More Than Costs Minus Benefits: New Report Offers a Holistic Approach to Economic Evaluation of Grid Modernization Investments
U.S. electric utilities are making significant investments in advanced grid technologies for planning and operations, as well as supporting information and communication technologies for monitoring, protection and control.
One of the most pressing issues today is how to evaluate these potentially large investments to enable reliable, resilient and secure grids in the future, while maintaining affordable electric rates. Improved evaluation methods are particularly important considering grid modernization needed to address increasing severity and frequency of weather events and other threats, integrate higher levels of customer-sited solar and storage, manage electric vehicle charging, and provide greater grid flexibility to balance wind and solar.
A new report by Lawrence Berkeley National Laboratory, Economic Evaluation of Modernization Expenditures for Electric Utility Distribution Systems: A Guide for Utility Regulators, provides a holistic approach to assessing distribution system investments and expenses (Figure 1) in the context of integrated distribution system planning. The authors will discuss the report in a public webinar on February 13, 2025, 2:00 to 3:00 p.m. Eastern. Register here: https://lbnl.zoom.us/webinar/register/WN_8fz6STr3QWGJ3earu6eP5A
Figure 1. Objectives-based economic evaluation of grid investments
Ideally, the utility uses multi-objective decision analysis to prioritize grid modernization and all other distribution expenditures to optimize value toward meeting state goals, customer needs, regulatory requirements and other criteria. With affordability as a global objective, the utility assesses each proposed expenditure quantitatively and qualitatively, identifying solutions that address the most — or highest priority— objectives for a given net cost.
The utility conducts cost-effectiveness screening for potential grid solutions using a lowest reasonable cost or benefit-cost analysis approach, depending on investment drivers (Figure 2). Next is scoring each proposed solution based on its contribution to addressing each objective, then applying a weighting factor that reflects the objective's priority ranking. Finally, the utility ranks each possible solution using its final score and cost. The goal is a prioritized portfolio of distribution expenditures for a given financial constraint.
Figure 2. Cost-effectiveness screening for grid modernization
The report, Economic Evaluation of Modernization Expenditures for Electric Utility Distribution Systems: A Guide for Utility Regulators, was sponsored by Joe Paladino, U.S. Department of Energy's Office of Electricity. Authors are Paul De Martini, Newport Consulting Group, and Lisa Schwartz and Jason Ball, Berkeley Lab.
Contact: Lisa Schwartz, Berkeley Lab's Energy Markets and Policy Department – [email protected], 510-926-1091