How your company can benefit from the evolution of energy
<p>Two big trends in energy generation -- shifting to renewables, and evolving to smaller, decentralized systems -- will have a profound impact on utilities and almost every energy-using company. Here's what firms can do to prepare.</p>
A common myth holds that renewable and decentralized resources are perpetually several years away from taking off and, even then, will always be bit players in our electricity mix. But the on-the-ground reality is starting to disprove that myth, and the implications and opportunities for smart businesses are momentous.
As electricity and information technology converge, the electricity system is evolving toward a transformed system that is interactive, dynamic, networked, renewable and decentralized. Over the past decade, U.S. wind capacity has grown 1,300 percent and solar capacity 8,800 percent. Those additions represent a quickly growing market for renewables, and a market that is open to a larger number of businesses than has historically been possible. An equally important trend is the shift toward smaller and more decentralized resources.
These trends have two big implications for businesses. First, the monopolistic structure of the electricity industry has historically limited competition, but customer-sited resources that increasingly have access to wholesale markets change that equation. Second, like conducting a symphony instead of a quartet, a renewable and decentralized system will require complex coordination and integration of a much greater number of resources and actors.
A variety of businesses have important roles to play, and new business opportunities are emerging every day. In Reinventing Fire, RMI outlines a 2050 U.S. electricity system that is efficient, renewable, largely distributed, and customer-centric. While this shift is transformative, business leaders have important opportunities now. Here are specific recommendations for what each of these businesses can do today to capture the competitive opportunities available in what is likely the biggest emerging market in the country.
Most businesses’ relationship with electricity has been as a passive consumer only. But technology now allows those same businesses to think of electricity demand as an asset that can be managed to both save and make money.
The first step in seeking opportunities within your own buildings and business is to assess how, why, and when you use electricity. With this information, seek opportunities to use electricity more efficiently—saving money without hurting (and sometimes even helping) performance. Many smart businesses today are pushing beyond efficiency to more actively manage their electricity use and generate it, too.
Controlling when your business uses electricity—so-called “demand response”—is proving to be a valuable source of revenue for commercial and industrial customers in some parts of the country. The idea is that electricity demand is as much a resource as electricity supply, and in areas with wholesale electricity markets (the Northeast region, for example), businesses are actively making money by selling demand response in the market.
Studies by RMI, the National Renewable Energy Laboratory, the California Public Utility Commission, and others show that as the share of renewables increases into the future, so too does the value placed on flexibility, and therefore demand response. So even if you don’t have the opportunity or incentive for demand response today, consider how to make your buildings demand response-“ready” as part of normal retrofit and investment cycles.
Once you have optimized efficiency and demand response, consider installing on-site generation, most likely solar photovoltaics. This kind of distributed generation allows you to look at your rooftop space as an asset. The price of solar PV panels tumbled 35 percent between 2008 and 2010, and businesses ranging from Wal-Mart to ProLogis are rolling out solar across their portfolios of buildings. Explore the innovative financing options and business models are emerging that overcome the challenges around solar’s high up-front costs.
The University of California, San Diego is a prime example of innovation in action and the aggressive integration of all of these ideas. The UCSD campus consumes as much as 45 MW of peak electricity demand to serve its 45,000 students and staff. But by building on-site generation, thermal storage, and a microgrid that allows for precise control and sophisticated energy management, the campus has saved millions of dollars and will be able to save even more in the future. Furthermore, when parts of Southern California, Arizona and Mexico went dark in a September 2011 blackout, UCSD kept the lights on.
Technology and service providers
As technology becomes increasingly cost-competitive and can be sited locally, markets are expanding for businesses that provide electricity management services or locally sited electricity generation such as solar photovoltaics.
While a plethora of interesting and important technologies are being developed and deployed, successful businesses understand how the needs of the grid are evolving, and how individual technologies or services can meet those needs. Look for opportunities that bridge conventional silos, support grid flexibility and integration, and to integrate your core technology with other parts of the electricity system.
For example, Sunverge Energy is a part of the “2500 R Street” project in Sacramento that will use a first-of-a-kind private, commercial microgrid to manage and distribute the generation and storage of solar power among 34 single-family homes. The project aims to achieve net-zero efficiency levels, with each home generating as much clean energy as it uses. Smart-grid technology from Sunverge will let the utility manage generation and storage discretely or in aggregate—improving utility transmission and distribution, deferring capital investment, improving grid reliability, and reducing greenhouse gas emissions.
While specific projects will vary in purpose and components, the 2500 R Street project demonstrates the value creation potential in integrating components and in meeting the needs of all stakeholders rather than just one or the other.
Electric utilities face significant challenges as 21st-century technologies and business models begin to collide with 20th- and even 19th-century cultures and institutions. But at the end of the day, the utility grid is key to maintaining an affordable, reliable electricity system, and these challenge present the opportunity for utilities to reinvent themselves step by step.
While utilities have always had strong customer relationships, now begin to look at those relationships at a more granular level and understand how, why, and when customers use energy. Similarly, since renewables and decentralized resources have such different characteristics than big power plants, begin to build a clear understanding of the technical impacts, costs, and values of customer-sited and decentralized resources.
Next, begin to implement strategies that balance the needs of a renewable and decentralized system with those of the utility grid. Consider time-of-use pricing, islanding provisions, new sources of flexibility like demand response, and alternative rate design strategies that begin to unbundle services and better reflect the costs and values provided by customer-sited and decentralized resources.
Finally, engage in a conversation with regulators now about the long-term path forward, alternative business models, and the regulatory changes that will enable you to thrive in a transformed world.
Electrical grid photo via Shutterstock.