the partial purview of PJM’s “reliability” oversight… it’s never really been clear how a utility would be able to accommodate a large amount of regionally-located solar – say near Newport News/Hampton without a co-located gas plant.

    I’m sure “grid modernization” is focused on that – but the specifics of what it is and is not and how it is affected by or needed to support renewables is the proverbial black hole of communications from Dominion.

    It seems to me that Dominion could transform the negative public perception of the pipeline and it’s bully-type attitudes by explicitly tying it to the need to build more solar … it could actually be said to pay for itself from the savings that accrue from “burning” solar instead of other fuels…

    Even if it were not dead 100% absolutely swear-on-the-bible true – it would play much better in the public realm and really put a hitch in the giddyup of the pipeline opponents.. I mean who would be opposed to using more solar – other than Reed! 😉

  7. What a terrific, informative, and fact based discussion! I can only hope that Dominion is listening!

    One issue about the grid … will the upgrades that Dominion is planning for the grid allow for the flexibility we need to develop on-site and micro-grid energy? Or will those upgrades be traditional upgrades that may not be necessary?

    Some discussed upgrades are necessary and unavoidable, “but many of them could also be cost effectively avoided, or at least deferred, with non-wires alternatives (NWA) — non-traditional utility investments made in lieu of a typical upgrade, often involving a combination of demand flexibility, distributed generation and energy storage. GTM Research has identified 133 NWA projects in the U.S. totaling nearly 2 gigawatts of capacity.” (NEXT-GENERATION ELECTRICITY TECHNOLOGY Is BEING HELD BACK BY OUTDATED MARKETS.)

    Another question …. how much gas is really required?
    The mentioned synergy between gas and grid scale solar is real, but in California, a leader in DER adaption, “state officials have essentially cancelled plans for a 262 megawatt gas peaker after discovering that a portfolio of energy storage (mixed in with some solar and demand response) could provide the same technical capabilities and potentially at a competitive cost.”

    And … “Storage can reduce the cost to consumers of meeting peak requirements and displace what would otherwise certainly be a rarely used, GHG-emitting plant. And storage has not taken hold in the wholesale/capacity markets …which are huge …_GTM Research analysis earlier this year estimated that $14 billion went through these markets in the 2015/2016 delivery year.”… That would “open up roughly 30 gigawatts of demand for batteries – around 50 times today’s total capacity.”

    Finally, there are questions now about using gas for either base load or peaking. The actual production of natural gas itself is increasing in the US, but this is not because of an increase in domestic use. The notable increase is in exports. “Since September 2016, every single month has seen a decline in generation from natural gas, compared to the same month in the previous year.

    “We have seen the fall of coal. Now, we are seeing natural gas under a similar existential threat. GE’s recently announced global layoffs in its power division, in which it is letting 12,000 people go. GE has itself put the blame for its layoffs among workers making gas turbines on low-cost solar, wind power, and batteries.”

    SO … is Dominion really heading into a new way of doing things with grid expenditures? BNEF sees demand suppressed by energy efficiency and self-generation, and augmented by electrified transport and heat.” … BNEF also sees the new way as “locking in as much locally-available base-cost renewable power as possible, and then supplementing it with more expensive flexible capacity from demand response, storage and gas, and then importing the remaining needs from neighbouring grids.” Planning for a mostly centrally generated gas, even with utility scale solar, is not the future.

  8. I’m not as optimistic about the extent and width and breadth of storage and demand-side technology – yet.

    The place where we really know what actually does “work” and what is stil in the talk stage – even beyond California – is the world’s populated islands – almost none of which has native fossil fuels and ever pound needed has to be imported on a ship that effectively doubles the cost and presents a real incentive to not burn any more of it than is absolutely necessary.

    And yet .. almost all of the islands with a small number of experimental exceptions still import fossil fuels to generate electricity.

    Puerto Rico – as an island that has had it’s electricity infrastructure largely destroyed gives an opportunity to rebuild using the most advanced technologies available including demand-side and storage.

    I’m not a pessimist on this – I’m an optimist but with a strong dose of skepticism and pragmatism.

    Islands ARE using solar now but they are also STILL using diesel fuel oil as the reality is there still is no way to not do that. That’s the simple reality. The difference is they now burn LESS fuel oil because they harvest the solar – when they can – and when they can’t they go back to the fuel oil.

    That’s about all we can really hope for here also with the exception that we can use gas instead of fuel oil and unlike many islands that do not provide 24/7 power.. we absolutely have to.

    So as much as I want our utilities like Dominion to modernize… I do not want them to adopt bleeding-edge technologies that will undermine grid reliability

    In due time – we’ll get there… but we can’t rush things along faster than what is really possible. And Dominion actually uses the far left advocation of the impractical as an excuse for it’s “go slow” approach. We need to advocate to adopt what IS real and doable right now and give them the opportunity to “explain” what we actually have to do – to modernize to be able to use more solar and wind.

    The island paradigm is super simple.. you burn fuel oil for electricity – for 20-30 cents KWH… you install and use solar when solar is available but when it’s not – you’re back to burning that fuel oil.

    Virginia is way bigger scope and scale… an energized grid with dozens , hundreds of discrete power generation – all of it – dispatchable – like those fuel oil plants on the islands but unlike the islands deploying and harvesting solar is a complex logistical issue that involves having to dial down dozens of gas plants when solar is pumping electricity into the grid – and all of those dialed-down plants need to be able to ramp up quickly whenever solar recedes… and it needs to happen without harm to grid reliability.

    That’s where all of us shut up and pay attention to what Dominion says needs to happen to ensure that we maintain that reliability.. that’s their expertise and their expected duty from most consumers. The last thing in the world that Virginians want is a grid that is not dependable and reliable and to this point – most of the advocates of quicker adoption of technology seem to basically take that for granted.. they want the change.. but they expect no change to reliability.

    The wider public – those who don’t really have a dog in the march to adopt solar/renewables and demand-side – suffer no fools ..they want their electricity and they don’t want excuses as to why it’s not as reliable as before.

    Even those who want to install their own solar – don’t want to be stand-alone – they want Mother Dominion to be ready to give them all the electricity they need when they need it when their solar (and storage) is “not available”.

    If we ever really get to the point where storage is “real” – it presents a real danger to the utility business model because as more and more people actually get both solar and storage and effectively drop off the grid – the utilities challenge will be made even bigger with both the variability and reliability issues for grid-based solar – AND consumer-based solar.

    Not even charging an “availability” fee will fix the issue if thousands and thousands of people who formerly used grid-electricity actually effectively go “off-grid” … and only need grid electricity when their own on-site power/storage system is down..

    This might be where we are headed anyhow because once “storage” is a reality – then what keeps people from buying and installing solar/storage systems while still connected to the grid -but no longer consuming grid electricity?

    Lots of unknowns here and if you are in Dominion’s shoes – you are not going from the frying pan into the fire… the tempo of change is not going to be as fast as the technology curve is.. or seems to be.

    I want to “see” what Dominion needs to do to modernize. I want to be assured that they are committed to moving forward and not using their monopoly to stifle or hold back change.. especially change that is probably inevitable. I don’t want them to be Kodak.

    At the same time – I also don’t want them to turn Virginia’s grid into something similar to what many islands have … including Puerto Rico… which are inherently – unreliable… just not a good trade for using less fossil fuels and more solar.. at least for me.

  9. Noone wants ” inherently – unreliable” electricity … but the new energy future is demonstrating that it will be more reliable.

    The movement to incorporate storage will gather momentum and it will take time. The point I was trying to make was how different the grid will be when we move away from centralized generation, something that will happen, to a combination of onsite solar plus storage and microgrids, even to ‘Clustered microgrids’, which theoretically need fewer resources to maintain the same level of service. RMI wrote a paper awhile back about ‘grid defection’, which they saw happening if our utilities don’t accept a redefined grid.

    “In fact, a growing body of evidence suggests that states and countries that replace old, costly fossil-fired generators with renewables, efficiency, demand response, and other distributed energy resources (DERs) have found greater reliability and resilience at lower costs.”

    Reliability and resilience are different things and both important. Both are actually enhanced by a flexible grid and redesigned generation. Storage magnifies the abilities of decentralization. “According to BNEF’s new analysis. .. both utility-scale and behind-the-meter storage will be a “crucial source of flexibility” in the next 15 years.” Utility planning is and should be ‘long-term.’ Fifteen years is not too far away in utility build years.

    The storage “industry has just begun,” BNEF’s Sekine said in a statement. “With so much investment going into battery technology, falling costs and with significant addition of wind and solar capacity in all markets, energy storage will play a crucial part.”

    Re islands … There are lots to watch, but they need money and political will to be leaders. Puerto Rico is the big example though I hear the utility CEO is out and now maybe the island can become an example of a new system. American Samoa is moving…lots happening in Hawaii and the 13 island working with RMI and Richard Branson are creating plans and projects.

    I just don’t want to build short-term projects that we will continue to pay for over 30-40 years.

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