Benefits

With a shifting policy climate, equity financing for renewable energy projects is becoming more scarce. Real estate investment trusts (REIT) offer an alternative vehicle for bringing in capital from investors who aren’t seeking tax incentives. But restrictions and requirements make REITs a tricky way to finance power projects.

Allocating the costs of new transmission investments requires accurately assessing the value of those new lines, and identifying the primary beneficiaries. But formulaic approaches rely too much on the most easily quantified cost savings, and reject benefits that are dispersed across service areas—or that might change over the course of time. Brattle Group analysts J.P. Pfeifenberger and D. Hou explain that comprehensive valuation produces a more accurate picture.

Price-Responsive demand, EPA regulations, and merger policy will be on the agenda for the coming year as the Federal Energy Regulatory Commission works its way through the list of key cases that were pending at FERC as of January 2011.

Regulators and customers are holding utilities’ feet to the fire, when it comes to investing in advanced metering and smart grid systems—and rightly so. Making the most of investments requires a systematic approach to establishing standards and monitoring performance. But it also requires policy frameworks and cost recovery regimes that provide the right incentives.

Customers in some markets are demanding the right to opt out of smart meter deployments. Their concerns involve radio frequency (RF) emissions and potential privacy breaches. Whether these concerns are valid or not, some regulators are requiring options for customers who don’t want smart meters. The right approach can satisfy concerns without undue costs and complexities.

As new energy efficiency programs proliferate, regulators increasingly will seek to use the associated demand reductions to reduce capital expenditures on new transmission and distribution assets. However, forecasting the expected geographic distribution of these demand reductions within the grid and integrating this information into a utility’s capital planning process is a challenging task.

New technologies—and new expectations—require taking a fresh look at the institutions and practices that have provided reliable electricity for the past century. Collective action is needed to define the key attributes of a future grid and then to take the more difficult next step—adapting our processes and institutions to align with that future vision. A thoughtful approach will allow America to capture the potential value that’s offered by sweeping changes in technologies and policies.

Investors historically have been skeptical about merger synergies in utility mergers, assuming that regulators will insist that most or all economic benefits flow to customers. However, recent transactions suggest utilities are taking a different approach to valuing synergies that might strengthen the case for mergers — not just for the merging parties, but also for investors and regulators.

Policy makers in the E.U. and the United States are taking different approaches to facilitating smart grid development. While both regions are setting standards that the rest of the world likely will follow, they also face difficult challenges in resolving issues around cost recovery, customer engagement and workforce preparedness.