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Can utilities and innovators collaborate at the edge of the grid?

The next century of energy will look nothing like the past one, and parties on both sides can thrive if they pay attention to these forces.

Recent events and developments have me pondering a significant question regarding the future of our industry: Can traditional utilities and companies innovating at the edge of the grid find common ground to work together? 

Undoubtedly, one of the most exciting areas in the energy sector is happening downstream of distribution substations, and especially at customer premises.

We are seeing increased penetration of on-site solar photovoltaic systems as costs drop dramatically; the promise of energy storage as integrated solar-plus-storage packages become a reality; the growth of building energy management systems with ever-sleeker user interfaces; and smart thermostats that are starting to offer real value (to both the customer and utility/energy provider) rather than simply access to more data.

All of these solutions (and many more if you start digging) are taking the energy industry by storm, making it increasingly clear that the power system of the 21st century will be quite different from that of the 20th. Clearly, the business and regulatory models that worked for the past 100-plus years are no longer adequate as we see an influx of technological and financial innovation. 

As all this disruption comes rushing into the system, a battle is brewing — quiet at some times and vociferous at others — to determine how energy solutions will be delivered in the market. In many instances, technology providers have built relationships directly with customers — think SolarCity rooftop solar systems and Nest learning thermostats. In other cases, companies have partnered directly with utilities to bring offerings to market  such as Opower’s efficiency programs and Pulse Energy (now part of EnerNOC) with its commercial energy management solutions. 

Other paths to market have walked a fine line between working with utilities and working with customers directly. Many energy storage and demand-side management companies would be in this category. Still others essentially have bypassed regulated utility territories entirely, targeting competitive market locations such as Texas, some overseas markets (especially those with high prices and developing infrastructure), and within the ISO/RTO markets where ancillary services are valued. 

Many of us are watching with interest as markets such as New York State reform their energy landscape so that utilities and technology solutions providers can work together on edge-of-the-grid solutions. However, in most parts of the country such forward-thinking innovation has yet to emerge.

And it leaves us asking: How can utilities and technology companies work together effectively? 

Incubating innovation

Against this backdrop, specific regional questions are emerging that affect some very large companies:

  • How can high levels of solar be integrated by Hawaiian Electric/NextEra as the state calls for 100 percent renewables by 2045? (NextEra executives already have stated that Hawaii’s 100-percent goal “could prove to be very aggressive”; such skepticism has prompted Hawaii Gov. David Ige to oppose NextEra’s pending acquisition of Hawaiian Electric.)

  • How can deep efficiency and demand response programs work for National Grid as Massachusetts calls to modernize the state’s grid?

  • How can responsive buildings and energy storage systems work for ConEd with New York preparing to significantly enhance grid reliability?

  • How can smart electric vehicle charging work for San Diego Gas & Electric with California working to meet sizable energy storage objectives and likely soon a 50-percent Renewable Portfolio Standard?

And most important, how can all of these solutions provide real value to the customers they interface with (and in many cases who own those assets) and not cross-subsidize the value for other energy customers on the grid? 

To me, the answer largely boils down to this: utilities must begin shifting their business models to offer a more dynamic set of energy solutions — options customized to their clients’ needs and interests.

Innovators, on the other hand, need to find themselves on a level playing field to, well, “innovate” and to offer new solutions not only to end consumers, but directly to utilities themselves. And regulators need to actively encourage all of this — a sometimes overlooked but critical factor in the utility world. 

If these things do not happen, innovators will continue to disrupt the energy marketplace, and utilities as we know them may only survive as a shadow of their former selves, largely as owners and operators of the transmission and distribution infrastructure.

But I don’t think the future needs to be so oppositional. Instead, parties on both sides of the equation not only can survive, but thrive, by working together.

Innovation in this area dramatically has accelerated in the last few years with these as just a few examples:

Accessible, reliable, affordable and safe energy has driven the progress of our society for more than a century, and utilities largely have delivered positively. And past checks and balances between providers, regulators and users largely have served consumers well.

But moving forward, utilities and regulators need to account for two major shifts: distributed resources are going to play a key role in the energy system of the future; and clean energy sources will become imperative. It is in everyone’s best interest to find solutions that will enable stability and innovation to occur side by side.

So perhaps the real question isn’t, “Can grid edge innovators and utilities work together?” It's, “When will they work together?”

Unless we evolve our energy models to ensure that this happens, the friction between the two will only increase, setting up roadblocks that greatly will impair our nation’s energy and economic future.

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