“American ingenuity” is the key to developing renewable energy resources, said President Obama last week, in his address on energy policy. That is surely true, and here in San Francisco, there are many examples of ingenuity being deployed to good effect.

But ingenuity alone is not enough. Our electricity regulatory system is in need of widespread reforms to allow the fruits of ingenuity access to the grid.

Fortunately, the Federal Electricity Regulatory Commission is on the move, under the leadership of Chairman Jon Wellinghoff, a lawyer from Nevada with a deep background in renewable energy and ratepayer advocacy. This morning he held a reporter’s roundtable to discuss some of the rules the FERC is implementing to get us on the path to a clean, secure energy future. I first wrote about his vision last November.

Historically, our electricity system was built around central generation to supply demand. Our evolving energy system is much more complex, incorporating myriad components, from variable renewable energy technologies like wind and solar, including very small systems; to storage technologies like batteries, compressed hydro, flywheels, and even dishwashers; to new types of transmission that take power directly from source generation to demand centers without access along the way. Today Wellinghoff spoke about removing regulatory barriers to ensure that all of these resources can get access the grid and play a competitive role in the energy markets.

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Implementing change in the electricity sector is no mean feat. By design, it’s inherently conservative because keeping the lights on is paramount. Yet Wellinghoff keeps pushing the FERC inexorably forward, swaddled in happy talk about market competition.

This stuff is arcane, yet critical to creating a sustainable energy future. So if you’re for renewable energy, pay attention!

Transmission: A rule proposed last June would change the way transmission is planned and paid for. Perhaps the most contentious element of that is removing the “right of first refusal.” Historically, utilities have had the right of first refusal (ROFR) to build planned transmission lines that went through their territories. Wellinghoff would revoke that in the interest of market competition, a theme he returns to constantly. Not surprisingly, some utilities are less than thrilled.

Solar and wind are the most widely accepted forms of renewable energy by environmentalists because they lack downsides like destroying river ecosystems (hydro) or cutting forests or diverting food to energy (types of biomass). Still, they have a dramatic weakness when compared with traditional fossil fuel energy source: they are intermittent, or variable. The sun doesn’t always shine, and the wind doesn’t always blow.

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Variable energy resources: In a rule proposed last November, FERC would allow transmission providers to charge variable suppliers (like wind and solar farms) for the increased regulation services their forms of generation require to maintain reliable power. Variable suppliers would also be required to give transmission providers meteorological data to help them deliver reliable power. In exchange for these little gifts, FERC would require generators to schedule their transmission at 15-minute intervals, rather than the standard hour, so they can more rapidly respond to variability.

The energy sector is moving to balance this variability in other ways as well, by increasing capacity of energy storage and by getting customers to smooth out demand a bit.

Energy storage: A lot of money and brains are being invested in energy storage technologies right now. But where’s the payoff? Storage operates in a gray zone, providing both supply and demand services as it is used to regulate frequency. Because it doesn’t fall neatly into an existing category, investors can’t receive adequate compensation for their service. A proposed rule on compensation for frequency regulation services was put forth in February this year.

Demand response: Demand response would help stabilize the grid by encouraging energy customers to, say, run their dishwashers late at night when power is less expensive or by improving appliance technologies to allow water heaters, air-conditioners, refrigerators and the like to incrementally regulate their demand. A rule ordered last month will now allow market price payments to people (in regional markets that allow it) for providing this service – when it is cost effective. That is, when it is cheaper to pay individuals rather than traditional balancing services like ramping gas power plants up and down.

Smart grid: The FERC is working with the National Institute of Standards and Technology to standardize the smart grid, with the goal of ensuring seamless function of interstate transmission and electricity markets.

Distributed generation: Last fall the FERC clarified how California can use a feed-in tariff to encourage the development of small-scale, renewable energy generation in a way that does not conflict with federal laws and regulations.

Before the Public Utility Regulatory Policies Act (PURPA) was passed in 1978 as a response to the oil embargo, only utilities could own and operate electric generating plants. PURPA allowed utilities to buy power from independent companies, but only if the cost was less than the rate at which utilities could generate the power. This was called the “avoided cost.” Although part of PURPA’s raison d’être was to incentivize renewable energy, at current prices, few renewable generators are able to compete with new natural gas plants. But now, California (and other states) can measure avoided cost separately for each energy technology, comparing solar apples to apples.

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