Envisioning a more democratic, bottom-up energy system

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In this episode, California electricity guru Lorenzo Kristov shares his vision of a just, democratic, “bottom-up” grid based in distributed local energy.a

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David Roberts

Last year, when I had Astrid Atkinson from Camus Energy on the pod talking about coordinating distributed energy resources (DERs), we made reference to the idea of a “bottom-up” grid, with distributed local energy at its foundation.

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Her vision for that kind of system was at least in some small part informed by a 2018 article I wrote in Vox on the subject, and that article was entirely inspired and informed by the work of Lorenzo Kristov.

Lorenzo Kristov

Kristov was a principal at the California Independent System Operator (CAISO), which runs California’s electricity grid, for more than 18 years. He left in 2017 to become an independent consultant, analyst, and all-around electricity guru. Just about everybody in and around the California energy world knows him by now, after his years of patient, thoughtful advocacy — in regulatory dockets, research, and the popular press — for local energy systems.

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Kristov is on my personal clean-energy Mount Rushmore — he’s probably done more to shape the way I see the future of energy than any other thinker or writer — so I am absolutely thrilled to finally get him on the pod. We're going to get into what exactly it means to build a bottom-up grid, how local energy should be governed and regulated, how local energy planning could be integrated with other municipal planning, and how a more distributed, democratic grid can serve the cause of energy justice.

With no further ado, Lorenzo Kristov on the pod at last. Welcome. Thank you for coming.

Lorenzo Kristov

Thank you, Dave. I'm really delighted to be here and talking with you again. And, you know, thinking back to that pod you had with Astrid, I remember that 2018 article and it's still perfectly relevant all these years later.

David Roberts

Yes, that's... well, I don't know if that's good or bad, how little progress we've made on the subject of that article.

Lorenzo Kristov

No, it's good, because these are really different ways of thinking and they take a while to sink in for people to get. So, I think the fact that, you know, something's been around for a while, repetition often breeds success.

David Roberts

Yes, yes, indeed. All right, so I want to start with a little bit of background for listeners who maybe have not spent years immersed in these debates thinking about the electricity system. Let's just start briefly by describing what we mean when we call today's system "top-down." So, how today's system works, and maybe just a few words on why that's just not tenable anymore, why it's going to break soon the way we're doing it.

Lorenzo Kristov

So thinking back to the 20th century in which today's electric power system evolved top-down comes from this basic separation between the supply side and the demand side. Where the supply side was mostly resources that are large scale — you think of big power plants, fossil fuel plants, in particular, nuclear plants, hydro plants — that were located on high voltage transmission, generally located distant from load centers, so they had to be moved over high voltage wires. And then there was a demand side, which was basically consumers who consumed energy and paid their bills. But beyond that were not really engaged with the operation of the power system, so we might call them non-participating or so on.

And then, in between this bulk power system and the consumers at the other end, the distribution wires were a one-way kilowatt-hour delivery service. They grabbed power off the bulk system, they sent it out to consumers at the other end. Now, top-down meant the way the system is operated, the way it's planned, the nature of investment in both supply resources and in the grid infrastructure, and the ownership by large utilities or by generating companies and so on. All of those things were centralized — looking at some demand forecast out there of how much energy do we need to produce because consumers want it and how are we going to produce it and deliver it. And so, that's been a top-down system.

David Roberts

Big power plants distant from cities. It's sort of funny to me that that development in itself was sort of a progressive move, you know, because a lot of power generation used to be located in cities. It was very dirty, and so they moved it out of cities. That was kind of a progressive move in and of itself. But so distant from cities, dumping bulk power onto the transmission lines. The transmission lines carry it long distances to distribution systems, local distribution systems, where it basically runs down the distribution line into the house and is consumed. All of that is a one-way cascade from the big power plants to the passive consumers.

That was the rule, more or less universally, until really fairly recently.

Lorenzo Kristov

That's right. And then all of that supply infrastructure at the plants, the wires, and the transmission lines, centrally planned, centrally operated, centrally owned. And that centralization has really characterized up to the present day where we are today. Now, you asked about why we need to go beyond that system and make some changes, and that's because, one, the objectives of the power system have changed somewhat: In the 20th century, we thought about — well, the growth of suburbia, the growth of industry, expanding power systems to meet an expanding country, really, that had new growth and new kinds of needs arising all the time — but the basic watchwords were reliability, safety, affordability, and universal access.

And if you complied with those, then you were doing a good job, and in many ways, it did a good job. But now we have some additional objectives, not that we throw those away, but decarbonization was never an objective in the 20th century. As the system evolved, they just never thought about that. And now that climate change is being taken seriously, we recognize the role of fossil fuels in doing various kinds of environmental damage. Decarbonization, cleaning up the system, and not just decarbonization of the grid, but decarbonization of all the other fossil fuel uses that dominate our society and replacing them with electricity. So that's one.

Another is resilience, which I distinguish from reliability. Reliability is day-to-day operations for the most part. You want the system to not have technical problems that cause customers to lose load. But resilience is a very volatile climate that can actually take out massive portions of the power system just due to events like we've seen them in the last 10-15 years. Big hurricanes, ice storms, and extreme cold spells, heat waves, wildfires. Basically, the climate is getting more volatile, and the impacts of these events can be more severe, harder to predict, more frequent, and so on.

So, we want to be able to retain electric service, at least for essential services for communities everywhere, because, you know, when there's a big event and outages, people suffer, people die, communities suffer. So, how do we make a system that's more resilient? And in my view, it's not just strengthening the traditional kinds of assets. It's actually building other types of assets that are local and close to the communities. And then the third new objective that comes about in our present times is equity or energy justice. And by that — there are various flavors of injustices or inequities that we experience.

For example, everyone thinks of locating fossil power plants in poor communities where there are health impacts. That's definitely one type. But there's also uneven investment in distribution infrastructure. Some places just have fewer outages, other places have more outages, and so on. But when I really think about the health of communities, what about low-income communities — we use the word disadvantaged communities, or DACs — they suffer from many things. Often, they don't have a good grocery store to buy fresh food, they don't have mobility services, they don't have medical care. They have —

David Roberts

More auto pollution.

Lorenzo Kristov

Yeah, more auto pollution. They're challenged in a variety of ways. One of the things that can happen as we move into a new power system that's more bottom-up is the assets that produce and provide energy can be located and owned locally and operated locally. We live in an economy where you build wealth by owning assets and with distributed resource technologies that are coming along now, it's possible to decentralize the ownership or democratize the ownership so that those resources become really integrated into the local economies and start to build local wealth.

David Roberts

Yes, we are going to get into all that. But just another quick question about the existing system before we jump in there. Is your view that the current system is headed towards some sort of breach or breakdown because of these new factors, because of the profusion of distributed energy, because of climate change, et cetera? Or do you think it's possible that we could just kind of limp along insufficiently, inefficiently, and unjustly as long as we needed to? In other words, do you think the issue is going to be forced at some point? You know, because if that's going to happen, then that sort of lends power to reform efforts, right?

You can sort of say like "this can't go on," but can it go on the way it's going on?

Lorenzo Kristov

Well, I have to give you a mixed answer on that. There's a couple of different ways that I think about it. First of all, a lot of it is limping along and we see things like the Inflation Reduction Act, which is an ambitious and beneficial act, but it's very much oriented towards building up the existing system. In other words, let's invest in more transmission, let's invest in more capital-intensive kinds of things like carbon capture. Let's invest in new nuclear reactors. So, that centralization of planning and ownership is still very much part, even though they're aiming towards renewable energy. Now, we're seeing efforts to streamline transmission building and streamline interconnection.

So, there's an awful lot of effort going into trying to make the existing system work better. But I believe that it really can't, in a couple of ways, achieve the kinds of goals that we as a society say that we're trying to achieve. And by that, I mean one, building big assets has a lot of barriers that I think will make it more challenging. We know that it takes 10 to 12 to 14 years to build transmission lines. We know in California, I've been following the Senate Bill 100 workshop process, they think about how much new wind and solar we need to build, and then they go, but, "Oh, there's habitat issues, there's farmland issues, there's land use concerns that generate a lot of opposition. There's NIMBY issues."

So, I think limping along is sort of what we're doing. And in many ways, it's moving somewhat, but a big factor that I think has not been taken seriously enough lately is what others have called "grid defection." Rocky Mountain Institute wrote a good report about this about 10 years ago. But here's what I'm saying: Distributed resource technologies. By that, I mean everything that can be located, scaled locally, located on distribution wires, could be behind the meter, could be in front of the meter. It's solar photovoltaics combined with battery storage, electric vehicle charging systems, microgrids, a whole complex of things.

All of those technologies are getting more powerful and cheaper, while the grid is getting more expensive and is not yet giving any signs of giving us improved performance. It's still just as vulnerable to outages as before. Yes, there is a lot more solar on the grid and there's a lot more wind, but that's a slow process. And I think if you look at the cost and performance curves of distributed resources, and then you look at places like California where the cost of grid energy is getting really, really high and going through the roof, right? So, what's going to happen with those trajectories is that customers who have financial resources are going to get to a point of, "Why do I want to stay connected to the system? What's it doing for me?"

We see people with 10,000 square foot homes that go, "I want a microgrid on my house. I can afford it. I don't care about return on investment. I'm just going to do it because I want it." We see companies that are energy intensive that maybe have to wait a long time to get an interconnection. For example, a logistics facility that wants to electrify its truck fleet and wants to be able to charge from solar power. Well, getting a grid interconnection is hard, but they have a gigantic warehouse that they can cover with solar panels and do it themselves.

So, I think we will see among customers that have the money or the resources to invest, growing frustration with the challenges and the costs of connecting to the grid, the increasing attractiveness of distributed resources that will just start doing their own things. And unfortunately, it's going to be decisions made by individual customers to meet their own needs, customers with money, which means it's not going to be an option that's available to low- and middle-income people very easily.

David Roberts

This is the death spiral, right? I mean, people have been warning about this forever. Those with the most resources defect, leaving higher fixed costs on a smaller group of ratepayers and so on and so forth. And that could lead to some sort of crisis. Like, that's just bad news. You couldn't limp along that way very long before something blows up.

Lorenzo Kristov

It'll go faster or slower in some places than others. But the point is that trying to stay locked into the current architecture of the system, the very top-down, centralized, bulk power system centric, is going to create situations where more and more customers who have the financial capability will decide not to stay connected. And so, I think that's a bad outcome because of the equity issue — people with money can do it. But also, because if you have customers just investing in resources for their own use, you just get the private value or the private benefits of those investments.

The system doesn't benefit from those resources being able to be used, say, to provide local supplies to nearby customers, to provide benefits to the grid, and so on. So, when I think about this transition and distributed resources, I want to think about, let's leverage the investments that private parties and consumers are making and leverage them in a way that the system benefits, that the climate goals benefit, that the state as a whole benefits.

David Roberts

Okay, so when we think about this new form of system, I decided, here's where I want to start. One of the basic arguments here, and this is something I've returned to over and over again, is that it's one thing for an ISO or an RTO regional — one of these regional grid managers is sort of running a regional energy wholesale market — to administer a market where there are a dozen participants, two dozen participants, something like that. A tractable number of large power plants competing in this market. That's fine, but what you're getting now is this profusion of distributed energy resources at the local level.

And so, our kludge for this is we're allowing the local distributed energy resources to be aggregated and to compete in these regional energy markets as big power plants, basically. And one of the things I have always been saying is, like, I just don't think that's a scalable solution. Because there's just going to be more and more and more and more DERs. And it's one thing to, you know, administer a system with a dozen or two dozen participants. It's another thing once you're dealing with thousands, tens of thousands, millions of devices and combinations of devices in a dozen different distribution areas from your central headquarters at your ISO.

I just think, computationally, it's just going to get intractable. One of the key arguments here is that we need a layer of management that is closer to the local level. And this gets us to a concept in grid architecture called "layered architecture." I just want to start there: Let's just talk about what we mean by layered architecture and why it's going to be helpful in our current situation.

Lorenzo Kristov

Sure. And that insight that you just described is really where I started back in 2013, when I was still at California ISO and thinking about the growth of distributed resources. Because back at that time, we had a small number of distributed power plants that was under a PUC program, which was a feed-in tariff kind of program. And so there were, I don't know, a couple of dozen of two to three megawatt solar projects on the distribution grid, and they wanted to participate in the ISO market. So the ISO market actually has a couple of hundred power plants that it dispatches in its system.

So, I thought, "Well, okay, we've got a couple of dozen of these things coming on now, but what happens if we have 20,000 of them? Does it make sense for the ISO to do an optimization and dispatch 20,000 resources?" And I quickly said "no" to myself and started thinking about this layered architecture, because then I made the acquaintance of some of the folks doing the work on grid architecture at Pacific Northwest National Lab. And so, I started learning about that. The idea of putting things into layers is to think of, say, the bulk power system, which is the grid the ISO controls — the high voltage transmission — thinking of that as the top layer of a system.

And then, below that, you have the distribution system operated by the distribution utility, and then you have interfaces between those two systems, which are the transmission distribution substations. And what happens at the substation is the voltage is lowered down to a distribution level. So, it occurred to me, as an alternative to having the ISO have visibility and control to tens of thousands of tiny resources: Suppose all the ISO has to worry about is "What's happening at that interface?" And below the interface, it's somebody else's job. A new version of the distribution utility, who says, "Well, I've got it from here, you know, below the TD interface, below the substation, I'm going to be managing and coordinating the activities of the DERs, and I'll have a handshake with you, ISO, at the TD interface, and we'll make sure that that interface is stable and it's predictable and smooth and all of these operational qualities.

But ISO, you just have to worry about what's the net demand or net supply at the TD interface. And I, the new, — " I use the term DSO (Distribution System Operator), not that there's one definition of that, a lot of people have different ideas. But just using it to signify that it's something that's more modernized than the traditional one-way distribution utility. So it's a DSO and it's got an important role in coordinating the activities of all the distributed resources in a local area and of providing a reliable interface with the ISO at the transmission distribution interfaces.

David Roberts

A good analogy, I think, that helps people get this, is so if you think about your local utility, you have a meter outside your house that shows your household's demand for energy. Your distribution utility doesn't know anything about what's going on behind that meter, right? Like, how often you use your stove versus your hot water heater versus your TV. All the utility sees is a final demand number: This household requires x amount. And so, what you're talking about is the entire distribution network appearing to the bulk transmission system as a meter, basically. As like, "here's the net amount of energy we need here in this distribution system."

And so, to the transmission operator, that whole nest of complexity appears as a single meter. Basically, that's what you're talking about at the transmission distribution interface, like "here's how much energy our distribution system needs." And so, from the transmission operator's perspective, things are vastly simplified, right? Because there's a limited number of these distribution systems on a given chunk of the transmission system. Whereas, like we're saying, there could be tens of thousands, in the end, millions of devices behind those meters. But so, this is what the layer means. So, there's a local layer. There's what you call a DSO, a Distribution System Operator, that is doing the work of coordinating within the distribution system and then just reporting to the transmission system, you know, "here's how much energy we need." Very simple.

Lorenzo Kristov

Yeah, that's right. It's not a simple job for the DSO. I mean, I need to admit that because, clearly, you know, when it used to be a one-way kilowatt-hour delivery service, that was one fairly simple job. When it's now got perhaps thousands of devices in a local area and they're doing different things. But many utilities are gearing up for this already and especially in other parts of the world. This is not just a US problem.

David Roberts

Right, well, the whole point is to take it off the plate of the transition system, right? I mean, imagine dealing with that complexity in every one of a dozen distribution systems. It's just absolutely insane. So, this is what the layer means. There's a distribution layer. And I think it's worth adding that within the distribution system, you could have, for instance, a microgrid that's got a couple of houses on it — whatever a microgrid has on it. And the microgrid appears to the distribution system as a single meter, right. Even though there's lots of complexity within the microgrid. So, that's another layer.

And like, in theory, you could have as many nested layers as you want, right? Because there could be multiple microgrids within the microgrid that could island off from the bigger microgrid. Like, you could nest all the way down as far as you wanted. I don't know if anyone's actually doing that.

Lorenzo Kristov

Whatever makes sense.

David Roberts

Right. But that's the layers. That's the layered architecture that we have.

Lorenzo Kristov

That's right. And we have some really good examples of the microgrid layers in UC Irvine campus and UC San Diego. Those campuses, university campuses, have whatever, a couple of hundred buildings on each campus and some of their own resources, and they have basically a single interconnection to the utilities distribution system. Other than that, they operate as a single controllable entity — that's the DOE jargon. A microgrid is something that can act as a single controllable entity from the perspective of the grid.

David Roberts

Right, from the perspective of the grid, it just looks like a big device. It just looks like a big, singular device.

Lorenzo Kristov

That's right. Let me add one other thing about this, though. In spite of these possibilities of layering the system, there is still, I would say, the dominant view of the industry as a whole is looking towards ISOs and RTOs operating tens, hundreds of thousands of tiny devices.

David Roberts

I don't get that. Why don't they have the same insight you had? Like, it seems pretty obvious to me and to you that that's not tractable in the long term. Are we missing something, or are they missing something?

Lorenzo Kristov

No, I think there are just some challenges. First of all, from the perspective of the resources themselves, why would a developer of distributed resources want to participate in the wholesale market? And it's like the same reason that Willie Sutton gave for why he robs banks: because that's where the money is. Right now, you go to the ISOs and RTOs and they have really well-developed, well-functioning wholesale spot markets, ancillary services, energy markets. The rules are all pretty clear. They've been functioning now for a few decades, so it's predictable and it's well-known. We don't really have those economic opportunities on distribution yet.

And that's sort of where I want to go with this is: What would be the counterpart of the ISO if we had something like that on a local distribution area, such that all of the distributed resources in the local area can now transact with a local market that's entirely within the distribution system?

David Roberts

You're also layering the market in some sense —

Lorenzo Kristov

Yes.

David Roberts

there's like a local market and then a bigger market above it, in the same way that there's a local grid and a bigger grid above it.

Lorenzo Kristov

That's right. And the analogy is extended also in terms of reliable operation. At the ISO, the functioning of the spot market, the day-ahead market, and the real-time market is intimately integrated with reliable operation of the system. You know, running the optimization, creating locational prices, all of those things are market functions, but they're not separable from reliable operation of the grid. And so you go down to distribution. The DSO is still going to be responsible for reliable operation of a network, but using economic transactions with the distributed resources is part of how that reliable operation is accomplished.

David Roberts

Right. So, let's talk a bit more about DSOs then. These are the entities that are administering local distribution systems. One of the things that you have been pushing that I have found a little mind-blowing — it's one of these things that looks obvious in retrospect, but it was eye-opening to me — is let's talk about within a DSO, what kind of energy can be installed. And so, this is where we get to the "front of the meter" versus the "behind the meter" thing. And this is, I want to sort of walk through this up front, just for listeners who are daunted by the terminology.

So, most people, when they think of distributed energy resources, the solar panel on your roof, your appliances, your EV, those are what we call behind the meter. The meter that's facing the utility is outside your house, inside your house. All this is going on within your house. And then again, your meter just sort of reports the remainder to the distribution: that's behind the meter. And I think most people, like me, tend to conflate distributed energy resources with behind the meter resources. Most people, when they think of distributed energy resources, think of them as being owned by an individual person or company and being operated in service of that person or that company.

Right? Like, my solar rooftop panels are mainly for supplying my demand, and maybe if I have some leftover, I sell it into the grid. But the point of it is my own personal resilience. You, I think, are trying to break people of that mental habit. So, talk about what front-of-the-meter distributed energy resources look like.

Lorenzo Kristov

A front-of-the-meter resource would be basically a supply resource of some type. I'd like to think in terms of, say, a hybrid of solar panels on the roof of a warehouse combined with battery storage. And that resource is connected directly to the utility distribution grid. Maybe it's located on the top of a warehouse or maybe it's located on top of a parking lot, but it's not supplying the warehouse, it's just the warehouse is land. Think of the warehouse as a piece of land in which a developer says, "I would like to rent your land so that I can create a solar plus battery storage installation. I'm going to connect it directly to the utility distribution grid, and from there I act as a supply resource in much the same way that I would be a supply resource on the bulk power system and participating in the ISO market. Only I want to be able to participate in a local distribution level market that's operated by the DSO, but it's in front of the meter."

Now, one thing that has been really important in my mind about these front-of-the-meter resources is one, they can be a lot larger than you would just put on your house. And we do have rules around net energy metering that say you should size your solar installation to meet the needs of your building. Well, that's kind of silly.

David Roberts

So taken for granted. No, I know, I know. This is the most mind-blowing thing to me. Like I had, I think, like everyone else, kind of just assumed that and taken it for granted. When you put solar panels on the roof of, I don't know, a warehouse, you are sizing the installation based on the warehouse's demand. But when you think about it, there's no reason to do that. Why not just use all the available space? Right? Like, that's right. It just makes more sense to get as much power out of it as you can.

Lorenzo Kristov

I have two big shade trees that make my roof shady. So, I'm not a good candidate to put solar panels on my roof because there's too much shade. But my neighbors have sunny rooftops. So, for one, we ought to be thinking about solar energy at a neighborhood level or a community level where you maximize where there's solar exposure, you maximize the PV, but you also want to preserve tree canopy. You don't want people cutting trees to put on solar panels. So, we share. And the distribution wires are there so we can move the power over the local distribution wires, which is the way the laws of physics say it goes.

According to the laws of physics, if you inject power into distribution wires, it's going to flow around to serve the nearby load, the path of least resistance.

David Roberts

Right. It's not going to flow up into transmission lines. Right.

Lorenzo Kristov

It's not going to flow up, but that's the regulatory fiction, is that, "Oh, when you inject power there into a distribution wire, it flows all the way up to the bulk power system, goes through the ISO market, and the ISO sends power back down." That fiction, unfortunately, undermines the economic viability of local resources because they end up getting charged for stuff that they're not really using. So, it makes them more expensive than they ought to be.

David Roberts

The way I think about this, it kind of unlocked it for me, is what you're proposing is that the way we think about distributed energy resources serving an individual building, we should just think about distributed energy resources doing the same thing, but for a community rather than for a building.

Lorenzo Kristov

That's right.

David Roberts

Like all the same sort of, like, cleanliness, resilience, all the services that you might install DERs to get, we should be getting those as communities rather than as individuals, basically sharing those benefits.

Lorenzo Kristov

That's right. That's what I think is the way to go. Because then you can make the best use of where you have good solar exposure and you can co-optimize with other things. You can say where there's a strong, a big solar installation, maybe on a community center. Well, you can put vehicle charging there, and you can combine vehicle charging with solar. You can preserve tree canopy in the neighborhood. You can think about the community as a system and energy being part of that.

David Roberts

Right. So, it becomes less important for any given individual. Like, if the community is sharing the benefits of all the DERs, it just becomes less important or significant whether any particular house or building has solar panels on it, because it's a community resource.

Lorenzo Kristov

Yep. Yeah. It's a different way of thinking. What I want to just mention, you were probably going to ask this, but I'll jump into it because I've been thinking about it a lot, and I mentioned that I've been following the Senate Bill 100 workshops in California. The mandate of Senate Bill 100, which was passed back in 2018, says that California has to have 100% carbon-free electricity by 2045. The agencies, the joint agencies, the PUC, the Energy Commission, and the Air Resources Board, their staff, are collaborating on figuring out what are some alternative pathways to get to this 2045 goal.

So this past summer, they had a couple of workshops on their methodology for looking at pathways, and I looked at what they were doing, and it goes back to, there are two choices. DERs are all behind the meter, and they're providing demand response to that very narrow definition that we just criticized. And then there's bulk utility scale generation that's up on the bulk power system. Well, there's a whole huge, vast resource that's in between that never gets recognized by the capacity expansion models. And those are the computer tools that analysts use to develop potential investment scenarios, they call them "capacity expansion."

Well, if all of your DERs are behind the meter and all of your supply resources are on the bulk system, what we're missing is DG, or distributed generation PV and storage on the built environment. That's the phrase that I'm using. By that, I mean viewing a warehouse roof as land, a parking lot, a school, a shopping mall. There's some initial work going on now around irrigation canals in the Central Valley in California. But using the built environment, where there's no NIMBY, there's no land use problems, you're not destroying habitat or using farmland. Many of these places are close to load because warehouses are often in populated areas, or they're in areas where there's a lot of business activity.

So, what I've been arguing with the analysts in the SB 100 proceeding is, let's modify our planning procedures so that we can define this new category of resources called "local distributed generation and storage on the built environment," where we're looking at these types of built facilities and maximizing the solar there to be distributed locally, because that's the way it'll distribute through the distribution system. And there has been some work on that. There's a really fabulous study that NREL did in 2016. It probably needs to be updated for numbers, but they found out pretty amazing numbers. They only looked at buildings based on 2013 data and discovered that at a national level, maximizing rooftop PV on buildings of all types could be 38.6% of national energy sales.

David Roberts

Yeah, that's wild. That's wild. And I just want people to absorb this point: If I'm the owner of a warehouse — this is two different scenarios — if I'm the owner of the warehouse and I'm installing a behind-the-meter rooftop system on my roof, I'm fussing around with trying to size it exactly right based on my projected load. I'm dealing with fussy regulations, I'm dealing with contractors, I'm dealing with a lot of stuff. Versus, a developer comes along to me and says, "Hey, I want to rent your roof." And my sole interaction with that system is that I get a check every month for rent on my roof, and the developer maximizes the amount that they can get off my rooftop and feeds that into the local system where everyone in the local community benefits from it. That's the idea.

Lorenzo Kristov

That's the idea. And what the NREL study said was, doing that sort of thing — and they just looked at buildings, they didn't look at parking lots and irrigation canals or any of that — 38% of national energy sales on an annual basis. 74% of California sales.

David Roberts

Damn.

Lorenzo Kristov

California is like the highest solar potential. In the SB 100 proceeding, they estimated in their previous study that we need something like 180 gigawatts of new supply. Well, we could, on buildings, do about 50 or more of those gigawatts just on these local resources that have no land use conflicts, no NIMBY conflicts.

David Roberts

It takes so much pressure, takes so much pressure off those other conflicts. I don't want to just keep saying this over and over, but it's a little mind-blowing to me that we haven't, as a clean energy community, sort of made this mental shift. Like, you don't want to limit the distributed generation installed on rooftops, just based on the needs of individual homeowners. Obviously, you want to maximize it. Obviously, you want to get as much energy out of your local land and built resources as you can, and you need to set up a regulatory environment that basically maximizes those things.

So, let's talk a little bit more about the DSO. The DSO is the distribution system operator. It's managing this local area, basically. And it's got front-of-the-meter resources, like developer-owned installation on the warehouse rooftop. It's got some behind-the-meter resources. It's coordinating these resources, but it's not just coordinating them based on energy needs. One of the sort of eye-opening things about this proposal, I thought, is all the interesting ways that this enables local power planning to be integrated with other kinds of local planning. So, just sketch that out a little bit, just so people can get a sense of what that means.

Lorenzo Kristov

So, going back to where I started, when we were talking about the 20th century versus the new system, I mentioned that decarbonization was a new goal that we have to meet today. And if you look at carbon emissions, they're all local. Where do they come from? A lot of them come from, of course, industrial uses, but vehicle travel. And how do people get from where they live to where they work? Land use decisions, zoning decisions. It's all about urban planning kinds of things. Mobility services. How do cities provide mobility for their residents? These are all things that affect carbon emissions.

So, one observation that kind of struck me, and you see this in some cities that actually are setting their own climate goals. They're setting their own carbon emission goals. Why? Because it's the stuff that happens in cities that generate carbon emissions and it's in cities that we can actually change that. But urban planners traditionally didn't think about energy, that they would do land use and building codes and what kinds of developments do we want and what kinds of mobility services and then go, "Oh, well, the utility takes care of energy. We don't deal with that." So, one of my pulpits these days is to talk about how do we bring energy planning together with urban planning. And especially California, every city and county has to do a climate action and adaptation plan.

They have to deal with things like mobility, transit, housing density, and that sort of stuff. So, build energy into that, start thinking about energy planning, and then do it in a bottom-up fashion. What do we need energy for? Well, we have certain functions that exist already. We have certain types of customers, but we're going to have new functions. People are electrifying. We're going to be switching from gas furnaces to heat pumps. That's going to add, we're switching from gasoline vehicles to electric vehicles.

We might take on some new things, like there's a giant data center that's going to open nearby, or we want to electrolyze water and produce hydrogen or desalinate water, whatever those new uses are. So, let's start to look at those uses then ask the question, "How much can we supply our own energy locally? What's the potential to build local supply resources that supply the new needs?" I think this is especially for things like data centers where they're building new data centers, co-locate energy supply right next to the data center. You know, I think a lot of the assumptions of planners is that electrification load is all going to be load on the bulk power system.

So, let's overturn that paradigm and start thinking about planning from the bottom up. I might want to put a certain amount on my house because if my house gets disconnected, okay, but then how much can we plan at the community level, then move up to the city level, then think about very large loads and co-locating supply with them? So, as you build up this resource portfolio from the bottom, the bulk power system doesn't go away. It's still there, it's still important. We're still moving wind from Wyoming to California or wherever else we want to move it around.

But the demand on the grid can be greatly reduced, and reducing demand on the grid is a good way to get more stuff built faster. I think we can build these local resources on the built environment an awful lot faster than we're going to build utility-scale generation and transmission.

David Roberts

So, the vision here is like, for my distribution system, I'm thinking comprehensively about: I got a data center, so I need local energy to supply the data center. But I also want to put the data center somewhere where I could maybe use the waste heat from the data center to heat other buildings. So, what you see is you're integrating energy planning, economic development planning, land use planning, transportation planning. You're doing comprehensive local planning that integrates energy supply and demand into it. And then when you're done with all that, then you have a sort of, you have a remainder of energy you still need.

Right. Like, we, you know, "Having done all the sums and done all the plans, we estimate that we can provide 70% of our own energy. So that means the remaining 30% we draw from the bulk transmission system," basically. And every DSO is doing that. So we're viewing the transmission system, the bulk transmission power, and transmission system as backup, as insurance, rather than as primary supply.

Lorenzo Kristov

Yeah, it's a residual supply. And especially when you get to more northern climates or where you might not have as much sun exposure, you have different weather zones. They might need to rely for 50% on the grid or 60%, and we can allow those differences. But now we're planning the bulk system based on a bottom-up development that's happening in all the cities and all the population centers where we're supplying energy. And it's a different way of planning the bulk system. Whereas right now, and this is something I'm trying to take issue with, planning for bulk power system pretty much assumes that there's almost nothing happening on distribution except behind-the-meter DERs.

David Roberts

Right. And there kind of isn't, just because there's not a regulatory market system set up to exploit all that other potential power.

Lorenzo Kristov

That's right. It's the Willie Sutton problem again. The money isn't there. The commercial opportunities are not there yet on the distribution system because we don't have the regulatory framework that enables it.

David Roberts

Right. And I want to just emphasize something that you mentioned in passing there, because this comes up whenever I talk about this with people. When you're thinking about how can we generate as much of our own energy as possible? And part of that is just like installing a lot of generation on your rooftops and parking lots and whatever else, part of it is sharing it effectively and efficiently and, you know, doing that demand response, but also that at a local level. So coordinating loads, all these things, even after all that, I think a lot of people have the instinct of like, "Well, I live in Minnesota, there's only so much local generation that I can do. What about my DSO?"

And as you say, if you can only supply 30% of your own power, so be it. There's the transmission system backing you up. There's nothing wrong with that. It's just that we want to maximize every place based on the local place's resources.

Lorenzo Kristov

Yeah, I think that's exactly right. And I think a lot of places want to do that. We just haven't got the methodologies for how to do it, for how to plan it. We don't have the local ownership mechanism, say, to build local resources and be able to sell them and have them be commercially viable. And that's why I think about the DSO operating a local energy market. If you're just investing in solar panels for your own needs, well then you're not making money on it, you're just avoiding costs. But if you could oversize it and then make some money selling excess supply through a local market, you're hoping to defray your costs.

It becomes, now you're participating in a network, you're not just simply taking care of your own stuff. And I think that's where a lot of the economies come from.

David Roberts

Well, let's get into a little bit of the economics then, because one of the things, like when I hear about this, that is a slight red flag for me and I'd love to hear you address, is I think about other systems in the US that are locally run and funded. I think about public education. And of course, as everyone knows, the US public education system is just grotesque in its inequities precisely because the quality of your school is almost entirely dependent on the wealth of your community. And so I wonder, how do we prevent that from happening if we're all running our own DSOs?

How do you prevent that same inequality? How do you prevent poor places from basically having poorly run scant resources and rich places, having cheap power that's clean, that's all provided by their own resources? How do you prevent that kind of inequity if you're moving to a local model?

Lorenzo Kristov

Well, that's a really great question. Let me take a little bit of a detour first because you mentioned schools and I want to make the school connection to local resources on the built environment. Because schools, you're right, do struggle for funding and a lot of it is inequitable, and sometimes it depends on the state, and sometimes they need bond measures to reinforce their finances. And schools pay, I believe, in the realm of 10 to 15 percent of their budget on energy. But what do schools have? They have real estate, they have buildings, they have parking lots, they have land.

Schools, in my mind, are an ideal candidate to become local energy suppliers. And schools are everywhere.

David Roberts

Let me just throw in here real quick, Lorenzo: Next month, I'm recording a pod with someone who is all about schools and schools exploiting IRA resources and becoming local energy sources. So —

Lorenzo Kristov

Oh fabulous!

David Roberts

just a little advertisement for a future Volts there. Yeah, yeah, I'm looking forward to it.

Lorenzo Kristov

"Oh, I'm glad you're doing that. I think that's fabulous. And I think it's something whose time has come because schools can become not only using their property, you think about late afternoon, school is not in session, but they have lots of power for people who turn on their air conditioners in the neighborhood. Summertime, they have reduced operations, typically, they have lots of power to produce and share. So, if we could set up a framework where schools maximize the solar, mix it with battery storage, of course, in order to smooth out the production profiles, we don't want to keep making the duck curve worse."

So, whenever I talk about these local solar installations, I'm always thinking that they're going to have storage combined with them, so that we're smoothing the load profile, the production profiles. But another benefit for the schools is the technology on site now becomes a training program for students. They can be learning all about the technical aspects of local, of communities, community energy, of solar, of battery storage, of demand control systems, microgrid control systems that can all become part of the school curriculum. So, we're also training people to be experts and technicians in this new industry. So, I really see schools as a great target for this kind of energy development.

David Roberts

Really, any institution that's got strained budgets, but lots of real estate, could benefit from this new system.

Lorenzo Kristov

That's right. That's right. I like to emphasize schools, though, because they're a community resource by their nature. In very many places, school buildings serve as, like, emergency centers. When disasters happen, people go to the multipurpose rooms. Where I live in Davis, several schools just installed solar panels on their new multipurpose rooms. But that's also one of the equity-improving elements that you brought up a moment ago about how do we keep different areas from being poor and others being — well, we already have some areas that are poor and others that are wealthy, and there are massive inequities.

I see schools as energy suppliers, in a way, helping to equalize that, because schools are everywhere. So that would be one thing that would help, I think, mitigate that concern. Now, we also do need a regulatory framework for DSOs so that we don't have underbuilt distribution systems. And there are places, in fact, UC Berkeley came out with a report two or three years ago about the inequities inherent in solar adoption due to weaknesses in the distribution systems that were underdeveloped in lower-income communities. A prof there, named Duncan Callaway, was one of the authors of that. So there does need to be some regulatory framework that enforces the responsibility of the DSO to plan accordingly, to operate accordingly.

I've used the term "Open Access DSO." So, there's a whole open access framework that says, "Everybody who has a DER and meets the technical requirements, they're allowed to connect and participate in the market. The DSO can't discriminate, it can't have its own affiliate, that it favors." The same sort of things that FERC applied to ISOs in order to provide open access transmission service, which was key to enabling wholesale power markets. We want the analogy of that, an open access distribution network locally. And the DSO is adhering to an open access regulatory framework.

David Roberts

So right now, universal access, as you say, is one of the core founding principles of the electricity system in the US. Everybody gets access. It's not metered by your wealth. In other words, everybody gets equal access to it.

Lorenzo Kristov

Theoretically.

David Roberts

Theoretically, right, theoretically.

Lorenzo Kristov

In many places, it's not really.

David Roberts

Yeah, but DSOs, in some sense, especially in the way you're describing them, are doing a little bit more than just ensuring the supply of electricity. They're kind of coordinating electricity services, energy services, and things like that. And so, I just wonder what becomes of that principle of universality? In other words, is every distribution area going to get the same level and quality of energy services from their DSO, no matter the wealth of the community? Or is there like a baseline that you're going to be able to draw? You get the concern I'm getting after here?

Lorenzo Kristov

Yeah, I do, I do. And I don't think there's a simple, automatic answer to that. And I think, first of all, realize that there are inequities today — I just mentioned this UC Berkeley report — is that the distribution system is not equally built out. Some places have more outages or have more constraints that limit how much solar they can install. There was a San Joaquin Valley project several years ago that the CPUC authorized and they wanted to electrify a number of homes there. And part of what they were running into was distribution line constraints. They couldn't handle more electric appliances and it was inequitable distribution system investment that was part of the problem.

So we're not starting from an equal place to begin with.

David Roberts

Right.

Lorenzo Kristov

So, I'll just throw out a couple of ideas. As I say, there needs to be more work on figuring this out. But, local ownership of energy assets can make a huge difference. And so, in a way, a lot of what goes to help disadvantaged communities is in the form of grant money. Grant money, I'm not saying it's bad, but it keeps them dependent. If you're financing something you need and it's a grant, well, somebody's benevolence, or the state's benevolence or a foundation's benevolence, that's doing it. What about enabling these communities to have productive energy businesses where they have a model for, say, creating local co-ops?

And here, I think the models need to be developed. How do we work with a bank that has a social interest objective as part of its charter, to be able to finance the start of a local cooperative based on the revenue stream that they can get by selling power locally to the whole community? The open access DSO would enable those local sales of power to transact across the distribution grid. The financial institution would finance getting it started. But the fact that customers — very much like community solar, you know, the community solar concept, somebody builds it and then users can subscribe and get shares of it.

But we want it to be more locally owned. We want to create vehicles whereby communities can form co-ops, or nonprofits can form co-ops, so that when they're selling energy and generating revenues, those revenues stay in the community and they can be used to finance other things that improve the quality of life in the community.

David Roberts

Yeah, a lot of this is just — I mean, people don't really think about it now because it's so ubiquitous. There's no alternative, so it doesn't really occur to them. But people talk about, are you importing your energy versus exporting, are you energy dependent? Et cetera. Almost every local community is importing their electricity, right. Which means they're sending money out of the community —

Lorenzo Kristov

That's right.

David Roberts

to someone else for the electricity. And this would keep a lot more of that money circulating within the community.

Lorenzo Kristov

That's right. I think it could be really a game changer for economic well-being of all communities.

David Roberts

One thing that occurs to me is, a lot of the, you're probably aware of this, a lot of sentiment in the clean energy world these days is very impatient with community engagement. You know, there's a lot of frustration over things going slow and a lot of proposals about how to cut out community engagement or shorten it or reduce opportunities for it. And I, you know, if you're thinking about the transmission bulk system, I totally get the source. You know, I share those frustrations in large part. But when you end up in a place like thinking we need to steamroll people, it's just not a comfortable place to be in.

Whereas your vision, you know, is much — it's almost opposite. Like, you are really starting at the community level, community benefits, and community energy, and it's much more small-D democratic in that way.

Lorenzo Kristov

Well, I think so. To me, that's the future. I feel like if I look around at the things that we consider crises in the world today, a lot of them having to do with the destruction of ecosystems and the climate, but also things like endemic poverty and homelessness, things that seem to have no solution. You know, a lot of it comes down to a kind of cultural ethic where we're all individuals looking out for ourselves. But if you look back over the longer stretch of human evolution, for, like, 200,000 years, we survived as communities, we functioned as communities.

And to me, community is the essence of how we grow and thrive as a species. We need to rediscover something that our ancestors knew hundreds or thousands of years ago about functioning as communities and not just as individuals.

David Roberts

Yeah, and here I'm contractually bound to throw in the notion that the way we decided to develop our land, which is entirely built around roads and cars and long distances and separated uses, not only exacerbated our energy problems, but exacerbated that problem of loss of community, right? Because we just don't physically experience community anymore.

Lorenzo Kristov

That's right.

David Roberts

I think when a lot of people hear this and they envision, like, a village, it makes sense to them. But then if you imagine a village with a big factory next to it, people get tripped up, because I think people think of distributed generation as sort of like small scale, boutique, almost artisanal, whatever the word is. You know, you're like, "Sure, you can run your household sold on it, but to run a modern society, you need big factories that need big, steady supply, and you're just not going to get that from local distributed generations. So the bulk of the economy is still going to depend on the transmission system." So, I guess I'd like to hear you reflect a little bit about how you see big industry integrating into this vision.

Lorenzo Kristov

Well, there's a number of ways. One question that I'd like to start with is — or maybe just an observation, first of all. The 20th-century mindset around the power system and how it developed the top-down, centralized control, centralized investment. The big money was in building big assets. That's where it's been for 100 years. And there are a lot of incumbents that want to keep building big assets.

David Roberts

Indeed, we set up the regulatory system so that is how they make money. That is literally all they want to do.

Lorenzo Kristov

That's how they make money. And building one big asset for a billion dollars is more profitable than building ten small ones for 100 million each because there's more overhead costs. Big centralized assets, centrally owned. This is the investment paradigm of energy that is reluctant to let go. We have images about needing bulk power system resources. I'm not saying we get rid of them completely, but let's build as much as we can locally. And I don't know what the future is of US industry and what kinds of things we're going to produce. If we think about moving into a 21st-century economy, does it still mean maximizing consumption?

Is that sustainable? Think about how much stuff we throw away. We've got an economy that's been designed for at least 100 years. I'm going back to Edward Bernays and the birth of advertising in the 1910s, which was based around convincing everybody to buy as much stuff as possible. And then, gradually, it evolved into planned obsolescence, building things that you couldn't fix so you had to throw them away and buy a new one. The amount of plastic that we throw away, the amount of packaging that we throw away.

David Roberts

Just did a pod on fashion, on the fashion industry, which is moving quickly in the direction of more throughput, more throwaway, more, more, more. It's definitely moving in the wrong direction.

Lorenzo Kristov

Yeah, exactly. And then we measure economic well-being by GDP. GDP is just a measure of transactions, and so every monetary transaction adds to GDP, even though it may be bad for our economic and physical well-being and emotional well-being.

David Roberts

Part of me is just curious about when you envision DSOs running these local markets: How do rates work? Do you envision time-sensitive, location-sensitive rates, performance-based rates? All these sorts of discussions people are having about rate design. Do you think that stuff is easier to do at the local level, or sort of how do you envision rates working? Or is there anything interesting to say about that?

Lorenzo Kristov

Well, we need to think about it a little bit differently. Going back to the 20th-century model, what the utility was doing was delivering kilowatt-hours. So, you paid based on how many kilowatt-hours you consumed, or maybe you had a demand charge which was based on your peak power demand in kilowatts. And in the world that I'm thinking about, we need to rethink the revenue model of the DSO, first of all. And that will be based on what services does it provide, who uses the services, how much does it cost to provide those services, and who should pay how much to use them?

So, think about a network where all these DERs are connected and they're transacting, they're selling energy, or they're selling grid services, or some places are buying energy. Some customers don't want to participate, they just have a house that's connected. They want to be able to turn their lights on so they'll have a rate. When I was at CAISO, one of the projects I was involved in was the ISO's revenue model. The California ISO is completely self-funded, based on user fees. So, its budget is around $200 million a year. And all of that comes from the fees from the users of the grid and the users of the system.

There are two components. One is the physical use of the grid. If you inject a megawatt-hour of energy someplace on the grid, or if you take off a megawatt-hour of energy, withdraw, say, to go down into a distribution system, you're paying for every megawatt-hour that you inject, or that you withdraw from the grid. That's one set of fees. If you participate in the market by bidding into the day-ahead market or bidding into the real-time market, you're submitting bids, you're transacting with the market system and all the settlement and that stuff, that's another set of fees.

And then there are a couple of other smaller fees, but those are the two big categories. So it's who's using the system, what services are they using, what do those services cost to provide? And then, how much should each party pay to use that system? So that's one part of it. It's the use of the network that everybody on this distribution network will pay in terms of how they use the network and what services they're getting. Now, for delivered energy, here I'd look at the places where they've actually separated the operation of the wire system from the supply of retail energy.

So, places like Texas, Australia, UK, the retail energy function is a separate function. So now, I could have, say, a CCA, who's a load-serving entity, a community choice aggregator, they're procuring, maybe they've got, in their neighborhood, there's a school that has a huge solar array and there's another company that built on a warehouse and there's a community co-op and the CCA is buying power to supply its customers. Its job is it's paying something to the distribution utility because it's using the wires, but then it's selling the retail energy to its customers. Now, it can come up with a lot of different ways of charging for that.

Maybe it's going to pay customers: If they can be demand responsive, they get discounts. I think there'll be a lot of experimentation around what are the prices of energy to consume and produce. And I'm not the expert in that, but there are lots of people that think about rates. But I think the important thing is to separate out the use of the network and how does it have a viable revenue model that does not depend on selling kilowatt-hours? And then there's the sale or the transaction of kilowatt-hours, which is a separate piece.

David Roberts

Right. And so, what I don't hear in any of that is the DSO owning.

Lorenzo Kristov

The DSO does not own. So, the ISO — independent in the name of ISO — it's not affiliated with any of the parties that use the network.

David Roberts

Right, crucial.

Lorenzo Kristov

The buyers and sellers of wholesale power, the ISO, is completely independent of that. The ISO is also independent of the transmission owners that own the physical assets of the grid. Now, I don't know, maybe that will be important on distribution or not. I mean, I'm keeping open-minded about the possibility that perhaps the incumbent utilities could become DSOs and we could reform their planning processes so that they don't have this bias to build more stuff — that would need to be figured out.

David Roberts

Yeah, yeah, interesting. So, what you don't want to do is give a DSO built-in incentives to try to be maximizing power throughput, or these perverse incentives that utilities these days have. You want them to be neutral, basically, toward how much is going through and in what form.

Lorenzo Kristov

That's part of what open access means: It means non-discriminatory service. Everybody who's using the grid pays the same rates, terms, and conditions to use the services of the DSO.

David Roberts

"Where we are now seems so far from where you want to be. We have these hidebound regulatory models that are very difficult to change. You have the 50 different states — it's state-run, so it's like 50 different battles anytime you want to change anything. I guess I'm wondering, what are some policy steps where we can start to move from here to there? Because obviously, leaping all the way there is not going to happen. So, what are the sorts of reforms that we can push for that can nudge us in this direction?"

Lorenzo Kristov

A few things that I've been thinking about. One is the ability for a developer of a local resource to be able to sell power to a load-serving entity. So, this is somebody who builds a resource on a rooftop of a warehouse and signs a power purchase agreement with the CCA who buys the power. They should be able to transact energy under a power purchase agreement without going through the bulk system and the wholesale market. I'd like to see that enacted in law because then that power supply resource, say it's a solar and storage combination of whatever, five megawatts on a rooftop of a warehouse.

The CCA has a lot of load in the local area. It's buying that power, and the load follows the laws of physics. It flows to serve the local customers. In every interval, whether a 15-minute interval or every hour, the production of that solar installation is entirely consumed by the CCA's load. There's no impact on the transmission system. When you do that, the resource does not have to hook up its telemetry and communications to the ISO. It does not have to pay — I told you about the transaction fees that you pay to participate in the ISO market.

It doesn't pay that. And the customers don't pay transmission charges because their power is not coming from the transmission grid.

David Roberts

Right. Because there's no transmission.

Lorenzo Kristov

Right. You're enabling the power transaction to be entirely within the distribution system. That, I think, fundamentally improves the economics for the distributed resource.

David Roberts

Yeah, yeah. So, you have a third-party developer who goes to the warehouse owner and says, "I want to rent your rooftop," rents the rooftop, installs a solar system, produces power, sells that power directly to a community choice aggregator that is also local to that area. Then, the community choice aggregator sells the power to the customers in that local area. So, all the power and all the money stay entirely within that distribution area. At no point does any money or power leave it. Like, power and money are circulating within that community.

Lorenzo Kristov

For the most part. Now, we don't know who owns the distributed resource. It could be, you know, a private company that owns it and they have shareholders. So, there's a certain amount, you know that — but you could also do such an arrangement that maybe the city is half owner in that distributed resource, or there's a local cooperative that owns and builds the resource. So, we need different models of who owns the resources, and some of them can be more beneficial to the community. But at the very least, you're not transacting with the wholesale market.

So, the resource becomes more competitive. And the CCA is, for the most part, part of their vision is to develop more local energy resources. So that's part of what they do. So that's one thing that I would pursue as a policy that I think is important. The other thing that I think is important is changing the way we plan transmission and distribution. And I talked earlier about the SB 100 proceeding where they had set up the use of a capacity expansion model that would never see PV on the built environment. And I think it's not that hard to, if you're using capacity expansion models, to define a new resource type, which would be solar plus storage hybrids built on existing physical infrastructure like warehouses and schools and so on, and make that a resource type and then build in the attributes so that we're not just looking at greenhouse gas emissions and typical costs, we're also looking at what we call "non-energy benefits."

So, that is the health benefits, the economic benefits to the community, the resilience benefits. So, if you're running a model like a capacity expansion model now, you're going to be taking account of more local type benefits and you're going to be looking at these local max DG types of installations as an alternative resource type. I think you'll make different decisions.

David Roberts

And this is something, theoretically, utilities should be doing in their IRPs too, as well in their integrated resource plans.

Lorenzo Kristov

They could be wherever you're using capacity expansion models; it's in the IRPs that they typically do that. But then, I also want to build this into transmission planning because most of the transmission planning that I see, they're assuming all electrification demand is going to go to the bulk power system and practically no contribution from DERs because they're all behind the meter and just providing demand response. So, once we enrich the possibility of building local resources, then that needs to link up with transmission planning. So, we're planning transmission needs based on a high DER scenario.

David Roberts

Right. And this would, I mean, just to point out the obvious, if every local community maximized its own local resources, you would perforce require much less transmission. Right. Like this would just take a lot of pressure off transmission.

Lorenzo Kristov

Yeah, exactly. The more that you could just supply local load with local resources that don't use transmission, you're not driving a need for more transmission or for more utility-scale generation built on desert habitats or farmland. So, I think those two things are starting places. The other thing that I would say that I would add to that is to think about distribution operations. How does the distribution, the DSO, maintain reliability and procuring services from distributed resources, things like voltage management? You've talked about VPPs, virtual power plants, right? Here's something that you could do with, say, battery storage installed at 100 houses that are on the same circuit.

The CCA, and I think Marin Clean Energy (MCE) was doing something like this. They were controlling battery storage behind the meter. They subsidized the batteries in return for some operational control, and they were controlling the resources to reduce their peak load for the whole CCA. But what you could do is make that more local. If you have a circuit that has maybe 50 houses with EVs and rooftop solar and batteries, have the CCA or a third-party aggregator control that local system to flatten the load profile on the circuit. Because circuits, you know, if you have a lot of solar, you're pretty much hitting peak capacity.

And they go "Oh, we've hit our hosting capacity limit, we can't install more solar here." Or when we model, say there's 50 homes with EVs on the circuit, we model them as chaotic. Everybody's going to come home and do whatever they want and they're always modeling, worst case. But there should be an incentive so that you pay some entity, whether it's the CCA or another party, to coordinate the activity on the circuit, so that we basically flatten out the load profile on that circuit, then we increase the hosting capacity without upgrading the circuit.

David Roberts

I'm wondering what DSOs could do in cooperation with other DSOs without bringing the ISOs into it, without bringing the transmission system into it. Is there promise there? Because it seems like even if you couldn't flatten the load in a particular circuit, if like three or four circuits could coordinate, you'd have a much better chance of resource adequacy.

Lorenzo Kristov

Well, typically, the way I think about the DSO structure, when you have a transmission distribution substation that's on the ISO grid, and then you have the radial lines coming down from that substation, all of the lines in that area are operated by one entity. So, it's kind of the unit operationally is the single, the individual TD substation and all the wires that come below that. Now, another DSO in a neighboring transmission distribution substation, they have a different set of wires. We're not connected electrically. So, the DSO in one place is not connected to the distribution area in another place except through the ISO grid, because they all have an interface case with the ISO.

So, I think those kinds of electrical sharing, as far as I know, don't really exist in California. There may be some unusual instances where one particular circuit may move under emergency circumstances from one DSO to another. But for the most part, physically sharing electricity between DSOs isn't going to happen on the distribution system.

David Roberts

Yeah, you'd have to, I guess, bring in the ISO at least as a coordinating entity. I'm just wondering about the economic model.

Lorenzo Kristov

What would happen is that the DSO at one TD interface would say, "I have surplus power and I'd sell it into the ISO market," and the DSO at another TD interface says, "I need power and I'm buying it from the ISO market." So the ISO provides that coordination. That's where the ISO runs the bulk power market, and that's something that any DSO can use to sell their surplus. Or maybe they need to import 50% of their energy. And so maybe they have a contract with a wind distributor in Wyoming that's coming across the western grid and coming to their system through the ISO.

So, the DSO would be a user of the ISO grid as well, for those kinds of bulk transactions.

David Roberts

All right, so we have to wrap up here. We've gone over time. I knew this would happen. I guess, finally, is there anything happening today that approximates what you want? Like, are there distribution systems that are operating like coherent entities with local control? Like, is there anything that you can point to, to say, you know, a little bit like that?

Lorenzo Kristov

Nothing that's a finished product. Everything is a work in progress. But there are some good works in progress. And you know, one of them is Holy Cross Energy, where Camus is working, and Bryan Hannegan, who's the CEO there, is very enthusiastic about this DSO idea. They want to be a network operator. They want to allow their customers to do whatever they want with DERs and they'll provide the coordination and so on. So that's good. The state of Maine is doing something new. They are looking at creating a statewide DSO to run all of their distribution systems.

They passed legislation last year. So, they're doing — yeah, look at the Maine governor's energy office.

David Roberts

Interesting.

Lorenzo Kristov

And you can find their DSO feasibility study on there.

David Roberts

How many DSOs are in a state like Maine, like ballpark? Is it three or four? Is it a dozen?

Lorenzo Kristov

So, there's two questions there. One question is, how many TD interfaces are there?

David Roberts

Yes, that's what I mean.

Lorenzo Kristov

Okay, so, I don't know the number. But ISO New England has, you know, six states that are part of ISO New England. So, I don't know how many of those are in Maine. In California, there's about 2,400, I think, rough guess, something like that.

David Roberts

A lot!

Lorenzo Kristov

Yes, some of them are smaller, some of them are larger. But yeah, PG&E system especially has a lot more because the ISO grid goes down to lower voltages in PG&E system.

But yes, it's in the order of a couple of thousand in California. So, I imagine that there's probably a few hundred. There are two investor-owned utilities, then there are some municipals and some co-ops in Maine. And so, the legislation says, "We want to look at a single DSO." So, it would be a single entity, but of course, it would operate each of these separate local distribution areas or each of the separate TD interfaces. And the legislation says, "We want to see a feasibility study." And so, they put out an RFP back in January. And the RFP is the first of a two-part study.

The first part is to demonstrate whether it is possible to form a statewide DSO that will accomplish a few things. One is to reduce costs for ratepayers. Another is to achieve Maine's environmental goals. And three, allow for more growth of distributed resources in a more equitable fashion and improve the reliability of the system. So, those are the goals they set out. So, part one is, is it feasible to do this? And then part two, if the answer is, "Well, it looks like maybe yes," then we'll go to part two. And part two is, "Okay, design it for us."

David Roberts

Interesting.

Lorenzo Kristov

So, that's all in their RFP. But anyway, check out Maine governor's energy office and you'll see the DSO feasibility study on there. Then there's Australia and Ontario I can mention as doing some interesting work. So, Ontario, Canada, they have an ISO for the whole system. It's known as IESO (Independent Electricity System Operator). And they have about 50 different distribution utilities or distributors. Some of them are big, some of them are small, and they have been two years working on a TD coordination working group. And you can go to "iesotdwg" and you'll find a whole string of about a dozen meetings that they've had over the past two years and a whole bunch of presentations.

So, they're looking into it and they're doing, I think, a pretty careful, thoughtful study of different possibilities for how to design DSOs and have their local distribution companies become DSOs. So, different institutional structure in the US. But, you know, in the US, I don't see much happening other than the ones that are not under investor-owned utilities like co-ops. And Camus came out with an article — I think Kit Carson Co-op in northern New Mexico is another one that they're working for that's doing similar kinds of things. Because if you're not under a public utilities commission, you have a lot more freedom. If you're under a municipal utility, the municipals can use local resources to serve local loads.

And in fact, there's a model in California, the metered subsystem that the CAISO invented before startup 25 years ago, where a municipal utility can do whatever it wants inside its local distribution system. And then its interface with the ISO is just based on what goes across the TD interface. But that's only the municipals that can do that.

David Roberts

It's almost like, well, it is like for an investor-owned utility, doing this would very straightforwardly reduce their revenue. I just don't see any way around that. Socially and environmentally good purposes, but still, it would reduce their revenue. So, something's got to change in that basic regulatory model around investor-owned utilities for anything like this to take root.

Lorenzo Kristov

Yeah, their model is based on building infrastructure and getting a guaranteed rate of return. Owning assets, owning infrastructure. That's the model. I mean, and this is really part of the political challenge for DERs, because in the near term, utilities need to spend money on grid modernization. They need visibility, they need sensors, they need communications channels. They need to understand what's going on on their grid. They need to be able to respond as situations arise. It gets more complicated with lots of DERs. So that's an investment. But once you do that, once you have the visibility and the controls, then the real value of DERs is you're not building so much assets anymore.

David Roberts

Yeah, it's hard to do any of the things we want to do as long as that stupid model is in place. And it's difficult to figure out how to get around that model now that it's so entrenched.

Lorenzo Kristov

That is the stumbling block.

David Roberts

Some success stories from other places would sure be helpful.

Lorenzo Kristov

Yeah, and the fact that they're working on it is good. So, keep following what Holy Cross Energy is doing.

David Roberts

Yeah, for sure.

Lorenzo Kristov

Because, at least, they're demonstrating what's possible, right? They're demonstrating the possibility. And I think where Bryan Hannegan is going is, he wants simply a financially viable enterprise, which it needs to be because it's owned by its customers. It needs to have its head above water and serve the customers. The profit motive is not part of his equation.

David Roberts

Maybe I should get him on the pod. Okay, Lorenzo, this is awesome. So helpful. I'm really — this vision kind of grabbed hold of me years ago, and I've become a little bit of an evangelist for it. But I think people have said and listened through this, you know, will be able to see the obvious benefits in terms of not just better provision of energy and energy services, but community cohesion, community economic health, community resilience, against, you know, as you say, against bad weather and all this kind of stuff. There's just like immense benefits to sort of starting at the bottom and building up rather than the other way around.

So, thank you so much for coming on the pod and talking us through. I hope we can do it again in a couple of years and have more concrete examples to talk about.

Lorenzo Kristov

I hope so. I'll be working on it. And I really appreciate your interest in the subject, Dave, because, you know, it's just good to have you as an evangelist and wanting to spread the word and asking really good questions. So, it's always a delight talking with you.

David Roberts

Thank you for listening to the Volts podcast. It is ad-free, powered entirely by listeners like you. If you value conversations like this, please consider becoming a paid Volts subscriber at volts.wtf. Yes, that's volts.wtf, so that I can continue doing this work. Thank you so much, and I'll see you next time.