Iowa Needs to Change the Game to Ensure Our Lights Stay On
You may have seen the recent Des Moines Register headline that this region’s electric grid operator Midcontinent Independent System Operator (MISO), is at risk of “energy emergencies” this winter if hit by an extreme cold weather event. On December 1, the Iowa Utilities Board, in response to the concern, scheduled a conference for the utilities to discuss how they will handle any emergencies.
And the risk to the grid will continue as climate change leads to more extreme weather events, utilities retire costly coal plants, the grid relies on more intermittent power sources, and transportation and heating electrify.
To address the growing risk, we need to start planning now. The decisions we make today need to ensure that the grid of 2030 and 2035 can handle future demands. It means our decisions today should not be based on today’s reality – but on tomorrow’s opportunities.
First, we want to ensure our grid utilizes the lowest cost generation. While coal use to be the cheapest form of energy – for a number of reasons, coal has quickly become the most expensive energy to produce. Encouraging coal plants to operate beyond 2035 will be a hard sell for attracting many businesses – which will not want to pay either the high dollar cost or high PR cost from powering their operations with coal.
Second, to ensure the reliability of the grid – Iowa’s utilities need to implement a robust, multifaceted approach to demand management. Demand management, also referred to as demand response and load flexibility, involves policies that encourage a reduction of energy during peak times, when generation costs are high, and the system is under stress. California utilized demand management to avoid widespread outages during the latest heat waves.
Demand management is not just helpful during extreme weather, but it also provides the following:
increased efficient use of renewable energy,
geographically targeting reductions to address local distribution/transmission limitations,
greatly improved load planning and system balancing, and,
overall increased system reliability.
The net result of robust demand management: it lowers power system costs while reducing the carbon footprint of the energy produced and increasing reliability. (see 2021 National Renewable Energy Laboratory study and 2019 Brattle Group report).
Unfortunately, Iowa’s current regulatory schedule creates a financial roadblock to leverage the full benefits of demand management. Increasing demand flexibility reduces the need for capital investment in generation, transmission, and distribution. This creates a perverse financial disincentive for our investor-owned electric utilities to invest in demand flexibility. Therefore, the expansion and creation of cost-effective demand response programs will not occur without the active engagement of the Iowa Utilities Board along with modifying rate structures and the incentive structure for the investor-owned electric utilities.
If Iowa’s ratepayers are to reap the full potential benefit of demand response, the following steps should be considered by the Iowa Utilities Board to overcome the current financial roadblocks.
Require robust Integrated Resource Planning. Demand response by its nature involves the balancing of the system and determining which demand response programs will be cost-effective. This requires a good Integrated Resource Planning effort.
Require tariff structures that provide incentives for non-peak use.
Enable third-party aggregators to participate in expanding demand response opportunities. This step has demonstratable benefits and will help utilize the innovation and power of the free market for the benefit of ratepayers.
Minimize the current financial disincentive by including achievable demand response benchmark requirements to receive full profit recovery goals in all future ratemaking principal orders. Moving towards performance-based ratemaking will better align the interests of the electric utilities and ratepayers.
Increasing load flexibility is critical to prepare for future extreme weather events, as well as to ensure Iowa has both a low cost and low-carbon grid that help our businesses be competitive.