Coronavirus has shown why we need regulators to deal with future energy network issues NOW. Here’s how…
In this fourth and final article of our series, we explore how the energy industry can learn from Coronavirus network impacts and why we need to deal with ‘future’ network issues NOW…
In this series of articles, we explore the imminent issues the energy network is facing due to COVID-19, the immediate solutions, the long-term problem and the regulatory challenges ahead.
By Lawrence Orsini
PART 4: THE RATE MAKING REVOLUTION
If our energy networks are going to survive in the future, we need to significantly change the way they are managed and regulated.
As discussed in our first article, the coronavirus epidemic has shown how a dramatic locational demand shift in our energy networks can push some to potential breaking point – but it’s not just a one-off, it’s a sign of things to come.
Global warming is already causing more regular and more major weather fluctuations and rising temperatures are leading to people migration [Article 3], all of which will put increasing pressures on already struggling networks, as explained in our third article.
Add to that the potential post-coronavirus increase in home working and all this is building towards a real challenge that regulators must deal with NOW.
Energy demand follows daily and seasonal curves. Without a way to manage that demand more efficiently, some places could soon see the peaks regularly pushed beyond their network limits.
To reveal the real problem, we need to dig down into the key elements of energy distribution.
Whenever there is a demand for energy, it needs to get from source to user through wires, transformers and sub stations (incurring losses along the way). This physical network is balanced by the utility on the wires with real-time management. When demand is high, they call up peaker plants to generate more power or pay for demand response to reduce use, depending on which is more cost effective. When demand is low, they curtail production.
High levels of demand can usually be met on the financial market – simply by buying more energy.
But it’s the physical network where the limits are reached.
At times, the infrastructure of the network cannot physically deliver enough power to meet demand without breaking, at which point an outage is called to prevent network damage.
To avoid outages, utilities often use demand response – paying owners of large-scale ‘load assets’ (large buildings or industrial loads) to reduce demand and lower the peak.
It’s a good solution. But because these big ‘load assets’ are not typically on the smaller residential (edge) networks, it won’t solve the growing problems in these locations (as discussed in a previous article– Article 2).
EFFICIENCY IS KEY
In the long-term, we could just put in more wires and more infrastructure to help feed more power into those pressured networks.
That would solve the problem – and under current regulations, it’s exactly what transmission and distribution (T&D) utilities are encouraged to do. It’s how they get paid.
But feeding the demand is not the solution.
In truth, we simply shouldn’t be getting ANYWHERE NEAR those network-breaking levels.
The way the networks are set-up is plagued by inefficiency.
Infrastructure is built to cope with peaks that happen just a few times a year, and a lot of energy production sits dormant. That is both physically and financially inefficient.
Think of it like a sales employee. Firstly, you pay them for their time, so you want them to be selling 100% of the time. Secondly, the more efficient they are at selling, the more money you will make. Ideally, you want them working for 100% of the time, at maximum efficiency.
In the energy industry, resources are often not running anywhere near 100% of the time and when they are, they’re often run very inefficiently.
Instead of being set up to encourage feeding demand, the industry needs to be focused on improving utilization to help (to coin a currently often-used phrase) ‘flatten the peak’.
Fortunately, a solution to do just that is developing around us. We just need a way to harness it.
TECH DRIVEN CHANGE
The opportunity lies in the colossal technology-driven change the energy industry is currently experiencing.
Energy generation is moving from large-scale power stations to the heart of residential communities, with solar rooftops and, increasingly, connected storage (battery, thermal and EVs). In fact, wiring a house for solar is now a standard requirement for new builds in California and New York.
At the same time, IoT enabled devices are rapidly being adopted in homes. They’re our lights, our smart thermostats, our smart plugs; for some and, in time, for all, they will be our toasters, our dishwashers, our televisions, our breaker boxes.
And this is starting to shift flexibility to the edge of the grid.
Just as with those large ‘load assets’ mentioned before, all these smart energy producing and consuming devices at the residential grid edge are assets that can be used to help manage the grid.
And as old fossil fuel burning power stations are shut down and replaced by grid edge generation and small scale renewables like wind farms, this will become increasingly important.
In time – and I mean years not decades – the ONLY way the grid can be managed will be through flexibility at the grid edge.
When demand is low and not all generation is needed, storage can soak up the excess; when demand is high, storage can add to real time generation and smart devices can deliver demand response to reduce consumption.
That means value is moving to the grid edge too – with value determined by the time at which consumption happens and the condition of the network.
This is all great, but to make this happen, we need to make devices deliver tangible value and to make people understand how to benefit from it.
THROUGH THE WRINGER
We are moving to the next stage in the evolution of electricity.
Back in the earliest days of electrification, the big sell was the ‘grid of future,’ with the focus on lighting big cities. All the wiring was set up for lights – but then electric appliances started to appear.
The first really successful consumer appliance was the washing machine, which had an electric wringer.
Because the three-pronged plug had not been invented yet, early versions had to be screwed directly into a light socket. With no quick shut-off, people were killing themselves being dragged through the wringer.
For more than a century, the on-off functionality of a switch was perfect for the job. Not any more.
In the new connected world, apps can be used to modulate how devices operate with far more control, right up to full automation.
And if all devices can be connected in a network, they can ultimately deliver a self-modulating and managing solution to make everything run more efficiently.
- a battery can evaluate the amount of energy stored in it and intelligently decide if it is best to store more for later use or to earn money by sending energy to the grid
- a solar panel that is not being used at source can determine the best price it can get to sell it to a nearby neighbor
- a smart kettle can see what other devices are in use on their network during a TV ad break, and decide when to turn on to flatten demand spikes
THE VALUE PERCEPTION
Before we get to that stage, however, we need consumers to understand and appreciate the REAL value of their devices.
We can all see the lifestyle benefits smart appliances offer. That’s why we buy them.
Take lighting, for example. People buy LED light bulbs to light their house. Smart LED light bulbs do the same thing, but people buy them because they offer additional functionality. They can dim, change color, or be automated from an app on your smartphone. There is tangible value both in improved home ambience and also in reduced energy bills.
What people DON’T see is the financial value of the ‘services’ these devices can offer to operators of the networks on which they run.
Helping people understand how the flexibility of their own energy usage has a VALUE to those that operate the network is one of the most immediate – and most overlooked – needs of the energy industry.
But that value needs to be tangible – either a saving or a payment.
The problem with the early demand response programs is they were sold on savings – and residential consumers don’t generally recognize OpEx value.
It is a well-researched fact that the part of the brain that recognizes value has a very different value for a dollar saved than a dollar earned.
If you save $10 of electricity, your brain goes ‘meh’, but if you get a check for $10, it’s a different experience. If you compensate someone for something, they have more intrinsic value for the thing.
To create a market for those device services, then, network operators need to engage the reward part of the consumer brain. They need to actually pay people for these services just like they do the demand aggregator or peaker plant operator.
All of this is moving us towards a need for regulatory change and the next transition of focus within the energy industry.
It’s not long ago that most energy networks decoupled generation from T&D. The incumbents survived, and the industry was arguably better for it (depending on who you talk to!).
Now we need to decouple T&D revenue generation from infrastructure growth and focus it on increasing the utilization and efficiency of existing assets, not just installing new ones.
Once utilities are paid for increasing the utilization of the network, they will certainly be willing to pay others to help them do that.
They will be looking to buy services (megawatts of generation or storage and ‘NEGAwatts’ of demand response or storage) from local devices at the edge of the network.
There are already aggregators – like Sonnen, Ohm Connect, even Tesla – that connect small devices (1,000s of folks, together in bundles) then sell the value of the participants to the wholesale market that pays for services.
But they are middlemen, sitting between the devices and the market.
They are currently a necessary inefficiency in the market – and in truth they may be necessary for some time to come. But with the right solution in place, the devices will ultimately be able to do it themselves.
The job of the utilities will be to manage the market, supply the required information to participants, efficiently send signals to the grid edge and, in doing that, to optimize the network.
A NEW MARKET
Regulators understand and want to solve the problem.
They understand there is a need for a new, fair, energy market, and that to create it every participant needs to be on a level playing field, all able to receive and respond to the same price signals at the same time.
It’s a bit like a financial stock exchange.
Participants in the financial market can optimize their investment portfolio directly, by using fund managers or by using online platforms like e-trade, Robinhood, etc.
Ultimately, all of them do the same job (enable them to buy, sell, forward and limit) and all connect to the same exchange.
Any company (with regulatory compliance) can create a platform to connect to the exchange. The winners are those that deliver the most efficient, most easy to use and most lucrative solution for their customers.
Utilities should do the same – they should act like clearinghouses for electrons over the wires.
That will require an economically efficient price communications system, such as digital FM broadcasting. And to keep bandwidth and operational overheads down, every time a pricing signal is sent out, only devices that decide to respond should communicate a response and, even then, they should only respond with information about what has changed – the delta from the device’s baseline.
Once the market is set up, the regulator then needs a suitable way of verifying all transactions.
They need to be able to check the right action has happened in the right way and that the right people have been compensated. And because of data protection rules, that needs to happen without sharing private information.
It is not the regulators’ job to say ‘use this protocol’ and to choose winners and losers in technology – and nor should it be; it is their job to evaluate, permit and regulate the solutions that will make this happen.
Utilities, device manufacturers and energy innovators need to be able to develop their products using solutions they deem best.
To do that in the most efficient way possible, we’ll need a universal translator, a Google Translate for energy data – which is something we are developing with Exergy.
Devices then don’t all need to speak same language; they just all need to be translatable into the required language for the networks they are on and the counterparty they are speaking to.
INTO THE FUTURE
Things are moving in the right direction, but recent events have made it abundantly clear that our world can change dramatically, in an instant.
Ultimately, the solution for our future energy networks lies in three crucial elements:
- Real time, localized, prices to devices – we need to create an efficient way to deliver ubiquitous pricing information, so that everyone can see same information at same time and respond accordingly
- Rules – we need to create a set of regulatory rules as to the minimum data required for verification, what format it must be in for the regulators and how it’s received
- Interface – we need a regulatorily approved way to translate our data so participants can move back and forth between the preferred data formats for their device and those required by the regulators and, ultimately, the operators of the network
The impact of coronavirus has hit the world hard. But if there’s one thing our industry must take from it, it’s a warning sign.
We need to get ready for the future.