In an accelerated energy

transition, can US utilities

fast-track transformation?
Magnitude of change puts utilities under pressure
to reinvent themselves
In this report

This report, coproduced by the GridWise Alliance and EY Global

Services Limited (EY), examines the changing state of the electric
utility industry in the US. It explores distribution system solutions
fit for a decarbonized, decentralized and digitized electric future.

It builds on the findings of a January 2019 report by EY and

EU industry body Eurelectric, which considered the future
responsibilities of distribution system operators and the ongoing
role of the electricity grid in Europe.

What makes the US market distinct is that utilities — in

almost all jurisdictions — manage both the distribution grid
infrastructure and the customer relationship. Utilities in some
states hold a monopoly over the customer relationship; in others,
customers are able to choose their retail provider. Similarly,
a significant number of US utilities are fully integrated — for
example, managing generation and transmission in addition to
distribution and the customer relationship.

Once varying levels of digital-grid maturity and differing state

regulatory regimes are considered, it becomes difficult to
ascertain the current state and predict the future trajectory of
the US distribution system.1 There is no one-size-fits-all solution.
But, there are ways in which electricity providers can innovate,
reinvent and secure their trusted provider status with consumers.

The observations made in this report are supplemented by

face-to-face interviews with C-suite executives from some of the
largest distribution operators in the US, as well as output from
an industry workshop hosted by GridWise and EY in Denver,
Colorado, in July 2019.

Many GridWise Alliance member companies participated in the study,

however, the views expressed in this report do not necessarily represent any
individual company’s views.

1A utility, as defined in this report, refers primarily to regulated electric distribution

utilities that are investor-owned. While public electric utilities, including municipals and
cooperatives, face many of the disruptive issues explored in this report, they operate
under different governance and may not be subject to the same observations contained
herein.

2
Contents
1. Executive summary –– Alternative revenue streams and better
customer management
2. Time is not on utilities’ side as energy
transition overturns conventional 4. Why trust matters even more in the
business models digital future

–– Decarbonization and the energy-efficiency –– Self-generation and the changing customer

conundrum dynamic

–– Decentralization: the big game changer for –– Keep your regulators close to accelerate the
utilities case for change

–– Digitization forces utilities to embrace –– Alliances and partnerships built on trust

technology –– Digital skills shortages, but legacy know-
–– Electrification to counter shrinking demand how still relevant

–– Why a one-size distribution system will not –– Investors want utilities to embrace disruptive
fit all trends

–– Collaboration essential in energy transition

3. Capabilities needed today to prepare
distribution utilities for tomorrow –– Once you’ve got trust, here’s how to keep it

–– Integrated planning to better understand 5. Delivering on the future distribution

DER uptake and impact system vision
–– Better and faster asset management with –– Redesign the distribution system from the
predictive analytics bottom up
–– Real-time system management –– Three-phase investment journey to the
–– Enhanced system operations for grid-edge future state
control –– Trusted orchestrators of tomorrow’s
–– Flexibility management to balance volatility distribution system

3
1
Executive summary
The growth in renewables and distributed energy resources (DERs)2, the endless
possibilities of technology; more switched-on and demanding consumers — all have a
role to play in reshaping our energy landscape.
But, as the US electricity industry gears up for transformation, • A record number of publicly announced, new US corporate
where does today’s distribution utility fit in? And, most importantly, renewable energy contracts were finalized in 2018, with a
what specific steps need to be taken to succeed in the future? combined capacity of 6.5 gigawatts (GW).5

Utilities need to act now to secure a long-term, higher profile role Facebook, Walmart, Apple, Alphabet and Microsoft are just some of
as facilitators of markets, as platform providers for new innovations the major corporations behind these corporate contracts. They are
and as the preferred conduit through which electricity and among over 50 companies with US headquarters that are members
information flow, both to the customer and back to the grid. of RE100, a worldwide initiative that commits the most influential
corporations to 100% renewable energy goals.⁶
By planning for the future and investing in the new and enhanced
capabilities required by a fit-for-purpose and fit-for-the-future The utility industry has also risen to the occasion. In 2018, several
distribution system, utilities can become more than trusted service major utilities, including AEP, National Grid and Southern California
providers. They can become the trusted orchestrators of local Edison (SCE), committed to reduce their carbon emissions by 80%
power reliability – and they should not delay. by 2050. Then, in December 2018, Xcel Energy became the first
major US utility to commit to 100% carbon-free electricity by 2050.7

Climate commitments Since then, Duke, Avista, Idaho Power and others have pledged to
attain similar climate goals.
and the relentless rise of While wind and solar generation grew significantly over the past
renewables decade, it is the shale gas revolution and corresponding switch
from coal-fired to cleaner natural gas-fired generation that have
The absence or potential withdrawal of the US from various global
really driven carbon emissions downward. Between 2008 and 2018,
initiatives, such as the Paris Agreement, might cast doubts on its
US carbon-dioxide emissions from electricity generation fell 26%.8
commitment to environmental stewardship and decarbonization.
But, this perceived national stance belies remarkable renewable
Natural gas-fired generation has now displaced coal-fired
energy initiatives that are taking place at a state, local and
generation as the number one source of electricity generation in
corporate level:
the US and is expected to retain this position at least through 2030.
• Since 2018, 10 states (Hawaii, California, New Mexico,
Colorado, Virginia, Nevada, Washington, Maine, New York However, it is non-hydro renewables, led by solar and wind, that will
and New Jersey) plus Washington, DC and Puerto Rico, experience the most growth going forward. From a combined total
have committed to 100% renewable energy targets. 3 of around 9% today, the share of solar and wind energy is expected
to almost triple by 2050 when they will account for one-quarter of
• Over 100 cities across the US have committed to 100%
US generation.9
renewable energy targets.4

2
DERs as defined in this report include distributed generation (e.g. solar photovoltaics, fuel cells, microturbines and diesel generators), distributed storage (e.g. advanced batteries and electric vehicles), and demand response and
energy efficiency solutions (e.g. home/building energy management systems)
3
“States March toward 100% Clean Energy – Who’s Next?” Ecowatch website, https://www.ecowatch.com/clean-energy-united-states-2640084281.html?rebelltitem=1#rebelltitem1, 28 August 2019
4
“100% Commitments in Cities, Counties, & States”, Sierra Club website, https://www.sierraclub.org/ready-for-100/commitments, 20 September 2019
5
“The Power of Agreement”, Rocky Mountain Institute website, https://rmi.org/the-power-of-agreement/, 21 December 2018
6
“The world’s most influential companies, committed to 100% renewable power”, RE100 website, http://re100.org/, accessed 28 September 2019
7
“More Utilities Make Big Commitments to Climate Action”, Natural Resources Defense Council (NRDC) website, https://www.nrdc.org/experts/sophia-ptacek/more-utilities-make-big-commitments-climate-action, 5 March 2019
8
“U.S. Energy-Related Carbon Dioxide Emissions 2018”, Energy Information Administration (EIA) website, https://www.eia.gov/totalenergy/data/monthly/, October 2019
9
EY analysis on EIA, International Data Corporation (IDC) data, for details see figure 2
5
Distribution utilities must Electrification is expected to put almost 19 million EVs on US roads
by 2030, compared with just over one million today.12 The rise of
transform rapidly to keep up EVs, in turn, will lead to new and variable load on the US distribution
system. If they are well prepared, utilities can capture new revenue
While the upstream generation mix is getting cleaner, a parallel opportunities from emerging EV value pools that improve the
shift is occurring downstream. And that means distribution utilities reliability and resilience of the power system. These include:
must prepare now for a future that will see customers become
• Time-of-use programs to shift EV charging to more
increasingly empowered by opportunities to produce and sell their
preferable times
own electricity.

As in Europe and other geographies, the cost of installing rooftop • Demand-response programs to reduce peak load
solar systems in the US has declined dramatically. According to the
Solar Energy Industries Association (SEIA), the pre-incentive price of • Vehicle-to-grid (V2G) services that enable EVs to charge and

installing an average-sized (five kilowatt), residential rooftop solar discharge electricity to and from the grid

system has fallen by more than half since 2010, to around US$18,000 California accounts for almost one-half of the US EV market. It leads
today.10 the way in fast-tracking EV deployment with a mix of state climate

Greater affordability and the low penetration of distributed solar goals and consumer incentives, including EV rebates and access to

in the US – it currently makes up less than 1% of total electricity high-occupancy vehicle lanes. More generally, the uptake of EVs

generation – means the potential for rapid uptake is enormous. in US cities is well above the 2018 national average of 2.1% of new

Distributed solar is expected to grow at a compound annual passenger vehicle sales,13 which may lead to demand spikes in some

growth rate (CAGR) of over 10% and produce 165 terawatt hours urban and suburban clusters.

(TWh) of electricity by 2030, which represents almost 4% of the This great expansion of the DER ecosystem will create challenges
US generation mix. Other DERs, including residential batteries and and opportunities for US distribution utilities across the next several
electric vehicles (EVs) will also experience double-digit growth over rate cycles and beyond. Unless US utilities set a course for change
the next decade.11 to capture the upside of this disruption, they will face long-term,

Another pressing consideration for utilities is transportation, the US’s top-line revenue constraints and rising costs, which will significantly

biggest carbon-dioxide-emitting sector. It is under pressure from challenge the traditional utility business model.

state and local clean energy mandates to decarbonize, representing

a significant game-changer in the industry in terms of potential
electric load.

10“Solar Industry Research Data”, Solar Energy Industries Association (SEIA) website, https://www.seia.org/solar-industry-research-data, accessed 30 October 2019
11
EY analysis on IDC, Navigant Research, The Institute for Energy Innovation (IEI) and Edison Electric Institute (EEI) data, for details see figure 4
12
EY analysis on IEA, IEI/EEI data, for details see figure 4
13
“The surge of electric vehicles in United States cities”, The International Council on Clean Transportation (ICCT) website, https://theicct.org/sites/default/files/publications/ICCT_EV_surge_
US_cities_20190610.pdf, June 2019

6
Navigating the challenges
and opportunities ahead
The current model of rewarding utilities for capital-intensive
infrastructure expansion is unsustainable. This approach functioned
well as electricity consumption grew reliably over the course of the
20th century, but not anymore.

For more than a decade now, consumers, businesses and industry

have grown accustomed to doing more with less energy. Energy
efficiency has taken hold throughout the economy with wide
But there are upside opportunities on the horizon too, not least
adoption of green building codes, smart appliances, LED lighting
the prospects for deep electrification of the US economy. This
and energy management systems. In 2017, energy efficiency
will go some way to alleviate future revenue growth challenges
programs offered by utilities saved enough electricity to power 22
from utilities’ more traditional loads. Depending on electrification
million US homes for a year. Investment in these programs is only
adoption scenarios, the National Renewable Energy Laboratory
expected to grow in the years ahead.14
(NREL) estimates that electricity consumption in the US will increase
On top of this, expected growth in distributed solar will see between 21% and 41% by 2050.15
California, Arizona, Hawaii and parts of the US Northeast, experience
In addition to 56 TWh of increased load expected from EVs by
significant loss in traditional load and a decline in traditional
2030,16 electrification of buildings, heating and industry will increase
electricity sales within the next decade.
electricity demand and offset usage decline. This will be driven
There are other emerging challenges for US utilities: by clean energy mandates and the potential conversion of gas
and fossil-energy source applications to electricity. Utilities should
• Reduced demand for additional grid-supplied electricity
be alert to the prospect of decarbonization initiatives across the
midday due to increasingly high levels of solar generation,
residential, commercial and industrial segment, which accounted for
followed by steep ramp-ups in demand by late afternoon.
46% of US carbon-dioxide emissions in 2018.17
• Unpredictable load from simultaneous EV charging, leading
to demand surges and supply shortages, concentrated in Utilities are also well positioned to develop new revenue streams
some neighborhoods. from an evolving ecosystem of consumer products and services.
Specifically, utilities can take advantage of opportunities in value-
• Threats from cyber attacks due to the growing complexity
of the digital grid, larger volumes of customer interactions, added power solutions; enhanced energy services; microgrids,

increased data, more points of entry and exposure at the connected homes and intelligent buildings; V2G services; lighting-

utility perimeter. as-a-service; smart heating, ventilation and air conditioning (HVAC);
and home appliance solutions.
• Impacts on the electricity system from increasingly
frequent and intense weather events.

These challenges, together with the rising costs of grid

modernization, grid resilience; and the need to replace, maintain
and upgrade aging infrastructure, put greater pressure on utilities to
increase rates to enable capital investment.

14
“Energy Efficiency Trends in the Electric Power Industry (2008-2017)“, Institute for Electric Innovation, https://www.edisonfoundation.net/iei/publications/Documents/IEI_Energy%20Efficien-
cy%20Report_Mar2019.pdf, March 2019
15
“Electrification Futures Study 2018”, National Renewable Energy Laboratory (NREL) website, https://www.nrel.gov/docs/fy18osti/71500.pdf, June 2018
16
“Global EV Outlook 2019”, IEA, June 2019
17
“U.S. Energy-Related Carbon Dioxide Emissions 2018”, Energy Information Administration (EIA) website, https://www.eia.gov/totalenergy/data/monthly/, October 2019

7
Toward a future quality issues will require flexible and agile resources to balance
supply and demand more effectively and to meet customers’ higher

distribution system expectations.

Distribution utilities have the opportunity to take on a leadership

The current US electric grid was designed to support centralized
role and step up to new levels of responsibility. They can work with
generation and the one-way flow of power over large networks.
ISOs and RTOs to streamline the system in ways that:
Without a more flexible and agile architecture, it will not cope with
bidirectional energy flows and decentralized generation. Nor will it • Reduce operational complexity
realize the full value and potential of DERs as the ecosystem evolves
over the next decade, at different speeds in different locations, • Consider the interconnectedness of the bulk electric system

depending on local economics, policy support and consumer

• Account for the downstream impacts of DERs and grid-edge
appetite.
digital devices

Failure to make changes now will see the system headed toward
New and enhanced capabilities
an increasingly complex operating scenario due to the rapid rise in
DER participation in wholesale energy markets. Independent system As part of the redesign to deliver a fit-for-purpose distribution
operators (ISOs) and regional transmission organizations (RTOs) will system, utilities will need new capabilities across every aspect of
become overburdened by the need to navigate a multitude of state- their businesses.
level regulations to ensure that DERs comply with local reliability
These capabilities will leverage vast quantities of new data that will
needs.
be captured, stored and analysed from DERs, field sensors, BTM
At the local level, growth in behind-the-meter (BTM) products devices and automated electricity networks, and converted into
and services will exacerbate the challenges in in coordinating a actionable intelligence.
system-wide response. Managing congestion, peak load and power

8
In fact, expenditure on analytics across grid, customer and
demand-side segments in North America is expected to more
than triple within the next decade, from US$0.86 billion to US$2.62 The industry says:
billion. 18

“2045 or 2050 may sound as though

Some of the critical capabilities for the future distribution system
it is a long way off, but what we are
will include:
talking about is transformative. We have
• Integrated planning – customer adoption modeling;
to invest now in the technologies we
customer and demand-side analytics and standardized
need to update our grid capabilities and
platforms for coordinating distribution-level and
transmission system planning
have better real time understanding of
what is happening on the grid. We can’t
• Asset management – weather analytics; improved
afford to lose any more years.”
asset performance and condition data; real-time grid
monitoring and predictive maintenance analytics Paul Grigaux,
• System management – remote sensing and drone VP, Asset Management, Strategy &
technologies; wearables and augmented or virtual reality
Engineering, SCE
and back-office robotic process automation

• Systems operations – DER Management Systems

(DERMS); Advanced Distribution Management Systems
Board-level governance is required to embed trust at the forefront
(ADMS); real-time system optimization and enhanced
of a long-term strategy if it is to be integrated successfully into the
forecasting and modeling tools
culture of the utility.
• Flexibility management – advanced energy storage;
non-wires alternative solutions; dynamic market-pricing Monitoring and measuring performance on trust can then become

mechanisms and ancillary DER services managed at the part of the utility’s stakeholder management strategy and risk

distribution-level management toolkit.

• Commercial operations and customer management –

EV charging; connected home and energy services; V2G
Call to action
services and peer-to-peer trading Change is needed now, and distribution utilities have the
opportunity to deliver that change under a bold new vision.
Stakeholder trust
The journey to a fit-for-purpose distribution system, requires The urgency that accompanies fast-track transformation will require

utilities to embrace a parallel strategy that wins the confidence and utilities to consider the following.

sustains the trust of all critical stakeholders — regulators, customers, Advocate the core principles for system redesign
investors, employees, vendors and partners and peers.
Utilities will need to communicate effectively with key stakeholders
These relationships are founded on trust that may have been built that they are best placed to:
over many decades, but can be lost in an instant.
• Achieve continued power quality and reliability at the
At this critical time of transition, US utilities need stakeholder trust distribution level through the optimization and aggregation
more than ever to secure support for and investment in the new and of local DERs
enhanced capabilities that will deliver the future clean energy vision.

“AI and Advanced Analytics Overview,” Navigant Research, 3Q 2019

18

9
 • Streamline DER participation in wholesale markets by Phase 1: Connect and protect
aggregating excess supply or demand into single bids to
To connect growing numbers of DERs, without compromising
balance local reliability needs
local power reliability, utilities will continue to invest in grid
• Provide visibility and guidance to DER owners on avoiding modernization. Granular modeling and forecasting methodologies,
conflicts with local reliability needs and greater visibility over connections, will be critical to better
understand the scale and scope of DER deployment.
Launch a three-phased investment approach
DERs, including distributed generation and batteries, will provide
Utilities will need to work through three investment phases as they
essential backup during extreme weather events. At the same
progress towards the future distribution system. These phases may
time, investment in grid-scale storage will improve the overall
be concurrent as they develop the new and enhanced capabilities
responsiveness of the system and the means to restore balance to
that will enable them to take on higher-order responsibilities that
supply and demand.
will be integral to their future roles.
DERs leave the grid edge exposed to physical and cyber threats
at multiple entry points. Distribution utilities must invest in
risk-informed approaches to manage security and protect the
distribution system from attack.

Figure 1: Three-phased approach to US distribution-system investment

Far from a one-size-fits-all distribution system model, outcomes will be

shaped by local circumstances, maturity and dynamics
Transformational

Optimize and control

Very high DER • Full DERMS/ADMS
adoption capabilities
• Optimized DER dispatch
through distributed Strategic priorities
realtime intelligence
Emerging capability requirements

• Peer-to-peer transactive • Monitor DER penetration across all

energy trading voltage levels
Sense and enable
• Phased approach • Vehicle-to-grid services • Create visibility over power flows at
Medium-high DER to DERMS to unlock value of EVs the distribution level
adoption • Wide deployment of
• Emergence of • Invest in risk-informed approaches to
flexible platforms advanced analytics, AI protect the distribution system
Connect and protect • Electrification of • Connected home and
• Granular forecasting for • Integrate flexible solutions across
transportation, intelligent buildings the network
improved visibility buildings and
• Risk-informed approaches industry • Develop platforms for procuring
to resilience DER services
Low DER • Wide deployment
adoption Continued grid
• of sensors for grid
modernization edge monitoring
Foundational

• Reliable connection and awareness

Phased investments
Source: “Distribution systems in a high distributed energy resources future,” Future Electric, and EY analysis

10
Phase 2: Sense and enable Phase 3: Optimize and control

Investment in sensors to automate and control the network will As the US energy model becomes increasingly decarbonized,
create situational awareness at the grid edge and enable improved decentralized and digitized, utilities must prepare to take on higher-
real-time monitoring and control. Ultimately, as DER uptake level responsibilities.
accelerates, utilities will invest in DERMS, either as standalone
They will make investments in distributed intelligence at the grid-
implementations or phased into a broader ADMS strategy.
edge through advanced, real-time management and control of local
Increasingly, utilities will also invest in securing their future role as DERs. As platform providers, they will transact in innovative products
neutral market facilitators and platform providers for trading flexible and services offered by utilities, partners and other third parties. By
energy resources. streamlining and securing reliable power supply, they will become
trusted system orchestrators.

And, by driving the transition agenda, utilities can emerge from their
long-held status as providers of electrons to become lynchpins in a
distribution system that is fit-for-purpose in the evolved, digitized
and clean-energy world.

11
2
Time is not on utilities’ side as
energy transition overturns
conventional business models
The US electric utility industry faces unprecedented challenges, with more turbulence
ahead. How well it adjusts and manages the transition will determine the durability of
tomorrow’s distribution system
The energy world is transitioning at a rapid pace. It is driven by the Between 2008 and 2018, natural gas-fired generation increased
three Ds: decarbonization, decentralization and digitization. Long- from 21% to 35% of total US electricity generation. Coal-fired
standing industry conventions and operating models are being generation dropped from 48% to 28% over the same period.21
overturned, giving rise to a wave of new risks, challenges and
opportunities that today’s distribution utilities must address.

How utilities respond to disruption will determine the winners and

losers in the new energy world.

Asking the big questions

Decarbonization and • What is the future role of distribution
the energy-efficiency utilities?

conundrum • How are we going to use the grid?

• How do we ensure the grid evolves to keep

Already, wind and solar resources are cost competitive with new pace with changing technology?
fossil fuel–sourced power in most markets. The US is no exception.
• What new and enhanced capabilities do
Wind capacity and solar capacity have experienced significant we need?
growth over the past decade and now account for 6.6% and 2.3%
of total US electricity generation, respectively.19 • How do we sequence investment in the
network?
Looking ahead, EY estimates that utility-scale solar will far outpace
wind and account for 9% of US generation by 2050.20 Wind will
provide 8%. Once smaller, distributed solar photovoltaic (PV)
systems are factored in, accounting for another 8% of generation
by 2050, the US is set for a clean energy transformation.

Renewables tell a remarkable growth story. But, the US experience

is underscored by a concurrent revolution in shale resources,
“Net Generation from Renewable Sources”, EIA data, 2018
19
which has prompted natural gas prices to drop to historic lows. EY analysis on IDC data
20

EY analysis on IDC data

21

12
13
But, natural gas is also facing challenges from decarbonization (GWh) in energy savings and 85.0 megawatt (MW) in system peak
initiatives. New York state recently vetoed construction of new reductions.24
interstate natural gas pipelines, which will affect not only New
Energy-efficiency solutions and non-wires alternatives, including
York but also New England. This supply constraint, in turn, has led
demand response and batteries, need to become key components
to several Northeastern utilities imposing moratoria on future gas
in the resource mix. They will sit alongside renewable generation to
connections for new customers. Elsewhere, in late 2018, PG&E and
enable US utilities to provide the most sustainable, low-cost energy
APS announced that they would replace natural gas power plants
to the end customer.
with battery storage, on the back of the improved performance and
decreasing costs of batteries.
Decentralization: the big
But for now, natural gas has displaced coal as the number one
source of electricity generation in the US. And the EIA expects gas to game changer for utilities
retain this status for several decades to come.22
DERs, such as rooftop solar PVs, EVs and battery storage, are leading

The impact of energy efficiency us into a more decentralized energy world.

Total US electricity demand has remained relatively flat for the This presents both upside and downside risks to utilities’ revenues.

past decade. It is driven, largely, by declining energy consumption Clearly, greater adoption of rooftop solar and energy-efficiency

and supported by initiatives such as energy-efficient lighting, programs will undermine the traditional utility’s need for electricity

revised appliance standards and green building codes. Yet, energy sales. Conversely, growing uptake of EVs promises a future boost.

efficiency continues to present a conundrum to US utilities. It runs

Yet, without a guarantee of rate-based returns, many utilities are
counter to the traditional business model, which is about selling, not
wrestling with the decision to invest in EV charging infrastructure.
conserving, as much electricity as possible.
This, in turn, has consequences for EV adoption and invites greater

Digital technologies, including home energy management systems, competition from other market players.

smarter appliances and intelligent buildings, enable consumers

to do more with less by managing electricity consumption more
effectively.
The energy-efficiency
Utilities’ revenue challenges are often compounded by a lack of
regulatory support for their investments in energy efficiency and
conundrum
demand-side management programs. According to the American
The more the world focuses on energy
Council for an Energy-Efficient Economy (ACEEE), “more states need
efficiency, the greater the hit on utility
to adopt and maintain an optimal mix of policies that align utility
revenues. Comprehensive policies and
business models with energy efficiency.” 23
incentives need to be applied more widely
Progress has been made where states set clear energy-efficiency
to encourage utilities’ investment in energy-
targets and align them with traditional utility ratemaking. This is
efficiency programs.
achieved through regulatory tools that include revenue decoupling,
program-cost recovery and performance incentives.

For instance, New York investor-owned utility (IoU) Con Edison

benefits from an earnings adjustment mechanism (EAM) for
22
“Annual Energy Outlook 2019”, EIA, 2019
exceeding energy-efficiency program targets. In 2018, Con Edison 23
“Aligning Utility Business Models with Energy Efficiency”, American Council for an Energy-Efficient
Economy (ACEEE) website, https://aceee.org/sector/state-policy/toolkit/aligning-utility, accessed 25
September 2019
was rewarded through the EAM for achieving 393.5 gigawatt hours 24
“Con Edison 2018 Energy Efficiency Earnings Adjustment Mechanism Achievement Report”, State
of New York Public Service Commission, 2018

14
Several DER tipping points are fast approaching that will escalate utility
decision-making:
The industry says:
• Rooftop solar plus storage is becoming increasingly cost
competitive with grid-supplied energy. “In the areas we serve we are
• Cost parity for new solar plus storage distributed systems is supporting local and state goals as we
anticipated as early as 2026 in the US Western region.25 continue to work toward a clean energy
future. We believe an orderly transition
• Cost and performance parity of EVs with conventional vehicles
is in everyone’s best interests which is
is possible as early as 2025, positioning them for mainstream US
why we developed our Smart Solutions
adoption.
for Natural Gas program.”
These tipping points will arrive at different times in different geographies,
with California at the vanguard of disruption. In 2018, its installed base of Matt Ketschke,
7.1 GW of distributed solar capacity was more than the combined total SVP, Customer Energy Solutions,
of the next four top states (see Figure 3). By mid-2019, distributed solar Con Edison
capacity in California had grown to over 8.4 GW. 26

The state also leads in EV adoption, with over 655,000 vehicles as of

October 2019, almost half the US total EV market.27
“EY Countdown Clock analysis (Western region includes California, Washington, Oregon, Nevada, Idaho, Utah, Arizona, Montana, Wyoming, Colorado, New Mexico)
25

“California Solar Initiative”, https://www.gosolarcalifornia.ca.gov/csi/, accessed 5 October 2019

26

“Sales Dashboard”, Veloz website, https://www.veloz.org/sales-dashboard/, accessed 5 October 2019

27

Figure 2: US renewable generation by source (TWh), 2008–50

US renewable generation by source (TWh), 2008–50

1,600 States plus Washington, DC and Puerto

10 Rico have committed to 100% renewa-
ble energy targets
1,400 Historical Projections

1,200

1,000
Share of solar PV in 2050 from
800 17% 2% of total electricity generation
in 2018

600

400

200 Invested in renewable

$442b generation since 2008
0
2008

2010

2012

2014

2016

2018

2020

2022

2024

2026

2028

2030

2032

2034

2036

2038

2040

2042

2044

2046

2048

2050

Hydro Wind Utility-scale solar Distributed solar Other*

* includes geothermal and bioenergy

Source: EY analysis on EIA, IEA and IDC data

15
California’s early lead may provide a much-needed kick-start to
distribution utilities in other states. Right now, the DER footprint is
relatively small compared with overall traditional grid infrastructure It’s a fact
in the US. Indeed, current supply from distributed solar systems
accounts for less than 1% of total US electricity generation.28 In 2017, energy saved from energy-efficiency
programs in the US would be enough to power
But DERs are entering a period of dramatic growth. Over the
next decade, most DER technologies are expected to experience
22 million homes for a year.
double-digit CAGRs due to reductions in cost and improvements in
Investment in energy-efficiency programs is
performance (see Figure 4).
expected to reach US$9 billion per annum in
As DERs proliferate, demands on the system will intensify. Higher
2025, resulting in more than 250 million tons
penetrations of distributed solar will exacerbate so-called
of avoided carbon dioxide emissions.
“duck curves,” where the drop in net electricity load due to solar
generation midday gives way to steep ramp-ups in demand by late
afternoon. California, Arizona and New England are already facing
such challenges and need to ensure sufficient peaking capacity is
available.29 most interested in independent power generation to “save money
in the long run.” Saving money ranked ahead of environmental
Meanwhile, demand surges from simultaneous EV charging could
concerns, such as reducing their carbon footprint.30
create power quality issues or supply shortages. So, on top of
understanding optimal EV charging patterns, utilities must invest in There is opportunity, though, for utilities to coevolve the grid in-line
new wires to distribute more power, as well as transformers to step with the DER ecosystem.
down high-voltage electricity to distribution levels.
By managing a flexible resources platform, and allowing DER owners
By 2030, a DER ecosystem will emerge of significant scale and scope and aggregators to participate and trade in a fair and open energy
to support the larger transactional volumes that will be needed to market, the grid becomes more relevant to the changing needs of
enable a truly digital and decentralized energy marketplace. tomorrow’s customers.

As technology costs decline, customer interest in generating their Indeed, more than half (56%) of delegates at the GridWise and EY
own power increases. A 2019 EY study found that consumers were industry workshop said that in addition to providing reliable power,
the most important role for the distribution utility of the future is as
a neutral market facilitator and platform provider (see Figure 5). In
The industry says: Section 3 of this report, we explore the building blocks, including
new and enhanced capabilities, that will enable the distribution
“If you don’t prepare the grid for the utility to transition to that role.
future, once you get to the future, it’s
too late. You end up playing catch-up.” Digitization forces utilities to
Lee Mazzocchi, embrace technology
SVP, Grid Solutions, Duke Energy Technology and innovation are enabling the energy transition. The
ability to do things faster, smarter, more cheaply and more creatively
is a consequence of the digital revolution. Consumers expect utilities
28
“Electricity data browser,”, EIA website, https://www.eia.gov/electricity/data/browser/, accessed 30 September 2019
(Electricity data browser - small scale solar photovoltaic systems for the 12 months ended July 2019 accounted for 0.80% of total US electricity generation)
29
“Massachusetts Is Staring Down a Duck Curve of Its Own. Storage Could Help,”, Greentechmedia website, https://www.greentechmedia.com/articles/read/massachusetts-is-staring-down-a-duck-curve-of-
its-own-storage-could-help, 23 April 2019
30
“US Fuels of the future survey”, EY, May 2019

16
 Top five US states for installed distributed solar* capacity (GW), 2018

10

0
California Arizona New Jersey Massachusetts New York

Source: EY analysis on SEIA, EIA data

* includes systems of less than 1 MW capacity

Figure 3: Top five US states for installed distributed solar* capacity (GW), 2018

to deliver the enhanced digital experiences that they have become But, as in Europe, proliferation in data is both an enabler and a
accustomed to in other sectors, such as telecommunications and risk. The growing complexity of the digital landscape creates new
online retail. vulnerabilities, including the threat of cyber attacks and fears over
data privacy.
However, distribution utilities are challenged by growth in digital
devices and convergence between the Internet of things (IoT), Though the US is relatively advanced when it comes to cybersecurity
information technology (IT) and operational technology (OT). of the bulk electricity transmission system and critical infrastructure,
This convergence now contributes to a more interconnected and the distribution system is less well protected. So, as DERs and digital
complex data-dependent energy world. Every sensor, smart meter devices transform the utility perimeter, the overall system and data
and intelligent device adds to the exponential increase in data. that drive it become more vulnerable. Distribution-level impacts
have the potential to filter upstream, affecting transmission and
Utilities can tap into the upside of this disruption by investing in
generation, leaving the entire network exposed.
advanced analytics to transform big data into actionable intelligence
that deciphers behaviors, detects load patterns and identifies faults Utilities must manage the security profile of distribution-level
and outages. assets — including DERs — more effectively. The National Institute
of Standards and Technology (NIST) cybersecurity framework, and
Navigant Research forecasts that expenditures on analytics across
other risk management tools, will become increasingly relevant for
utility value chain segments* in North America will almost triple,
managing the digital grid, data protection and distribution-level
from US$1.1 billion to US$3.1 billion, within the next decade. Growth
security.32
in analytics will accelerate as utilities seek to automate back-office
processes; transform operations through real-time sensing, monitoring
31
“AI and Advanced Analytics Overview,” Navigant Research, 3Q 2019
* includes generation assets, grid assets and operations, customer operations and demand-side
analytics
and communications; and better understand customer behavior. 32
“Cybersecurity Framework Smart Grid Profile”, US Department of Commerce, National Institute of
Standards and Technology, https://nvlpubs.nist.gov/nistpubs/TechnicalNotes/NIST.TN.2051.pdf

17
 Projected growth in the US DER ecosystem
10-year
2020 2030 CAGR
Generation from
distributed solar
PV 63 TWh 165 TWh 10.1%

Installed residential
battery storage 2 GWh 58 GWh 40.0%
capacity

Number of EVs and

hybrids
1.9m 18.7m 25.7%

Electricity demand
from EVs 4 TWh 60 TWh 31.1%

Microgrid capacity
(North America)
11.2 GW 29.1 GW 10.0%

Source: EY analysis on EIA, IDC, IEA, Navigant Research, IEI/EEI data

Figure 4: Projected growth in the US DER ecosystem

Electrification to counter Policy-makers in other states are taking steps to accelerate EV

uptake. In Arizona, for instance, utilities are allowed to recover the
shrinking demand “prudent costs” of investing in EV charging infrastructure through
rate base.35
While rising energy efficiency and growth in distributed
generation present a significant threat to utilities’ traditional Utilities need to take advantage of the significant growth
revenues, electrification offers tremendous upside potential, with opportunity in transportation electrification. By 2030, 9.6 million
transportation being the most significant growth driver. charge ports will be installed across the US. This will include around
900,000 public charging ports, up from approximately 54,000 in
The Edison Electric Institute (EEI) and the Institute for Energy
2018,36 representing a 26.4% CAGR. Some utilities will partner with
Innovation (IEI) estimate that 18.7 million EVs will be on the road in
car manufacturers to deliver vehicle plus clean energy packages;
the US by 2030, compared with just over 1 million today.33
others will collaborate with manufacturers of charging stations and
California leads the way, with almost one half of the current US EV other associated infrastructure.
market and 31% of all US public charging infrastructure.34 Falling costs
Beyond transportation, new technological advances, backed by
of batteries, combined with state climate goals, zero-emission vehicle
policy measures, will accelerate electrification of heat and industry.
regulations and consumer incentives, such as rebates and access to
Taken together, the transportation, residential, commercial and
high-occupancy vehicle lanes, have boosted adoption. This, in turn,
industrial segments account for almost three-quarters (72%) of US
adds new and variable load to the electric distribution system.
carbon dioxide emissions.37 (see Figure 6).
33
“Electric Vehicle Sales Forecast and the Charging Infrastructure Required Through 2030”, IEE/EEI, https://www.edisonfoundation.net/iei/publications/Documents/IEI_EEI%20EV%20Forecast%20Report_
Nov2018.pdf, November 2018
34
“California’s continued electric vehicle market development”, The International Council on Clean Transportation (ICCT) website, https://theicct.org/sites/default/files/publications/CA-cityEV-Brief-
ing-20180507.pdf, May 2018
35
“Arizona adopts new EV policy to spur new rate designs, pilot programs from utilities”, Utilitydive website, https://www.utilitydive.com/news/arizona-adopts-new-ev-policy-to-spur-new-rate-designs-pilot-
programs-from/544853/, 21 December 2018.
36
“Electric Vehicle Sales Forecast and the Charging Infrastructure Required Through 2030”, IEE/EEI, https://www.edisonfoundation.net/iei/publications/Documents/IEI_EEI%20EV%20Forecast%20Report_
Nov2018.pdf, November 2018
37“U.S. Energy-Related Carbon Dioxide Emissions 2018”, Energy Information Administration (EIA) website, https://www.eia.gov/totalenergy/data/monthly/, October 2019

18
Deep electrification throughout the US economy, using cleaner
energy sources, holds enormous potential for meeting city- and
state-level carbon reduction targets.
The industry says:
The upshot is a significant and ongoing increase in demand for “We’re in a period of transition towards a
electricity, which offsets some of the usage decline from increasing modern grid in which we are augmenting
energy-efficiency. Data from NREL concurs. In its 2018 Electrification an aged asset base with new digital
Futures Study,38 NREL models the increase in US electricity technology for enhanced planning and
consumption by 2050 under three electrification adoption real time situational awareness. As our
scenarios:
ability to manage the grid more granularly
• Reference — 21% growth — a world with least increases we expect to unlock new
incremental change in electrification opportunities to improve efficiency and
performance. Modernizing the entire grid
• Medium — 32% growth — a future described as
will take time and until then we need to
having widespread, “low-hanging fruit” electrification
opportunities
leverage the new and the old.”

• High — 41% growth — a future described as having Chris Kelly,

undergone transformational electrification COO, National Grid
Under the medium and high scenarios, transportation drives most
of the demand increase, with more limited growth in the residential,
commercial and industrial segments. This is due, in large part, to the 38
The Electrification Futures Study: Demand-Side Scenarios”, National Renewable Energy
Laboratory (NREL) website, https://www.nrel.gov/docs/fy18osti/72096.pdf, July 2018
high efficiency of heat pumps and replacement of inefficient electric 39“NREL study examines impact of vehicle electrification on electricity demand”, Dieselnet
website, https://www.dieselnet.com/news/2018/08nrel.php, 17 August 2018
heaters.39

Figure 5: GridWise and EY workshop polling result, July 2019

Besides continuing to distribute power reliably, what will be the most

important role of the distribution utility of the future?

A A neutral market facilitator and platform provider 56%

B A preferred provider of behind-the-meter energy products/services 8%
C A trusted energy advisor 8%
D A market innovator and strategic partner
25%
E Other 3%
Source: EY survey
19
Why a one-size distribution
system will not fit all The industry says:
As the DER ecosystem expands, managing the distribution system
“Expanded use of distributed energy
becomes increasingly complex. There is no one-size-fits-all response.
resources creates more cyber attack
Outcomes will be shaped by local circumstance, maturity and surfaces. Our pilot programs are held up
dynamics. Some states will be characterized by high EV adoption; by security assessments, while we check
others by low-technology implementation and lower levels of DERs. that interconnecting customer devices
Some will serve progressive, early adopter urban communities; do not introduce cyber risk.”
others will support mainly rural users, who place greater value on
security of energy supply and affordability. Delegate at GridWise and EY event,
Perhaps weather-related resilience best highlights the challenges
Denver, Colorado, July 2019
of implementing consistent and uniform solutions across the
US. Resiliency has different meanings in different geographies,
depending on local circumstances. From hurricanes that roll through
the Atlantic, impacting the Southeast and East Coast, to tornados in In a 2018 EY study, business interruption from uncontrollable
the Midwest and South, ice storms in the North and Northeast, and natural hazards and cyber attacks ranked as the number one critical
wildfires on the West Coast, the US has it all. operational risk facing utilities.40

40“How to avoid being sunk by operational P&U risks”, EY website, https://www.ey.com/en_gl/

Figure 6: US carbon dioxide emissions by sector, 2018 power-utilities/how-to-avoid-being-sunk-by-operational-p-u-risks, 1 September 2018

Carbon dioxide emissions from energy consumption by sector, 2018

Biomass
Over 90% of the fuel
4% used for transportation is
petroleum based
Commercial
12% Transportation
26%
Emissions come
from fossil fuels
to produce heat
and energy, used Residential
to manufacture 14%

goods

Industry Electricity
20% 24%
Around 63% of electricity
generated comes from
burning fossil fuels
Source: U.S. EIA data

20
 Annual electricity consumption (TWh)
6,505

5,656 23%

4,722 25%

3,889 30% 30%

28% 32%

37%
35% 24%

27%

36% 31% 23%

1% 2% 16%
2016 2050 2050 2050
(Reference) (Medium) (High)
Transport Residential Commercial Industrial

Source: NREL, Electrification Futures Study, June 2018

Figure 7: Annual electricity consumption (TWh) in the

US by 2050
The industry says:
These events create urgent need for energy system hardening and
“Because of our metered deployments,
resiliency across vast US terrains. The challenge is in finding the right
we were able to provide customer
balance between DERs and traditional grid infrastructure. Rather
communications throughout
than improve overall system resiliency, overdependency on one
Hurricane Harvey. We restored
or the other could result in loss of supply during a single weather-
related event.
outages and switched circuits via our
automated devices and intelligent
US utilities must consider the best ways to harden the system based
grid, even when our crews couldn’t
on their unique circumstances, as well as invest in new and enhanced
access locations. Our investments
capabilities to meet tomorrow’s energy needs.
enabled us to perform well and
engage our customers like never
before during such an extraordinary
weather event.”

Steve Greenley,
VP, Distribution Operations,
CenterPoint Energy

21
3
Capabilities needed today to
prepare distribution utilities
for tomorrow
As a new energy ecosystem emerges, utilities must acquire the right skills and
capabilities to balance the influx of DERs and manage the arrival and impact of other
disruptive technologies.
If utilities are to deliver a distribution system fit for our evolving Improved forecasting capabilities, designed to capture the
energy future, they must address six key operational areas, which granularity of DER integration and predict future uptake, will
are discussed below. New and enhanced capabilities are needed in become increasingly valuable to utilities as they seek certainty
each area, which touch every aspect of the utility operating model. around the deployment of BTM resources.

Targeted investments will position distribution utilities to become Traditional top-down forecasting, which focuses on historic DER
essential linchpins for coordinating power reliability needs right deployment and expectations or targets for the entire distribution
across the electricity system, not just at the local level. New system, will be neither adequate nor robust enough to capture the
and enhanced capabilities will enable distribution utilities to variations and true impact of rising DER adoption.
take on more responsibilities for the management, control and
aggregation of DERs. Instead, utilities must make greater investment in bottom-up
forecasting methodologies such as customer adoption modeling.
In turn, ISOs and RTOs will be freed up to focus on their core
This is a more dynamic and flexible approach that considers
responsibilities — overseeing the functioning and integrity of
multiple scenarios under changing demographics, incentives and
the wholesale energy markets and ensuring the reliability of
peer behavior. According to a U.S. Department of Energy study,
transmission and the bulk electricity system.
customer adoption models represent the most comprehensive
forecasting approach available today.41
Integrated planning to
better understand DER The Electric Power Research Institute (EPRI) maintains that an
integrated approach to T&D planning is critical. Given the lack of
uptake and impact visibility over DER deployment, it will become increasingly difficult
to measure their expected scale and scope.42 Newly emerging
DERs will impact localized distribution as well as the broader
software tools can help utilities plan for increased DER adoption
transmission network. Utilities will need to develop better tools
and better understand their likely financial and operational
for identifying and planning capacity requirements, as well as
impacts.
coordinating and integrating decisions with the transmission
system operator, where appropriate. 41“Planning for a Distributed Disruption: Innovative Practices for Incorporating Distributed
Solar into Utility Planning,” US Department of Energy (DOE), Ernest Orlando Lawrence Berke-
ley National Laboratory, https://pdfs.semanticscholar.org/2d76/a41ae069feba0e700f0386c-
cdc458993ffc6.pdf?_ga=2.243986757.1539587674.1573550274-1129422487.1573550274,
August 2016
42
“Integrated Grid, Realizing the Full Value of Central and Distributed Energy Resources,”
Electric Power Research Institute (EPRI), https://www.energy.gov/sites/prod/files/2015/03/
f20/EPRI%20Integrated%20Grid021014.pdf, 2014

22
23
Better and faster asset Predictive maintenance analytics can optimize both capital and
operational expenses for utilities. Used to identify failures before
management with predictive they happen, they can prevent outages and save millions of dollars.

analytics According to Navigant Research, utility spending on asset

management software (AMS) in North America will increase from
Most utilities are familiar with the challenges of replacing,
US$190.8 million in 2019 to US$306.9 million in 2028, representing a
maintaining and upgrading traditional infrastructure, such as aging
5.4% CAGR. Given the maturity of AMS, most of this spend will be on
substations, poles and wires.
upgrades and replacement, rather than on new project installations.43

Now, however, new customer-owned DERs influence voltage,

Aging infrastructure and the rise in weather-related disruptive
frequency and temperature patterns. These, in turn, impact asset
events are also prompting improvements to asset management
life cycles. Utilities have responded with increased monitoring and
for improved reliability and resiliency. The growing frequency
automation at the distribution level.
and intensity of hurricanes, storms, wildfires and other disasters
expose the vulnerability of critical utility assets, such as substation
But, as the digital ecosystem extends downstream, asset
equipment and transformers. Higher levels of situational awareness,
management at the distribution level will demand greater
using technologies such as light detection and ranging (LiDAR) and
sophistication. Management of assets will become more predictive
weather analytics, enable more accurate forecasting to mitigate risks.
than reactive, backed by enhanced inputs from remotely sensed
data, weather analytics and drone technology. The result will be
better and faster insights from monitoring asset and network Real-time system
performance in real time.
management
The industry says: The shift to digital and mobile devices is revolutionizing the way
in which utilities and their employees interact. It makes real-time

“We have a half million poles and one- information available, improving accuracy in reporting, meaning

third of a million transformers in our reduced operational errors and better workflow due to more
effective job scheduling and crew dispatch.
system aging every year. In a perfect
world, you replace the pole the day As enhanced mobile workforce applications and devices
before it falls down and you replace become further integrated into the digital grid, and as emerging
the transformer the day before it fails. technologies, such as drones, wearables and augmented or virtual
If you have enough data, you can get reality (AR/VR) take off, the upsides will extend across the utility. They
much closer to figuring that out. So, promise to change the ways utilities work in the future and how they
we want to be in a position to get invest to enhance system configurations and responsiveness.
the full life out of the asset. And that
Disruption is also underway in utility back-office processes.
frees up resources to invest in other
Administratively heavy and repetitive tasks are ripe for automated
spaces.”
solutions, such as robotic process automation (RPA).
Jacob Tetlow,
RPA streamlines processes so they can be managed more quickly,
VP, T&D Operations, Arizona Public efficiently and with greater agility, reducing errors and enabling
Service Company
43“Market Data: Utility Asset Management Systems and Analytics,” Navigant Research, 3Q 2019

24
 Transmision Consumers
Integrated Large-scale
Asset System System network
planning wind
management management operations Flexibility
management Commercial operations Large-scale
Identification and customer solar
and planning Real-time Greater data Visibility and
Platforms for management
of capacity monitoring and analytics control of power Conventional
Store
procuring Distribution
requirements, of network to study and flows, loads and Commercial frameworks
generation
flexibility services, network
coordinating performance, control system connections at and digital information
decisions with predictive configuration the distribution dynamic market Manage
pricing, incentives channels for flexibility
RTOs/ISOs, maintenance in real time, level, integration services; new behind-
granular DER analytics remote sensing of full DERMS/ for non-wire Small-scale wind
solutions the-meter services in
forecasting and drone ADMS energy, HVAC, smart Generate
technologies Battery storage
appliances, etc.
Distributed PV
Distribution-level resources DER
integration

Single
bids/offers
Wholesale
energy markets

Enhanced capabilities New capabilities

Figure 8: New and enhanced capabilities for a fit-for-purpose distribution

24/7 availability, while providing evidence in the form of audit and

compliance trails. Utilities using RPA will experience better supply
chain management, contract management and vendor selection in The industry says:
tomorrow’s distribution system.
“The analytics behind asset
management is still new. It tells you
Enhanced system operations what you are actually seeing, rather
for grid-edge control than what you intuitively think. We
learn from what the data shows us,
The more digitized the energy ecosystem becomes, the more
rather than what we thought was the
complex it is to monitor, manage and control distribution-level
resources.
issue. But you have to have the right
skill set within your company to do it
As more DERs are deployed, the need to balance supply and right.”
demand at the distribution level becomes more urgent. Central
coordination and control of distribution is critical. Priority dispatch, Delegate at GridWise and EY event,
instantaneous islanding, price signals and other mechanisms will Denver, Colorado, July 2019
each contribute to more flexible and constructive DER deployment
and enhance overall system performance.
The integration of demand response (DR) and a DERMS with an
But, bringing visibility over power flows, loads and connections to ADMS is considered, by many in the industry, as the most holistic
a command center, via a communications network, might prove and effective solution for managing and controlling an increasingly
prohibitively expensive and time consuming. It demands situational complex grid.
awareness and distributed intelligence to extract information from
digital devices and to respond in real time.

25
 In the near term, utilities will focus on those circuits with high DER
saturation levels. They can trial new technologies and processes and
The industry says: prove concepts before scaling and integrating ADMS and DERMS
into their broader operations. Telemetering, switching, artificial
“If you’ve got visibility over what is intelligence, machine learning and predictive analytics can each be
happening with DERs, crews will also tested using a modular IT architecture to improve DER monitoring
know what they are walking into and control.
when they show up on-site. That is
going to be really important in the Flexibility management to
future.”
balance volatility
Delegate at GridWise and EY event,
US utilities have the opportunity to make strategic investments in
Denver, Colorado, July 2019 building the grid as a platform. It will allow market participants to
match grid capabilities, allocate resources efficiently and achieve
high levels of capacity utilization.

Utilities can typically approach this in two ways: Anticipated volatility in load patterns, due to the intermittency of
distributed generation and unpredictable or clustered EV charging,
• Full-scale ADMS rollout – DR and DERMS can be
will put a premium on timely and efficient balance in energy supply
implemented over time, as part of a full-scale ADMS rollout.
and demand.
This may take years to achieve, depending on the utility’s
starting point and end-state aspirations. It will deliver real-
Whether using batteries for peaking, ramping applications to better
time power flow information and take account of system
manage load profiles, or calling on demand-response solutions to
conditions and limitations.
reduce consumption, flexible resources will be critical to the success

• Phased approach – DERMS can be implemented as a of the future US distribution system. Still to be determined is how

stand-alone solution. This is a faster fix, enabling the utility utilities and other market participants will be compensated for

to comply with regulatory mandates but still achieve leveraging flexibility and optimizing the electric distribution system.

significant value from managing DERs.

Real-time control capabilities at the grid edge are not widely

The industry says:
available today. However, utilities recognize the value and promise
of DERMS as the pace of change accelerates and as demands on “Architecturally, the big question is
the grid become more complex. Navigant Research says global whether we believe a DERMS solution
expenditure on DERMS is expected to almost quadruple between is something that we need to control
2018 and 2026, from US$228.7 million to US$912.6 million.44 at every point, or whether our system
is simply a broader platform into
The sophistication and speed of communications technology will
improve, and the cost of sensors and processors will continue to
which third parties flow.”
fall. Real-time control of grid-edge devices will become an industry
Val Jensen,
norm.
SVP, Strategy & Policy, Exelon
44“Optimizing DER Integration and Grid Management with DERMS and ADMS,” Navigant
Research, 4Q 2018

26
Utilities might also deploy dynamic market pricing mechanisms to
capture the changing value of flexible resources deployed across The industry says:
the network. This could include time-of-use price signals to prompt
EV drivers to change their charging behaviors and reduce load on “We need to be in partnership with
the network. companies providing behind-the-
meter services and facilitating,
Such solutions will intensify competition between different
enabling and optimizing those
technologies, leading to both better cost and power-quality
resources for the benefit of all. With
outcomes for customers.
partners, we can satisfy customers
in ways that we cannot achieve
Alternative revenue streams individually.”
and better customer
Barbara Lockwood,
management VP, Regulation, Arizona Public Service
Once the distribution system platform is established, the utility
Company
may start to engage in new commercial ventures. Some may
take a passive role as neutral market facilitators, while others will
participate more actively in direct ownership, strategic partnering Utilities entering these lines of business are well positioned to
and commercialization of DER opportunities. leverage their deep and long-standing relationships with customers.

For more active participants who have scale and regulatory support, An established brand, and the connotations of security that go

commercial opportunities might include: with it, gives utilities a head start. It positions them to become key
orchestrators of the digital grid and the connected home, enhances
• Energy services – energy portfolio advisory; energy their relationship with customers and reinforces their status as
efficiency; building optimization; load management; energy trusted energy advisors.
usage data and analytics
Investment in new and enhanced distribution system capabilities
• Home solutions – home warranty; appliance and HVAC
can be achieved over three phases:
equipment maintenance repair; plumbing and other in-
home services 1. Connecting growing numbers of DERs, while reinforcing and
protecting the grid to provide resilience
• Energy supply – backup power; microgrids; rooftop and
community solar; smart inverters and battery storage 2. Improving situational awareness at the grid edge through
advanced sensor deployment, while enabling platforms for
• Transportation electrification – fast EV charging stations and
flexibility services and new innovation
V2G services
3. Optimizing the dispatch of DERs to improve local power
• Lighting solutions – outdoor security or private area
reliability, while engaging customers through digital channels
lighting; energy-efficient lighting and billboards
and new BTM products and services
• Connected homes – home automation; smart thermostats;
This phased investment approach is explored in Section 5 of this
digital assistants; smart windows, plugs and devices;
report. But the journey to a fit-for-purpose distribution system
security cameras
also requires utilities to embrace a parallel strategy that wins the
confidence and trust of their most important stakeholders.

27
4
Why trust matters even more in
the digital future
Trust between the utility and its stakeholders will secure support for and investment in
new and enhanced capabilities to underpin the future distribution system.
The energy transition comes with significant upside. But, it also US distribution utilities might leverage lessons from the California
carries substantial risk that advances in technology, industry Consumer Privacy Act (CCPA), which was signed into law in 2018.
disruption and growing complexity will endanger the trust and The CCPA protects the privacy rights of California’s residents by
goodwill that utilities have built with their stakeholders over many dictating what consumer data can be collected by businesses,
decades. the need for explicit consents, the requirement to disclose data
breaches and penalties for noncompliance. Similarly, the European

Self-generation and the Union provides protections to its residents under the General Data
Protection Regulation, which may also provide valuable lessons to
changing customer dynamic US utilities.

Chief among utilities’ stakeholders are customers. Customers trust By getting a head start on forthcoming state or federal data
utilities to deliver low-cost, safe and reliable energy to their homes protection mandates, distribution utilities will be well placed
and businesses, to be responsive when things go wrong and to to achieve their commercial objectives without compromising
provide accurate billing. consumer privacy.

But today’s customers are more demanding and increasingly want

cleaner energy options and the same digital experience they get
from other service providers.

With distributed solar plus storage, customers can even take

control of their own energy needs and become service providers
to the utility through DERs. For that, they want timely and accurate
information to make decisions and to maximize the return on their
DER investment.

With the transition to a digital grid, the need to safeguard consumer

privacy and data will become integral to bolster trust.

28
29
Keep your regulators close to Rhode Island’s PUC is also making strides to instill greater public
trust and transparency by collecting feedback on PBR from
accelerate the case for change multi-stakeholder groups. It recommends linking National Grid’s
profits to performance by using metrics and incentives that
Trust is fundamental to constructive relations between utilities promote demand-side energy management and integrate DERs,
and their regulators. such as rooftop solar and energy storage. 46

Innovative regulatory frameworks, based on transparency On the West Coast, the California PUC has adopted a framework
between stakeholders, are being introduced in some states, with to better manage market and ratepayer expectations on IoU
utilities incentivized to pursue more sustainable pathways. investments in charging infrastructure.47

In the Midwest, the Minnesota Public Utilities Commission (PUC) By engaging proactively in the process, and submitting joint
is spearheading a movement away from traditional cost-of- proposals on rate setting, California’s utilities can build trust
service rate-making to performance-based regulation (PBR). with stakeholders. They can also become change agents by
Local utility Xcel Energy is expected to structure its future rate demonstrating how to achieve broader policy objectives on
plans around new metrics focused on affordability, reliability and decarbonization. This raises market confidence and encourages

environmental performance, as well as cost-effective alignment third-party investment in the state’s rapidly evolving DER

of generation and load. Minnesota’s approach is built on market.

consensus between stakeholders, with Xcel itself a critical voice

in designing the guiding principles and recommended changes Alliances and partnerships
built on trust
to regulation.45

Notwithstanding future commercial opportunities, distribution

The industry says: utilities’ core mission will remain the ongoing safety and reliability of
the grid.

“The customer is no longer a

However, strategic alliances and partnerships between industry
homeowner who wants service. The
stakeholders and third-party vendors will be needed to help deliver
customer can be a battery owner solutions with wide applicability. Those relationships must be
or a solar facility operator. Think of grounded in trust if parties are to invest early, and with confidence,
customers more broadly as anyone or and coalesce around the utility’s growth strategy.
anything that wants to connect to the
system and how you, the utility, can All participants will need fair and open access to the future market
platform. However, the more parties and digital devices that
make it easier for those customers to
interconnect, the more vulnerable the system becomes to security
do business with you.”
lapses. Robust vetting processes across data interfaces, networks
and systems are already critical.
Roger Kranenburg,
VP, Energy Strategy & Policy,
Eversource “PUC order keeps Minnesota ahead of the curve on performance-based rates”, Utilitydive
45

website, https://www.utilitydive.com/news/puc-order-keeps-minnesota-ahead-of-the-curve-
on-performance-based-rates/545797/, 11 January 2019
46
“RHODE ISLAND POWER SECTOR TRANSFORMATION”, State of Rhode Island, http://www.
ripuc.org/utilityinfo/electric/PST%20Report_Nov_8.pdf, November 2017
47
“Order Instituting Rulemaking to Continue the Development of Rates and Infrastructure for
Vehicle Electrification”, The Public Utilities Commission of The State Of California, http://docs.
cpuc.ca.gov/PublishedDocs/Published/G000/M252/K025/252025566.PDF, December 2018

30
 Trust promotes more effective
sharing of knowledge and Trust drives productivity and
experience throughout the galvanizes employees around
industry and opportunities to a common purpose.
leverage lessons learned.
Emp
ers loy
ee
Pe

s
erconnected
Int

Ven arties
Trust

Investors
Trust is a foundational element in

p
dors/third
Trust is vital to investor allocation sits at the heart the vendor relationship that drives
decisions as utilities of a successful a willingness to invest early and
pursue nontraditional returns.
growth strategy. coalesce around the strategy.

Cust o

rs
om
ers gulat
Re
Trust is a key component of the
Trust is central to constructive
customer experience as utilities
relations with the regulator to
seek to expand their digital
reward utilities for investments in
presence to compete against
innovation.
nontraditional players. Source: EY

Figure 9: Ways in which trust among stakeholders is integral to a utility’s growth strategy system

Failure to maintain trust will leave utilities exposed to competition

from companies with stronger customer relationship and
management capabilities. They will struggle to develop and share in The
The industry
industry says:
says:
the rewards of innovative digital solutions, products and services.
“Public
“We have trust is with
a next utilities, of
generation by and
large, and that
Weisneed
something
to learnthat can
Digital skills shortages, employees.
be
to tap
intoleveraged
them more foreffectively
the future.”to bring us
but legacy know-how still along faster than we might otherwise
Delegate at GridWise and EY event,
relevant achieve.
Denver, Colorado, July 2019 of the
That is a key element
equation that needs solving. It’s a
Operationally, utilities have relied on a stable workforce model for
conversation that we are having here
almost a century. Operations have been managed by a long-term,
as a company.”
dedicated workforce that is now beginning to retire.

Barbara Lockwood,
Legacy skills and know-how on the operations and infrastructure
side of the business remain relevant, valuable and transferable — VP, Regulation, Arizona Public Service
but could be lost. The trust of existing employees must be upheld as Company
the industry embraces digital and customer-centricity and evolves
its business model.

At the same time, the shift to digital is exposing a capability

Existing employees and new hires must trust that the organization
shortage. Identifying skills gaps and hiring senior executives
will provide ongoing opportunities and rewards as it adopts next-
and new talent from “early adopter” industries will become a key
wave technologies, including artificial intelligence and blockchain.
differentiator in building more digital-savvy utilities.

31
Trust is a recognized driver of productivity. It galvanizes employees
around a common purpose. In the Fortune 100 Best Companies
to Work For®, trust makes up two-thirds of the assessment criteria.
These companies beat the average annualized returns of S&P 500
The industry says:
companies by a factor of three.48
“A prerequisite to ensuring California’s
Across the board, utilities will need to implement leading practices
success in achieving its ambitious
to retain talent and strengthen employee trust over the course of the state objectives will be a strong and
future distribution system journey. healthy set of partnerships, founded
on trust across key stakeholders-
Investors want utilities to -including state and community
leaders, customer advocates,
embrace disruptive trends regulators, utilities and other service
Utilities are under pressure to reaffirm investor trust in their
providers.”
performance.
Paul Grigaux,
Historically, investors viewed utilities as a stable asset class and a VP, Asset Management, Strategy &
source of predictable, guaranteed returns. Now that the traditional Engineering, SCE
utility business model is under threat, the investment paradigm is
less certain, and priorities have shifted.

48Covey, S.R., Merrill, R.R., ‘The Speed of Trust: The One Thing That Changes Everything,’ July
2018

Figure 10: Critical questions for sustaining trust

Now Next Beyond

• What is the utility’s trust • How are you evolving to assess • What would a service or
strategy with each stakeholder? the changing requirements of product look like if data privacy
stakeholders? considerations to improve trust
• How do you understand each were embedded as features?
stakeholder’s requirements? • How is trust embedded in
regulatory interactions by • How are you embracing
• How do you measure your trust engaging with multiple common technology platforms
performance? stakeholder groups? to share information securely
with external stakeholders?
• What specific actions are you • What new messages are
taking to improve trust with needed to build confidence • What talent model and culture
each stakeholder group? and trust with investors? will drive future success and
build trust with employees?
• How are risk intelligence and
controls being used to monitor
trust performance?

32
Investors now seek a balance between consistent returns and
sustainable long-term performance. They expect utilities to embrace
innovation and tap into new revenue streams that correspond with
The industry says:
customers’ increasingly complex demands. With greater confidence in
the evolving business model, investors will reward utilities accordingly. “A business needs to be accountable,
Indeed, rating agencies now view the speed at which utilities adapt
but it also needs to be flexible in
to disruptive factors and derisk their strategies as positive indicators
providing viable and sustainable
for credit quality and attractiveness to investors.49 customer solutions. If it is publicly
traded, it is also dependent on its
Becoming a leader on new distribution business models can
shareholders and needs to optimize
become part of utilities’ bolder, digital and clean energy growth
its income and financial conditions in
strategies, which, increasingly, will receive investor approval.
a manner that attracts future growth.”

Collaboration essential in Mike Schneider,

energy transition VP, Risk Management and
Compliance, SDG&E
Proactive collaboration between utilities will continue to be
essential. It helps with industry-wide understanding of and
contributions to technology deployment, policy and regulation, as
well as implementation of industry standards and leading practices.
To make the journey toward a future distribution system more
Trust between parties extends to sharing information externally risk-informed, customer-centric and relationship-driven, critical
so that utilities can benchmark against peers and identify gaps in questions must be asked up front (see Figure 10).
performance and skill sets.
Utilities need to take a more formal approach to monitor and
Lessons can be learned from overseas too. We see, already, how measure trust.
EY collaboration with Eurelectric and utilities in Europe is relevant
Standardized risk management reports and dashboards can include
to the US market. In turn, the GridWise Alliance brings together
metrics to assess performance on:
utilities from across US states to learn from those European
experiences and to share their own. • Relationship mapping of stakeholder behaviours,
preferences and requirements to improve decision-making
By embracing an “all in it together” approach, utilities can trust one • Technology implementation to capture data and insights on
another to unite around strategies that push the boundaries of changing stakeholder attributes
possibility for the distribution system transition.
• Product and service “guardrail” design to prevent mishaps
and preserve reputations
Once you’ve got trust, here’s With trust continually strengthened, maintained and monitored,
how to keep it utilities have a platform from which to confidently launch the core
principles that will underpin the evolution of their role and enable
By embedding trust at the forefront of the strategy and backing it
the future distribution system.
with board-level governance, it becomes woven into the culture of
the utility. It gives stakeholders confidence that trust is integral to 49How Quickly Utilities Adapt to Disruptive Factors Will Have an Increasing Impact on their
Credit Quality”, S&P Global website, https://www.spglobal.com/en/research-insights/articles/
the operations of the utility and drives competitive advantage. How-Quickly-Utilities-Adapt-to-Disruptive-Factors-Will-Have-an-Increasing-Impact-on-their-
Credit-Quality, 1 November 2017

33
5 Delivering on the future
distribution system vision
A new grid architecture will reduce operational complexity and streamline the electric
system. It must address the interconnectedness of the bulk electric system and the
downstream impacts of DERs and grid-edge digital devices. And it must engage the
cooperation of all parties operating within it.

Utilities have the opportunity to assume a significant leadership This means communicating effectively on the core principles for
role in enabling the distribution system transition. redesign so that distribution utilities are best placed to:

Right now, the system is not fit to respond to the challenges and 1. Achieve power reliability at the distribution level by
opportunities presented by decarbonization, decentralization, managing the optimization and aggregation of local DERs
digitization, and deep electrification. As more DER participants
engage, complexity will only increase. 2. Streamline DER participation in wholesale markets, once
permitted to aggregate excess supply or demand into single
What is needed, therefore, is a grid architecture that streamlines bids, to balance local reliability needs
operations and reduces operational complexity. It should:
3. Provide visibility and guidance to DER owners on how to
• Consider the interconnectedness of the bulk electric avoid conflicts with local reliability needs when providing
system and the downstream impacts of DERs and grid- services
edge digital devices
This evolution will streamline and simplify the coordination of
• Enable better coordination of responsibilities between
power reliability across the bulk electric system. By accepting
ISOs and/or RTOs, transmission operators and distribution
aggregated bids and offers from distribution utilities at each
utilities in a system that will be defined, increasingly, by
transmission distribution interface, ISOs and RTOs will be freed
two-way flows of power and information
up to focus more exclusively on transmission system reliability

Utilities can drive the transition to this future distribution and wholesale market efficiency, which both fall under federal

system state. regulation. And this, in turn, gets around the current complications
of DER participation in wholesale markets, given that ISOs and

Redesign distribution RTOs must ensure that there are no conflicts with local reliability
needs and state regulations.
system from the bottom up
With commitments in place to sustain stakeholder trust, and
Distribution utilities need to engage with their key stakeholders clarity on the principles for redesign, utilities can turn their focus
on a bottom-up approach to system redesign. They will need to to investments in the people, technology and processes that will
advocate for increased responsibilities to optimize DERs and to enable a fit-for-purpose future distribution system.
maintain reliability within their local distribution areas.

34
35
Three-phase investment Wider deployment of sensors to automate and control the network
will create situational awareness at the grid edge, with improved
journey to the future state real-time monitoring capabilities.

US utilities need to prioritize investments across three critical phases As demands on the grid become more complex, modular IT and OT
as they venture toward a future distribution system. solutions may be used to better monitor and control flexible DERs.
Utilities will recognize, increasingly, the value and promise of DERMS
DER penetration levels and maturity dictate where they are in the as the pace of DER uptake accelerates. They may take a phased
journey. approach to DERMS implementation as part of a broader ADMS
strategy.
Phase 1: Connect and protect

This phase will also see distribution utilities begin to step up to

The coming wave of DER deployment requires a commitment from
the role of neutral market facilitator and platform provider for
utilities to accommodate the changing demands and expectations
trading flexible resources and innovative products and services. The
of customers, while maintaining and improving grid resiliency.
utility will become the enabler of streamlined customer inquiries,

Utilities must continue to invest in grid modernization programs to connections and installations. It will also encourage deployment

connect growing numbers of DERs, while focusing on local power of non-wires alternatives to manage energy consumption in more

reliability. This calls for better visibility over the scale and scope of sustainable ways across the network.

DER deployments across multiple connection points, using more

Meanwhile, local distribution area reliability will be enhanced by
relevant and granular forecasting techniques. It also requires an
the procurement of power capacity, such as, energy storage, when
understanding of power flows at the distribution level and more
needed, as well as other value-added ancillary services, including
active management of the distribution system.
voltage support and frequency regulation.

DERs should coevolve with the grid and improve the resiliency and
security of energy supply. Backup power will become increasingly
available as more utilities include energy storage in their resource-
planning processes. Grid-scale energy storage will provide more The industry says:
capacity to improve the overall responsiveness of the system in
balancing energy supply and demand.
“We need to build a system that
can optimize itself. One that will
At the same time, an expanding digital ecosystem will challenge dynamically reconfigure itself to take
the security of physical and cyber assets at the distribution level. advantage of opportunities or to
To better prepare for and respond to threats, utilities will need to make itself more resilient to threats.”
improve grid resiliency and security by incorporating risk-informed
approaches into the management of their assets and operations. Lee Mazzocchi,
SVP, Grid Solutions, Duke Energy
Phase 2: Sense and enable

Phase two of the journey is defined by investment in a more

advanced digital grid architecture and market platforms to enable
the future distribution system.

36
 Phase 1 — Phase 2 — Phase 3 —
Connect and protect Sense and enable Optimize and control

• Migrate to more granular • Assess likely financial/ • Leverage customer behavior and
Integrated bottom-up DER forecasting operational impacts of demand-side analytics
planning methodologies using: changing DER penetration • Integrate with grid analytics and smart
• Technology diffusion and profiles through advanced city planning
analysis software implementation
• Standardize communications platforms
• Customer adoption with RTOs/ISOs
modeling

• Improve outage detection, • Capture enhanced inputs • Implement real-time monitoring of DER
Asset automation and DER from weather analytics, LiDAR assets
management awareness through ongoing applications • Leverage predictive maintenance
grid modernization • Shift to real-time monitoring analytics
programs of grid assets and network
performance under increasing
DER penetration

• Improve workflow through • Deploy more remote sensing • Deploy future of work technologies to
System mobile applications and capabilities and drone transform systems management at the
management field devices technologies at the grid edge grid edge, including:
• Transform administratively • Wearables and augmented or virtual
heavy and repetitive back- reality (AR/VR)
office tasks through automated • Machine learning and artificial
solutions, such as robotic intelligence (AI)
process automation (RPA)

• Manage reliable energy • Implement modular IT solutions • Integrate full DERMS/ADMS

supply under increasing DER architecture to improve DER • Prioritize DER dispatch to balance local
Systems penetration monitoring and control supply and demand
operations • Procure more grid-scale • Adopt phased DERMS • Leverage distributed intelligence at
energy storage implementations as part of the grid edge for real-time system
• Manage load profiles broader ADMS optimization
through demand response • Monitor situational awareness at • Manage load profiles with
the grid edge batteries both in front of and behind
• Demonstrate instantaneous the meter
islanding capabilities

• Pilot DER, microgrid • Establish platforms for DER • Leverage dynamic market pricing
deployments for improved energy trading, microgrid mechanisms and time of use incentives
Flexibility resilience and virtual power plant (VPP) to capture changing DER value
management services • Introduce reward mechanisms for
• Offer incentives for non-wire enhanced overall system performance
alternative solutions
• Procure local DER services,
including back up power and
ancillary voltage, frequency and
capacity services

• Facilitate customer DER • Develop fast EV charging • Provide vehicle-to-grid services

integration stations and other public
Commercial charging infrastructure
• Integrate connected home and energy
• Implement energy services offerings through building
operations/
efficiency and demand • Commercialize energy usage automation, smart windows/plugs/
customer response programs data and analytics devices, and lighting-as-a-service
management • Procure community backup • Offer home energy • Facilitate peer-to-peer energy trading
power management systems,
including smart thermostats,
digital assistants and HVAC
control

DER
penetration/ Low Medium-high Very high
maturity
Source: EY

37
Distribution utilities will prototype technology solutions. They will By investing in these capabilities, the distribution utility will be
enter strategic partnerships to take advantage of electrification better placed to balance local supply and demand in a more
opportunities in the residential, commercial, industrial and integrated way. This will be achieved through DER optimization
transportation sectors. They might venture into fast charging and and more streamlined coordination of wholesale energy market
other public charging infrastructure to encourage EV take-up or into transactions. At the same, utilities and their partners will be able to
clean energy programs to convert customers to electric alternatives, provide customers with enhanced BTM experiences as innovation
such as electric heat pumps and stoves. platforms continue to evolve and mature.

Phase 3: Optimize and control

Trusted orchestrators of
The third investment phase prepares distribution utilities for
additional higher-level responsibilities and enhanced customer
tomorrow’s distribution
engagement. system
Specifically, power reliability at the distribution level will become Most US utilities are preparing for or are already immersed in Phase
increasingly dependent on DER priority dispatch, and more value 1 of this journey; many are beginning to make progress in Phase 2.
from BTM resources will be unlocked. And a few are testing or implementing capabilities for some of the
responsibilities described in Phase 3.
Distribution utilities will optimize DERs and capture more value
through distributed real-time intelligence at the grid edge: This three-phase journey will position the US distribution system for
further evolution and secure the future role of utilities.
• Full DERMS and ADMS capabilities will allow distribution
utilities to better manage load profiles and enable
They will expand upon their existing capabilities and build new
sophisticated real-time monitoring and control at the device
capabilities. They will evolve their current role as trusted service
level.
providers to become trusted orchestrators of local power resiliency
• Advanced analytics capabilities will derive actionable and reliability.
intelligence across customer, grid and enterprise domains.
And they will become platform providers for innovative products
• BTM storage and V2G services will deliver value as EVs’ and services offered by utilities, their partners and other third
potential as grid assets is unlocked. parties — together building the grid we need for our future
economy.
• Sophisticated demand-side management capabilities will
be leveraged as connected home and intelligent building
technologies evolve and optimize energy consumption.

• Peer-to-peer transactive energy trading platforms will

enable greater resiliency and allow consumers to participate
in a truly digital, distributed energy marketplace.

• Dynamic pricing mechanisms and time-of-use incentives

will mature with superior outcomes for resource allocation.

38
Authors:
Dana Hanson
EY Americas Power & Utilities Leader

Omar Al-Juburi
EY Americas Power & Utilities Digital Grid Leader

Jeff Miller
EY US Power & Utilities Strategy Leader

Brad Hartnett
EY Global Power & Utilities Senior Analyst

Other key contributors include:

Amit Gupta
EY Global Power & Utilities Analyst

December 2019

A GridWise Alliance and EY Collaboration

39