Between the Poles

Accelerating disruption in the electric power industry

Back in 2016 Gartner predicted that by 2020 the largest electric power company will be an Uber-like behemoth that will not own assets but will simply manage energy suppliers and energy consumers in an open market.

At that time I blogged about three large Las Vegas casinos' plans to leave the NV Energy utility grid.  MGM Resorts left the grid in 2016 even though required to pay $86.9 million in exit fees to do so.  This trend has accelerated.  In 2018, 10 companies began efforts to leave Nevada’s utility monopoly, NV Energy.

Regulators in some jurisdictions have recognized that the traditional business model for electric power no longer works in this age of decentralized power generation.  New York's REV initiative and Texas' ERCOT deregulation initiative have become models for other states for modernizing power generation, transmission, distribution, and retail.  The central tenet of modern utility regulation is to restrict traditional utilities to owning and maintaining power transmission and distribution lines.  Matching power generation and consumption power is through an open, unregulated transactive energy market.  Open markets tend to encourage decentralized, renewable energy generation.

In 1999, the Texas Legislature began restructuring the state’s electric industry which allowed consumers to begin choosing their retail electricity provider. As of Dec. 31, 2001, deregulation of the ERCOT electricity markets required investor-owned utilities to unbundle their operations. The provision of service to end-use retail customers became competitive. There are over 100 retail electricity providers of which more than a quarter offer a 100% renewable plan to their customers as an option. Since 2002, approximately 85% of commercial and industrial consumers have switched power providers at least once.

In Illinois in 1997 the Customer Choice Act mandated that state utilities could no longer own generation facilities. During the Mandatory Transition Period 1997–2007, utilities were required to sell their electricity generation assets to other energy companies. Utilities no longer sold power and became responsible for delivering electricity only. Since 2002 in the deregulated market, customers were permitted to buy electricity from competing retail electric providers. In 2006 the Retail Electric Competition Act encouraged residential and small business customers to switch to alternative electric providers.

in July 1999, Ohio restructured its energy market to give consumers choice with their energy provider. The law took effect on January 1, 2001. Customers could now choose to buy energy from retail electric suppliers instead of automatically receiving it from the utility company (primarily AEP Ohio, Dayton Power & Light, Duke Energy, and FirstEnergy) in their area. In May 2008, each incumbent utility was required to shed its power generation operations and become a purely electric distribution utility.

All of the big technology players (Google, Apple, Amazon, Facebook) are already indirectly disrupting the electric power generation industry with commitments to billions of dollars of renewable power generation which has driven over $15 billion in investment in wind and solar power generation.

The latest battleground is Virginia where Costco's and Walmart's requests to leave Dominion Energy's grid have been rejected by the Virginia's State Corporation Commission (SCC) Division of Public Utility Regulation. Kroger, Harris Teeter, Target, Albertsons and Cox Communications all currently have exit applications pending at the commission.

The Virginia Energy Reform Coalition (VERC) includes policy experts from across the ideological spectrum aimed at breaking the monopoly held by two utilities, Dominion Energy and Appalachian Power in favour of a deregulated energy market.   VERC cites ERCOT as an inspiration, for restricting utilities to owning transmission and distribution lines and no longer selling electric power.

I remember back in 2013 John Wellinghoff, then Chairman of FERC, saying that these changes in the electric power industry are driven by power consumers - industrial, commercial and consumer.  "People are going to continue to drive towards having these kinds of technologies available to them. And once that happens through the technologies and the entrepreneurial spirit we are seeing with these companies coming in, I just don't see how we can continue with the same model we have had for the last 100 or 150 years...You need whatever you do need - it may be a wind system providing power remotely, it may be a battery system for storage, it may be a local generation system, solar PV or natural gas, or a combined heat and power system. But whatever it is, it is what the consumer needs at the cost level that is appropriate and the reliability level they think is appropriate based upon their choices."

Consumers wanting to be in control of their energy, corporations wanting to reduce their power costs and reduce their emissions, the world wide drive for more sustainable energy, and dropping wind and solar energy costs are all making the traditional business model unsustainable.  Regulators who see the future as a transactive energy market with traditional utilities providing infrastructure such as New York and Texas are prepared for the future.  Others are going to experience increasing pressure from consumers and corporations who want the freedom and flexibility of going off the grid.

Transactive energy is coming faster than we think

At Distributech 2016 Zarko Sumic, Distinguished Analyst at Gartner, predicted that by 2020, the largest energy company in the world (by market cap) will not own any network (grid) or generation assets.  By analogy with Uber it would simply manage information about energy sources and consumers.  2020 is not that far away.  MGM and other casinos have already smelled the coffee and opted to go off grid to buy their energy from whom they choose. The light at the end of the tunnel is looking increasingly like a train.

 

Yesterday at Distributech 2018 in San Antonio I attended a demonstration of transactive load management signals and systems by a number of folks involved in the California electric power sector that suggest transactive energy may be closer than we think.  The key question the session addressed was how the design and operation of transactive signals and systems can integrate supply- and demand-side markets in California.  The overarching goal is the development of new practices for widespread adoption of economics-driven transactive technologies and systems for an integrated electric grid.

 

In his talk in 2016 Zarko pointed out the extraordinary coincidence that Facebook (market cap $230b), Uber (est value $50 B), and Airbnb (est value $24 B) are the largest (or the second largest in the case of Airbnb) companies in their lines of business, but, significantly, none of them own content, cars or rooms.  Gartner calls this phenomenon the sharing economy.   A sharing economy uses IT to distribute, share and reuse excess capacity in goods and services. Information is the fuel and the digital platform is the engine.  The sharing economy operates in a market with customers and sellers and the value of the goods and services shared is determined by the network effect (Metcalfe's law) and increases as the square of the number of nodes (customers and sellers).  

 

Zarko saw an analogy with the electric power industry.  We are moving toward a world where energy flows are increasingly determined by market forces (referred to as transactive energy).   Based on the analogy with Facebook, Uber, and Airbnb Zarko predicted that by 2020, the largest energy company in the world (by market cap) will not own any network (grid) or generation assets.  It will simply manage information about energy sources and consumers.   There are no technical barriers to this vision and the only thing standing in the way at the moment is current regulation,

 

Over the past few years the New York Public Service Commission (NYPSC) has taken a major step toward a future of transactive energy. New York's "Reforming the Energy Vision" (REV) is moving the New York state electric utility industry toward a radical redefinition of utilities as we have known them over the past hundred years since Tesla and Edison created the electric power industry.  Based on the progress in changing regulation in New York, California, the UK, and other jurisdictions, transactive energy is coming at an accelerating pace and Zarko's vision is increasingly a real possibility.

Open source blockchain development to enable transactive energy

The world is rapidly developing the technology that allows energy flows to be  determined by market forces.  There is little doubt that transactive energy is in the future of electric power in North America, which already has continental grids, and in the EU with the development of the EU's supergrid. 

The Rocky Mountain Institute and Grid Singularity (a blockchain technology developer) have created the Energy Web Foundation (EWF), a non-profit organization whose mission is to further the development of transactive energy by accelerating the commercial deployment of blockchain technology in the energy sector.  Initial supporters are Centrica plc, Elia, Engie, Royal Dutch Shell plc, Sempra Energy, SP Group, Statoil ASA, Stedin, Technical Works Ludwigshafen AG (TWL), and Tokyo Electric Power Co (Tepco) who have provided a first round of funding of $2.5 million.

Blockchain is a decentralized, distributed database for managing transactions.  Blockchains provide a global infrastructure untethered from the stability or permission of governments and institutions.  It is the technology underlying Bitcoin.   Nasdaq and other financial institutions including banks have been experimenting with and developing applications based on blockchain technology. Nasdaq has opened its blockchain services framework to more than 100 of its market operator clients around the world.  Earlier this year Nasdaq demonstrated a blockchain service that lets solar power generators sell energy certificates. 

Blockchain technology has the potential to play a significant and potentially game-changing role in the energy sector by providing the financial infrastructure for transactive energy. Blockchain technology could provide the transactional infrastructure enabling millions of energy generators (for ex, rooftop solar PV) and energy consumers (HVAC systems, water heaters, electric vehicles) to transact with each other. Blockchain also provides higher levels of cybersecurity.  Grid Singularity with its partner Parity Technologies is leading the development of an open-source, energy-specific blockchain infrastructure that will be maintained by EWF and supporting affiliates.

Utility industry vendors urged to adopt data model standard

Software comes and goes, but a utility's data model persists. A shared electric power data model enables electric power utilities to move away from incompatible point solutions toward tightly integrated solutions which are essential for real-time monitoring, situational assessment and decision making.  Based on today's smart devices and sensors and utility-wide communications network, decision making in a real-time, big data world requires tight integration between applications.  To realize the full potential of the smart grid, utility industry vendors need to move rapidly to adopt data model standards, that's the recommendation of Geoff Cameron of AGSI. which has developed a platform based on a utility data model standard that provides real-time access to critical infrastructure, customer and operational information. 

 

Traditional electric utilities are typically departmentalized and rely on manual, paper-based processes. Sharing knowledge is relatively slow, cumbersome, and reactive in nature and characterized by redundant data, many incompatible point solutions and non-real-time.  Facilities are inspected periodically, data is accumulated and analyzed, a report is written and sometime in the future do something is done.  Today's intelligent electronic devices, bidirectional communications networks, and automation provide the basis for dramatically improving a utility's SAIDI and SAIFI outage statistics.  It also provides a foundation for transactive energy.  What is required to realize the full potential of the smart grid is a platform that enables real-time integrated applications.

 

At Distributech 2017 Dan Guatto, COO and VP of Engineering and Operations, described how Burlington Hydro (BHI), a distribution utility with 65,500 customers, has evolved from a point solution environment to an integrated, secure, and real-time utility.  As is typical of many distribution utilities, BHI was facing increased technology sophistication, the need integrated business workflows (operations, engineering, customer engagement, financial) to improve efficiency.  BHI had to address siloed legacy systems and business processes.  Many industry solution offerings fixed individual problems but were expensive and did not take into account integration and long term data management.  Many “enterprise” offerings in the marketplace were proprietary black box solutions with little flexibility that made BHI feel that it was surrendering control of its data and processes.  One of the major problems BHI identified was the lack of O.T. / I.T. convergence for true enterprise efficiency.   Solutions required quite expensive capital outlay and deployment.  Projects became too big and and bogged down and were unable to address fast paced industry change.  In Ontario some of the larger utilities made significant technology investments, but at the end of the day these projects were extremely expensive, disjointed and largely underutilized (or even abandoned). BHI was also concerned about the infancy of smart grid technology and rapid future changes and didn't want to be tied to an inflexible system as the speed of industry changes accelerated.  BHI was convinced that a sound system architecture had to be based on electric industry standards and was aware that AGSI had been working with EPRI on a real-time platform based on Common Information Model (CIM) and Open Geospatial Consortium (OGC) standards.

 

Over the past decade open electric power data model standards have been developed for transmission, distribution, smart substations and other electric power functions.  Worldwide the Common Information Model (CIM) has become the standard for transmission.  CIM is also widely used outside of North America for distribution.  In North America the Multispeak standard is the most widely used distribution data model standard, although CIM is used by larger utilities.  These data models are mature and cover virtually all aspects of electric power utility operations.

CIM was originally developed for standardizing electric utility information exchange.  It was designed by electrical engineers, adopted by the IEC and supported by EPRI and multiple electric utility partners, vendors and organizations.  The IEC, EPRI and partners continue to extend the model to cover asset health, station design, work, smart grid integration, IoT Integration, and network operating protocols.  CIM is able to support all aspects of electrical operations (OMS/DMS), electric analysis / smart grid, distributed energy (DER), work orders, crew management, and assets.  AGSI has implemented the CIM Core, Topology, Wires, & Assets object models in a relational database (Oracle Spatial).  Its implementation represents a real-time network model of the CIM electric system data model and provides a centralized view and interaction with the network in real-time.

 

Today this technology connects and integrates engineering, SCADA, AMI, GIS, load analysis, other smart grid deployments such as EV charging, customer, and asset databases into a single accessible platform and enabled BHI to evolve from a point solution environment to an integrated, secure, and real-time utility.  Real-time data unification provides a basis for transparent workflows and a centralized reliable source of truth enables advanced analytics for optimized investment planning.  An open architecture based on industry standards provides the flexibility to adapt to rapid changes in technology as the smart grid evolves. Real-time information sharing enables faster decision making and increased customer satisfaction via real-time situational awareness about outages and planned work.  Don Guatto believes that it provides the foundation for transactive energy which is looming on every utility's horizon.

Distributech2017: Transforming electric power industry likened to War of Currents

At Distributech 2017 in San Diego, the opening keynotes used the word "transformation" to refer to what the electric power industry is going through.  Teresa Hansen likened the impact of this transformation to the War of Currents about 100 years ago when George Westinghouse and Nikola Tesla's AC won out over Thomas Edison's DC.  At the Smart Gird Interoperability Panel 2016 Grid Modernization Summit in Washington DC Anne Pramaggiore, President and CEO of ComEd of Chicago, was the first  to call the current business transformation that the electric power industry is experiencing a "revolution".  And many other speakers at the SGIP conference agreed with this characterization. 

Another key theme at this year's Distributech is greater uncertainty.  Philip Mezey, President and CEO of Itron, mentioned regulatory and federal uncertainty specifically referring to the challenge of keeping regulation current with rapidly changing technology and utility business models.  But he sees many opportunities in addition to the challenges.  He mentioned managing deep solar penetration, ensuring cybersecurity, gowing numbers of EV vehicles, transactive energy, the digital grid enabling utilties to optimize power delivery, improved integration with customers, and moving beyond the smart grid by connecting more smart devices all of which are capable of collecting data.  He also believes that this new grid, referred to by some as Grid 3.0, is going to require distributed intelligence because decisions have to be made locally and quickly.

Scott Drury, President of San Diego Gas and Electricity, who aspires for SDG&E to be the best energy utility in the U.S., outlined some of the innovative things that SDG&E is doing to ensure clean, safe and reliable energy for its customers.  It outperforms California's Renewable Energy Portfolio in reducing emissions.  It has over 100,000 rooftop installations in its service territory and boasts that it is able to make the fastest solar interconnections in the U.S.  It is aggressively installing charging stations in its service territory including a target of ensuring 10% of these chargers are in disadvantaged communities.  SDG&E has implemented its own weather network with many realtime reporting stations to help reduce the risk of wildfires.  It has undergrounded 60% of its network.  It has implemented a microgrid in a remote desert community and it is building one of the biggest lithium ion battery projects in the U.S., a substation in Escondido with energy storage capable of delivering 30 megawatts for four hours.

Transactive energy may be based on blockchain

There is little doubt that "transactive energy" is in the future of electric power in North America, which already has continental grids, and in the EU with the development of the EU's supergrid.  The world is rapidly developing the technology that allows energy flows to be  determined by market forces (transactive energy).   By analogy with Uber and Airbnb, Gartner has predicted that by 2020, the largest energy company in the world (by market cap) will not own any network (grid) or generation assets.  It will manage information about energy sources and consumers.  Another option is a decentralized,distributed transaction system that allows generators such as you and I as well as traditional large scale utility generators to sell energy to you and me and other users, but without a centralized transaction manager.

Blockchain is a decentralized, distributed database for managing transactions.  Blockchains provide a global infrastructure untethered from the stability or permission of governments and institutions.  It is the technology underlying Bitcoin. The generalized version is often referred to as blockcoin 2.0.  Blockchain supports smart contracts.  Nasdaq and other financial institutions including banks have been experimenting with and developing applications based on blockchain technology. Nasdaq has opened its blockchain services framework to more than 100 of its market operator clients around the world. The blockchain services are part of what Nasdaq calls its "Core Services" component which serves as a hub for its financial applications.  Late last year an issuer was able to use Nasdaq Linq blockchain technology to successfully complete and record a private securities transaction - the first of its kind using blockchain technology.  Chain.com, a Nasdaq Linq client and blockchain developer, documented its issuance of shares to a private investor using Nasdaq's blockchain-enabled technology.

Earlier this year Nasdaq demonstrated a blockchain service that lets solar power generators sell energy certificates (Nasdaq Explores How Blockchain Could Fuel Solar Energy Market).  The project is part of a collaborative effort between Nasdaq and design firm IDEO's CoLab to facilitate partnerships that take a design-based approach to creating human-usable technology.  Internet connected solar panels have been developed with technology provided by Filament , a Nevada-based blockchain startup. Its technology allows traditional electronic devices to be connected online.  The solar panel is actually hard-wired into the IoT device through a converter which enables Nasdaq to measure the wattage the panels are generating into the grid.  Using the API of Nasdaq's blockchain-based private markets platform, anonymous certificates are created which can be sold to anyone who wishes to subsidize solar energy.  The cryptographically verified certificate, representing solar power generated in the western US, appeared live on the screen in New York City.

Nasdaq is not the only organization exploring blockchain for energy transactions.  Brooklyn-based startup LO3 has partnered with Consensus Systems on TransActive Grid which is combination of ​software ​and hardware ​that enables members to buy and sell energy from each other securely and automatically, using smart contracts and the blockchain.

In Vienna, Grid Singularity is using blockchain to support energy-related transactions. "Damit haben wir (fast) alles beisammen, was in der neuen Energiewelt relevant ist oder kurzfristig wird: dezentrale Energieversorgung, Digitalisierung, disruptive Geschäftsmodelle, Smart Contracts, Blockchain, Kryptowährung.  Als Wegweiser in die neue Energiewelt, haben wir am 23. Mai 2016 den 1. Blockchain-Tag in Deutschland veranstaltet." (We've just about got everything we need for the new energy world, decentralized energy distribution, digitization, disruptive business model, smart contracts, blockchain, and cryptographic security.  As a signpost to the new energy world, we have instituted May 23, 2016 as the first Blockchain Day in Germany.)

Australian startup Sun Exchange has developed a platform that lets investors back small-scale solar projects and receive monthly dividends. 

MIT start-up SolarCoin (SolarChange in the US and EU) pays people with an alternative digital currency for generating solar energy.  SolarCoin is based on Bitcoin technology.  The original concept for SolarCoin required a central bank. Blockchain is decentralized making the central bank unnecessary.  People earn coins as a reward for generating solar energy.  People with solar panels on their house receive solar renewable energy certificates from their energy company in return for feeding a megawatt-hour of electricity back into the grid. These certificates are already traded for cash, but if you present them to SolarCoin you will get a coin. SolarCoins are now given in 23 countries. The SolarCoin market cap is currently estimated to be about $2 million.

New York PSC takes major step toward transactive energy with REV

Gartner has predicted that by 2020 the largest electric power company will be an Uber-like behemoth that will not own assets but will simply manage energy suppliers and energy consumers in an open market.  This business model requires transactive energy, where energy flows are determined by market forces.

The New York Public Service Commission (NYPSC) has taken a major step toward a future of transactive energy.  New York's "Reforming the Energy Vision" (REV) is moving the New York state electric utility industry toward a radical redefinition of utilities as we have known them over the past hundred years since Tesla and Edison created the electric power industry.  In the future in New York State the utility industry will be comprised of distributed system platform (DSP) providers, basically providing the grid but not directly selling energy, and a competitive energy market with consumers and many energy providers including bulk power generators and distributed energy generators including you and me with rooftop solar panels.  This model has similarities with the UK model which is disrupting the traditional energy market in the UK..  The development of the REV model is being closely watched by many utilities who see the writing on the wall and hear the death knell of the utility business model we have known for the past 100 years.

In 2014, Governor Cuomo announced REV with the intention to develop an integrated energy network able to combine a central grid and distributed power generation.

May 19, 2016 the New York State Public Service Commission (NYPSC) adopted Order Adopting a Ratemaking and Utility Revenue Model Policy Framework (Download New York REV Ratemaking May 2016 NYPUC {D6EC8F0B-6141-4A82-A857-B79CF0A71BF0}), an order that outlines ratesetting for a multi-year regulatory-driven process to reform the electric power utility business model in New York State.  The NYPSC has made it clear that this process has to occur much more rapidly than regulators and utilities are accustomed to. The order states that the historic pace of regulatory change is inadequate, because recent developments in this and other industries demonstrate that slow and deliberate progress is not always an option and may no longer be acceptable.   The NYPSC intends to establish a regulatory environment that encourages faster adoption of business model change that it sees as necessary.

For the electric utility industry which is facing large infrastructure needs, decreasing system efficiency, environmental demands, weather and customer driven resilience requirements, customers who want more choice, and technology that is decentralizing the grid, the current utility and regulatory model could lead to grid defection, stranded investments and increasing financial challenges.  The NYPSC has recognized that the structure of competitive markets outside of the utility industry has changed dramatically and the utility sector, which has been insulated from the opportunities and the competitive pressures of the modern information economy, is now going to have to change rapidly.  Technology in a competitive market reduces excess inventory, increases asset utilization, and makes possible innovative marketing strategies.  As a result, the traditional utility’s role has evolved to a platform service that enables transactive energy in the form of a multi-sided market in which buyers and sellers interact. 

In February 2015 the NYPSC adopted a regulatory policy framework Regulatory Policy Framework and Implementation Plan ( Download New York REV Framework NYPUC {0B599D87-445B-4197-9815-24C27623A6A0}) for REV which defined the framework for changing regulatory rules for ratemaking.   The key elements of the framework are

• The reformed electric system will be driven by consumers and non-utility providers, and it will be enabled by utilities acting as Distributed System Platform (DSP) providers. Utilities are responsible for reliability, and the functions needed to enable distributed markets are integrally bound to the functions needed to ensure reliability.
• It is our conclusion that requiring the utilities to serve as DSPs under our regulatory authority and supervision is in the best interests of New York consumers.
• By expanding the role of the utilities to include DSP functions, utilities will have the regulatory obligation, operational capability, and economic incentive to optimize the use of DER (distributed energy generation).
• As the platform provider, utilities will not participate as owners of DER where a market participant can and will provide these services. Thus, with the few exceptions discussed, DER will remain a non-utility service provided by the competitive market.
• In order for distributed generation to compete on an equal footing, interconnection with the grid must be enabled through technical rules and processes that are not only safe but also efficient and expeditious.
• Each utility will serve as the platform for interface among its customers, aggregators, and the distribution system. Utilities will respond to new trends by adding value, thereby retaining customer base and the ability to raise capital on reasonable terms. Simultaneously the utility will serve as a seamless interface between aggregated customers and the NYISO (The New York Independent System Operator (NYISO) operates competitive wholesale electric power markets).

Reforming ratemaking

The NYPSC cites three principles of the Framework Order as particularly relevant to the reform of ratemaking.

1. The unidirectional grid must evolve into a diversified distributed model engaging customers and third parties.
2. Ensuring universal, reliable, resilient, and secure delivery service at just and reasonable prices remains a function of regulated utilities.
3. The overall efficiency of the system and consumer value and choice must be improved by achieving a more productive mix of utility and third-party investment.

The NYPSC states that utilities will remain regulated, but will have new ways of generating revenue and creating investor value:

1. traditional cost-of-service earnings
2. earnings tied to achievement of alternatives that reduce utility capital spending and provide consumer benefit
3. earnings from market-facing platform activities
4. transitional outcome-based performance measures.

The new ways of generating revenue are intended to create a regulatory environment where utilities can create shareholder value, comparable to or superior to conventional investments, by integrating third-party solutions and capital that improve the efficiency, resiliency and flexibility of the physical networks, reduce consumer total costs and achieve the State’s policy objectives.

Specifics

The specific measures that the NYPSC intends to mandate for the utility sector in New York State includes

• Platform service revenues - new forms of utility revenues associated with the operation and facilitation of distribution-level markets.
• Earning Adjustment Mechanisms- there are temporary, short-term measures that are intended to bridge the transition form the current business model to the new model.
  • System efficiency: Each utility will propose a peak reduction target and a load factor improvement target.
  • Energy efficiency: The Clean Energy Advisory Council will develop targets for energy efficiency.
  • Customer engagement:  Utilities will be able to propose positive opportunities based on customer uptake in innovative engagement programs.
  • Interconnection: A positive earning opportunity will be developed based on satisfaction surveys of DER providers regarding utilities’ progress in timely and cost-effective interconnection approvals.
  • Affordability: To assist low-income conumers, affordability metrics will be established as scorecards, and financial incentives will be established in rate cases as appropriate.
• Greenhouse Gas reductions: The NYPSC is considering a Clean Energy Standard to achieve the State’s target of 50% renewable generation by 2030.
• Competitive market-based earnings: Unregulated utility subsidiaries are authorized to engage in competitive value-added services.
• Data access. The conditions under which utilities may charge for individual customer usage data are established. Standard reporting of aggregate customer data is provided for. Certain basic levels of information will be free of charge, while utilities may charge a fee for provision of more refined data or analysis.
• Opt-in rate design: Voluntary participation in advanced rate design will be encouraged by financial incentives and scorecard metrics
• Mass-market rate design:  An analytic approach will be used to examine bill impacts, for different types of consumers, Programs will be targeted toward different categories of consumers
  • Traditional consumers — customers who don't actively manage their energy consumption
  • Active consumers — customers who use DER with the purpose of reducing their bills
  • Prosumers — those customers who install solar PV generation or other technologies that allow them to sell energy to the grid

It was also recommended that a method be developed for valuing the contributions of distributed energy generation (DER).  This is intended to be used in valuing DER such as solar PV.  It would be used to reform net energy metering (NEM).  Net metering allows solar users to receive credit for excess power back to the grid at retail rates. In the immediate future it is recommended that the current NEM policy should be continued for small rooftop installations.  (A partnership of solar providers and utilities has just filed a proposal for maintaining NEM with the NYPSC)

DistribuTECH2016: By 2020 the largest power utility will not own generation or network assets

Today at DistribuTECH2016, three very distinguished, experienced people in the technology business, Zarko Sumic, Distinguised Analyst at Gartner; Chandu Visweswariah, IBM Fellow; and Sharon Allan, CEO of the Smart Grid Interoperability Panel (SGIP), each presented their perspective on the utility sector of the future.  What emerged appeared to be the same remarkable animal but from three different perspectives. 

 

Zarko started by pointing out the extraordinary coincidence that Facebook (market cap $230b), Uber (est value $50 B), and Airbnb (est value $24 B) are the largest (or the second largest in the case of Airbnb) companies in their line of business, but significantly none of them own content, cars or rooms.  Zarko and Gartner call this phenomenon the sharing economy.   A sharing economy uses IT to distribute, share and reuse excess capacity in goods and services. Information is the fuel and the digital platform is the engine.  The sharing economy operates in a market with customers and sellers and the value of the goods and services shared is determined by the network effect (Metcalfe's law) and increases as the square of the number of nodes (customers and sellers).  

 

Zarko sees an analogy with the electric power industry today, as we move toward a world where energy flows are increasingly determined by market forces (referred to as transactive energy).   Based on the analogy with Facebook, Uber, and Airbnb Zarko predicts that by 2020, the largest energy company in the world (by market cap) will not own any network (grid) or generation assets.  It will manage information about energy sources and consumers.   He does not see any technical barriers to this vision.  The only thing standing in the way at the moment is current regulation.

 

The utility digital distribution platform creates new value by enabling an open energy market which brings together those who have energy with those who want it.  It requires a network operator who manages and ensures the reliability of the grid (similar to the role of Network Rail in the UK) and a sharing energy economy platform operator (like Facebook, Uber and Airbnb) who brings together energy providers and buyers including prosumers, and calculates transaction and delivery costs. 

 

Chandu put it this way, "energy is getting digitized".  His perspective is that renewable energy, whether wind or solar, introduces a major element of variability into power networks which is seven times greater than in our current networks where most of the variability is due to demand.  Weather is the source of most of the variability.  Predicting when the wind will blow and with what force and cloud cover are critical for managing future power networks in addition to predicting and managing demand with techniques such as demand response.  IBM has two major projects based on predicting these external factors, Deep Thunder for weather prediction and Opus for a power project whose first implementation is in Vermont.  In Chandu's view time of use pricing, demand response, and other programs are practical examples of capabilities that utilities have already implemented and that are required to support transactive energy that underpins all three's vision.  Transactive energy means fundamentally that market forces control the flow of energy.   It requires price signals from the energy supplier and demand signals from the buyer. 

 

Sharon shares a similar long term vision of the energy sector and also sees transactive energy as the future toward which the sector is heading.  It is the consumer that is driving the industry.  As Jon Wellinghof, ex-chairman of FERC put itthis way

 

"Advances in technology and the desire we are seeing at the consumer level to have control and the ability to know that they can ensure the reliability of their system within their home, business, microgrid or their community. People are going to continue to drive towards having these kinds of technologies available to them. And once that happens through the technologies and the entrepreneurial spirit we are seeing with these companies coming in, I just don't see how we can continue with the same model we have had for the last 100 or 150 years."

She gave a number of examples of how interoperability standards from IEEE, IEC, and SGIP; programs from government agencies such as the Department of Energy, ARPA-E and Pacific NW National Lab (PNNL); and industry organizations such as EPRI are moving toward a common vision of the utility of the future.   Sharon put it very strongly in front of a room filled with utility employees and vendors and consultants, "get ready for transactive energy, this is real, this is not hype."