Preparing utilities: DER and renewable energy regulations

5-minute read

Quick summary: Utilities are preparing for new compliance obligations related to distributed energy resources (DERs) and renewables by building robust compliance systems involving process definition, process improvement, compliance automation, and semantic search.

As governmental and utility industry regulators take an ever-greater interest in increasing the use of renewable energy, the likelihood of binding regulations in this area in the near future becomes an ever-clearer reality. Utilities are already preparing for new compliance obligations by optimizing processes related to distributed energy resources (DERs) and renewables and by implementing automation to facilitate regulatory reporting.

The EPA has proposed requiring power plants to drastically reduce their greenhouse-gas emissions by 2040.

Current regulatory environment surrounding DERs and renewables

Net-zero objectives

The International Energy Agency (IEA) has challenged governments around the world to build an energy sector with zero CO2 emissions by the year 2050. In response, the U.S. federal government has put forth its own plan to achieve 100 percent clean electricity by 2035, and the EPA has proposed requiring power plants to drastically reduce their greenhouse-gas emissions by 2040. On the state level, 23 states plus the District of Columbia and Puerto Rico have set 100 percent clean-energy goals for electricity, with target dates ranging from 2032 to 2050.

DER initiatives

Published in 2020, FERC Order No. 2222 requires regional grid operators to allow DERs, most of which produce energy from renewable sources, to compete in electricity markets.

In addition, 38 states plus the District of Columbia and Puerto Rico have implemented net metering rules. These policies support adoption of renewable energy by requiring utilities to allow distributed generation customers to sell their excess electricity to the grid at retail rates and receive credits on their utility bills.

Renewable portfolio standards (RPS)

Renewable portfolio standards, also known as renewable electricity standards (RES), are state-level regulatory goals—either mandatory or voluntary—regarding the percentage of electric power that comes from renewable sources. California’s RPS, for example, requires that investor-owned utilities (IOUs) serve at least 60 percent of their electric load with renewable energy by 2030.

As of November 2022, 30 states had established RPS programs, which vary dramatically in structure, size, enforcement, and application. Several factors are combining to create an environment favorable for RPS compliance, including

• Federal incentive programs
• Decline in costs of solar, wind, and other renewable technologies
• Complementary policies at state and local levels that reduce costs or increase revenue opportunities associated with RPS-eligible solutions

A glimpse at the future

The regulatory initiatives above may or may not include enforceable requirements, depending on what state you’re in. However, as net-zero target dates get closer, we can expect new mandatory requirements to appear at federal, state, and local levels. To prepare for this more intense regulatory environment, utilities are taking steps to put robust compliance systems in place and to streamline those systems with automation and other technology solutions.

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Building a robust compliance system

We’ve designated four specific areas that require focused thought and attention in building a compliance system that is ready for increased regulations regarding DERs and renewable sources:

1. Process definition

Every compliance initiative must begin with defining processes: the set of activities and measures designed to ensure the organization adheres to applicable laws, regulations, standards, and internal policies.

Compliance processes involve assessing, monitoring, and managing the risks associated with requirements to ensure adherence and avoid violations or penalties, typically including actions such as

• Establishing policies and procedures
• Conducting audits and assessments
• Implementing controls and methods of adhering to them
• Providing training and awareness programs

Compliance processes can vary across jurisdictions to align with specific legal, regulatory, and industry-specific requirements.

2. Process improvement

Process improvement involves evaluating and enhancing existing processes to make them more efficient, more effective, and closely aligned with changing regulatory requirements and company goals. This typically includes identifying areas of inefficiency, bottlenecks, or gaps and developing strategies for addressing them.

Compliance process improvement often involves leveraging tools and automation solutions to streamline manual tasks, improve data management, enhance reporting capabilities, and reduce the risk of human error. When approached strategically, process improvement can help utilities optimize resources, reduce costs, and increase compliance within the organization.

3. Compliance automation

Automation of repetitive, rule-based compliance tasks yields higher levels of accuracy, consistency, and scalability. The latest technologies and tools can help streamline and automate aspects of the compliance processes to reduce manual effort and improve efficiency.

Compliance automation can also

• Help standardize compliance across the organization, ensuring consistent adherence to regulations and internal policies
• Free up resources and allow employees to focus on more strategic, value-added activities such as risk assessment, policy development, and stakeholder engagement
• Reduce the overall cost of compliance within the organization

4. Semantic search

While semantic search technically falls in the automation category, its unique value in compliance use cases makes it worthy of special attention. Utilities must ensure consistency from year to year in their compliance reports and regulatory inquiry responses. If approached manually, this task can require spending hour after hour locating and reading through previously submitted documentation.

Semantic search combines natural language processing (NLP) with advanced algorithms to better understand queries instead of simply finding literal matches. It uses this understanding to assign a “relevance score” to the results and promote matches that are semantically closest to the searcher’s intent. For example, if a search included the phrase “renewable energy,” results from semantic search would incorporate relevant matches including “wind,” “solar,” “hydroelectric,” and other semantically related terms.

Whatever DER- or renewables-specific regulatory requirements may arise in the future, some form of reporting will certainly be required, and semantic search enables compliance teams to find exactly what they need in a fraction of the time it would take using traditional search tools.

Powering the future of DER and renewable energy compliance

As regulatory entities pave the way for achieving their net-zero-emission goals, we can expect to see an increase in regulatory activity concerning utilities’ management of DERs and renewable sources. While the timeline of this activity is uncertain, utility providers can take advantage of the “calm before the storm.” By establishing the processes that make up a robust compliance program and the technology for automating and streamlining compliance operations, utilities can set themselves up for success in the future renewables-focused regulatory environment—whatever it may look like.

Lane Portman is a Manager in Logic20/20’s Strategy & Operations practice.

Adam Walthers is a Manager in Logic20/20’s Strategy & Operations practice.