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Envisioning the Rural Electric System of the Future

Takeaways from the Transforming Rural Electric Supply Pod at e-Lab Summit

In September 2018, experts from across the electricity industry gathered at RMI’s eLab Summit to discuss the most important emerging trends and opportunities. This blog outlines takeaways from the Transforming Rural Electric Supply group.

The rural electric system—like the rest of the US electric system—was designed to capture economies of scale that defined how power was generated throughout the 20th century. First, individual households, farms, and businesses joined together to build and operate cooperative electric distribution systems. Then small distribution co-ops (typical distribution co-op load is less than 50 megawatts [MW]) joined forces to create generation and transmission cooperatives (G&Ts) that were sizeable enough to own and operate large and cost-effective central power plants. For more than 80 years, this system has reliably and cost-effectively served rural and suburban communities that now encompass 56 percent of the US landmass.

In recent years, low-cost, high-value distributed energy resources (DERs) have begun to flip the axiom that bigger is better. At Rocky Mountain Institute’s (RMI’s) Electricity Innovation Lab (eLab) Summit, leaders from rural electric cooperatives, trade associations, research institutions, and service providers gathered to explore the future of rural electric systems in a high-DER future. Four key takeaways emerged.

  1. Co-op systems now have multiple options for providing reliable and low-cost energy and other services.
  2. DERs can create new value streams for co-op systems.
  3. DERs will change the flow of energy and services between G&Ts, distribution co-ops, and their members.
  4. Multiple business models can effectively serve a transformed rural electric system. 

1. Co-op systems now have multiple options for providing reliable and low-cost energy and services.

Beyond the traditional model, in which co-op systems are powered primarily by central thermal power plants controlled by G&Ts, co-ops now have multiple options to provide reliable and cost-effective power to their members:

Wholesale power marketers and independent power producers now provide wholesale power options to distribution co-ops. Competitive power options are most-readily accessible in areas served by regional transmission operators (RTOs), but they are also available in regions not served by RTOs.

Local distributed generation can also provide a cost-competitive alternative to central generation provided by a G&T. Co-ops have become leaders in community- and distribution-scale solar. Distributed generation is appealing to many co-ops because it can help avoid demand and energy charges, resulting in positive net project economics.

Finally, renewable energy is now a cost-effective central generation alternative to thermal generation. A 2018 RMI analysis of the Tri-State G&T system indicated that Tri-State could save up to $600 million if it were to integrate more renewable energy into its supply mix. If a G&T is unwilling or unable to efficiently transition to lower-cost power options, then delivered prices are likely to increase, making distributed generation or wholesale alternatives even more attractive.

2. DERs can create new value streams for co-op systems.

DERs create new value options for rural electric cooperative systems and the communities they serve. Though DERs can provide multiple value streams, some of these are particularly compelling to co-ops:

  • Increased resilience through microgrids or islanding
  • Avoided investments in distribution or transmission infrastructure (non-wires alternatives)
  • Provision of grid/voltage regulation and other grid services

The value of DERs may be particularly high in sparsely populated rural co-op territories. Co-ops own 42 percent of US electric distribution lines, while serving only 13 percent of US load. DERs can help co-ops reduce cost and improve reliability while opening up new possible revenue streams.

 3. DERs will change the flow of energy and services between G&Ts, distribution co-ops, and their members.

The emergence of low-cost DERs will likely change the flow of energy and energy-related services (e.g., frequency regulation and voltage support) between G&Ts, distribution co-ops, and end-users in co-op systems.

End-user members will increasingly act as prosumers (producer/consumers) instead of passive consumers. This change will be enabled by customer-sited DERs combined with effective and reliable communications infrastructure (e.g., co-op broadband). The flow of energy and services between distribution utilities and some of their members will no longer be one way, but will become bidirectional.

Similarly, higher levels of DERs will change the relationship between G&Ts and the distribution cooperatives they serve. Whether DERs are end-user controlled and behind the meter or utility controlled and in front of the meter, there will be a shift in the flow of energy and services at the interface between the distribution and transmission grid. In some instances, it may make sense to enable a two-way flow of energy and services across the distribution/transmission interface.

4. Multiple business models can effectively serve a transformed rural electric system.

The coming changes do not demand a uniform 21st-century electric co-op business model. In fact, multiple business models and structures are needed to ensure that rural electric cooperatives are responsive to their members’ needs and that they remain highly-effective consumer-centric utilities. At eLab Summit, workshop participants articulated several visions for the roles of members, distribution co-ops, and G&Ts in a future energy system. These visions revolved around three questions:

What services will be provided by the G&T? While some workshop participants expect G&Ts to primarily become transmission system operators, others see an opportunity for G&Ts to provide an expanded set of services. In addition to their current core services, G&Ts can more actively support distribution co-ops in navigating the changing energy system by creating and operating customer programs or products (e.g., energy efficiency or demand response programs).

What is the role of DERs versus central generation? All workshop participants expect there will be higher levels of DERs in the future. Some members envision future states with very high levels of DERs, while others expect central generation to continue to provide the lion’s share of energy in co-op systems.

Who will own or control DERs? In a transformed rural electricity system, DERs could be owned and controlled primarily by members, distribution co-ops, or G&Ts. Some workshop participants envisioned a future in which prosumer members would directly control DERs. Others thought distribution co-ops would control primarily front-of-meter distribution-scale resources. Finally, the G&Ts could own and operate significant DERs.

Embracing the Transition

Across the country, co-ops are developing and implementing novel solutions to capture the value of DERs. Examples of co-op DER innovation include: a 100 percent daytime solar strategy in New Mexico; a grid-interactive water heater program in Minnesota; and community battery storage in Colorado. It’s clear that co-ops are not content to wait for innovation to trickle down from large or urban utilities, but rather they are embracing ways to use emerging technology to better serve their members today.

For many co-ops, embracing DERs is not just about power supply—it’s about economic development and community stewardship. The economic challenges of rural and small-town America are no secret. Many co-ops have embraced their role in rural economic development by providing broadband service. Some co-ops now see distributed energy resources as one more tool to generate local jobs, boost property taxes, and save their members money. Just as they did when they electrified America in the 20th century, 21st-century co-ops are using the best technologies of the day to meet the needs of their communities.