Last week I discussed the transition to renewable energy sources for our electricity supply. It is difficult for some to envision a world organized around different sources of energy, but as Greg Abel, the CEO of MidAmerican Energy Holdings Company noted at a recent industry conference, renewables don’t have a lot of variable costs. That’s important. The old sources of energy like oil, coal, and gas deliver steady state energy generation, but at variable and increasing costs. And of course, there’s that matter of carbon emissions from fossil fuels. Renewable sources of energy like wind and solar are intermittent generators, but by Nature, have fixed costs. And no carbon emissions.
Smart Grid technologies, policies, and financial innovations are disrupters to the energy status quo. Disruptions are nothing new to business and society – until it happens to your chosen business sector or group. The telephone disrupted the telegraph. The automobile disrupted horse-centric services. But for every loser, there can be multiple winners. Sometimes innovations create new value where none existed before. That’s one of the overlooked aspects to the Smart Grid. The modernization and transformation of the electricity infrastructure to integrate renewables portends massive changes to utility business models.
The bottom line is that we now have technologies – renewables coupled with energy storage; inexpensive sensors coupled with wireless networks; and analytics coupled with cost-effective data storage to convert a fragile grid into an agile grid. An agile grid relies on highly distributed energy assets (generation, demand response, energy efficiency and storage) with highly distributed intelligence.
This agility represents the goal of transactive energy. This agility has to include a new electricity market model where everyone can participate as a prosumer – producing negawatts and/or kilowatts. The relationship of utility and ratepayer changes in transactive energy. There will be tensions in balancing the social compact for utilities to provide electricity for all while competing with new services, players, and financial drivers that can disconnect customers from the grid. Electric utilities will face some stark choices and wrenching changes for long-term survival, and we have to hope that forward-thinking regulators help enable these transformations.
Here are a couple of ideas:
- allow utilities to develop new lines of business such as managing privately-owned microgrids on behalf of their asset owners. Policy makers should consider how distributed energy resources (DER) can deliver self-sufficient electricity production, and how to create markets that allow competition from non-utility entities..
- allow utilities to function as electricity insurance companies to perform as backstops in case of failures in islanded microgrids or DER assets. It would maintain the social compact and ensure that all customers fairly pay for their use of the grid.
These mechanisms would help address the unsustainable situation utilities face now of increasing operating costs and infrastructure investments coupled with decreasing electricity sales revenues as a result of energy efficiency measures. A predictable insurance subscription would stabilize revenues and prevent that utility death spiral. Other sources of revenue – in competition with other service providers – would be another way to ensure their continued financial health.
This week marks the 50th anniversary of the assassination of John F. Kennedy. It’s an appropriate time to recall his stirring words about one of the most wildly impossible challenges ever undertaken – getting safely to the moon and back again. In a 1962 speech, he said, “We choose to go to the moon. We choose to go to the moon in this decade and do the other things, not because they are easy, but because they are hard, because that goal will serve to organize and measure the best of our energies and skills, because that challenge is one that we are willing to accept, one we are unwilling to postpone, and one which we intend to win, and the others, too.” Transitioning from fossil fuels to renewables and from today’s electricity infrastructure isn’t easy. But it is doable, despite the naysayers. It is necessary, given the increasing tolls that carbon pollution places on human and planetary health. It took the USA just 7 years from that 1962 speech to the first human footsteps on the moon. We can handle any terrestrial challenge.