The US power market: Bridging the transmission gap

March 21, 2024 Editor

Image courtesy 123rf

In this edition of Smart Energy’s Power Playbook column, Yusuf Latief speaks to Jeremy Klingel of US Consultancy West Monroe, about power market trends and how demand response can bridge the transmission buildout gap.

The US power market can be a complex puzzle to navigate, especially when we break it down by system operator. However, no matter the state in question, transmission buildout will be the backbone of any successful energy transition.

According to Jeremy Klingel, a senior partner of energy and utilities, massive investment opportunities will arise for those who know where to look.

I talked to Klingel on the back of DISTRIBUTECH International in Orlando, Florida, to discuss these opportunities and trends he has observed in the power market.

What are the biggest market trends you’ve seen in the US power sector?

Resiliency – this refers to making sure that the grid can bounce back in a very quick and real fashion, which goes into infrastructure hardening, intelligent substations and a focus on more refined and hardened low voltage and medium voltage gear in the field.

It hasn’t been just a buzzword, but an important guiding principle for the industry beyond blue sky reliability.

There’s also this concept of “back to the future” with things like demand response. These types of programmes are not new. However, they are now getting a chance at their own renaissance as they are able to leverage new technology and visibility into the grid.

In fact, utility-driven demand response is going to be a critical component, especially considering the time and money needed to build transmission infrastructure.

As electrification continues and we see continuous increase in load growth, harnessing the capacity value from demand response will be extremely important to bridge the gap between funding and construction of infrastructure.

Who are some of the players we need to be on the lookout for within this space?

We’re going to continue to see players like Enel, CPower and others that will play directly in the energy markets, sometimes working in concert with utilities.

They will harness value from commercial industrial assets, both on the demand response side and the DER side where there are literal, physical, injectable resources from battery energy storage, or from onsite microgrids or cogenerating assets, to use those as true generating assets on the grid.

That’s going to be interesting to watch and I think we’re going to see it across all the independent system operators (ISOs) in the US.

For example, New York ISO is working hard to think about how they can accommodate small resources, including assets of 10kW. We’re seeing the same trend in ERCOT and CAISO and I think PJM and MISO will follow suit in the near term.

Another critical driver in the market, the backbone of our sector, will be the need for additional transmission buildout. It’s going to require moves from traditional transmission operators, regulated utilities, as well as new entrants and players on the merchant side such as asset developers.

The dollars required to build out needed transmission will be massive, which means there’s a lot of opportunity for those that are willing and able to invest in that space.

Do you think there will be a hierarchy of priorities when it comes to engaging in demand response vs transmission build? The amount of money that needs to go into transmission is immense.

It is, and from a policy and regulation standpoint, as well as how we see ISOs operating at the seam, there’s a lot of complexity. We have to get the process moving as we are already behind the eight ball.

There needs to be a focus on expediting the approval process for new transmission projects.

We need a better or more fair cost sharing of projects and at the same time need to take a hard look at not just demand response, but those injectable, small grid edge resources, figuring out how to aggregate those in a way that’s going to be meaningful.

If we can do those things simultaneously, then I think we will be able to at least keep up with the need for the replacement and expansion of infrastructure.

It requires more than just policy. We have to get to market rules within the individual ISOs to allow that participation in a practical way.

Aggregators must be able to provide the right level of telemetry and guarantee that the capacity is there. If they’re going to act like a generator, then they have to be held accountable within reason to perform as one.

If they promise 10MW, they have to show up with 10MW. That level of sophistication and surgical accuracy is where the focus needs to be, which is going to require more software advancement.

We’ve also talked for many years about the concept of a DERMS, a distributed energy resource management system. There isn’t a perfect blueprint yet, but there are those working on it that can simulate these different assets on the grid, and also dispatch them into the market.

That is a critical gap that still needs to be filled. Currently, there are players that can do a part of what’s needed in this realm, but they’re not yet fully integrated.

Then there’s also that wonderful term of interoperability – it’s a kind of unicorn that never seems to quite materialise.

Also of interest:
Europe’s transmission grids put energy transition at risk – Ember
Mapping the future of utility networks

What does an optimal future look like, where all these aspects are aligned and prioritised appropriately?

It’s a complex cartography and it’s going to take a long time, maybe decades, for us to reach true alignment across all these components.

The pace at which we electrify will impact prioritisation and the biggest hurdle, if we had to choose one, will be better-managing interconnection.

If we can’t bring down the queue length, both at the ISO level and at the distribution utility level, we won’t reach our targets, regardless of how many renewables we build, or how many wonderful microgrids are deployed alongside the software that controls it all.

Ultimately, what’s going to push the needle is the ability to interconnect those resources directly with the grid.

If we can do that, if that is prioritised by ISOs and the right tools are developed, also going back to cost sharing and optimally prioritising and financing projects, that will bring significant value to the grid in the near term.

That will take a giant step in the right direction and then we will see other dominoes fall in place.

We will then be able to better leverage large front-of-the-metre batteries and new solar developments.

Perhaps we’ll even get to a point where wind is delivering in the US what we all hoped it would.

By default, more value will be brought by smaller aggregated resources. That will naturally start to occur as there will be better compensation and market mechanisms within the ISO.

So, from what I’ve seen, interconnection is the next code that we have to crack.

Cheers,
Yusuf Latief
Content Producer
Smart Energy International