Smart Energy

Chapter 4. Looking Ahead

The market is undergoing an exciting transformation toward smart energy. As we’ve seen, a key change is the transition away from electricity that relies heavily on fossil fuels—a limited resource that contributes heavily to climate change. Thanks to advances in technology, it’s now viable for utilities, businesses, and homeowners to produce clean, renewable energy en masse. Solutions like Tesla’s Powerwall and Powerpack take this to the next level. By storing excess energy produced by intermittent sources like solar and wind, they help smooth out supply and align it with demand. Together, these innovations enable renewable energy, once a niche player, to take on a major role in energy production.

The other critical ingredient for smart energy is the ability to glean and share information throughout the market with swiftness and ease. IoT-based solutions are doing just that. Connected devices like learning thermostats and intelligent lighting systems are helping us curb our demand for electricity. They recognize when we really need it then dispatch it accordingly. Smart meters and inverters are helping us to understand demand in real time and whether to draw energy locally (e.g., from solar panels or battery storage at home) or from the grid based on timing, supply, and cost. Solutions like WattTime can even help us to optimize our environmental footprint by sourcing electricity from the grid when the cleanest choices for marginal energy are online.

What we’re beginning to see is a profound reshaping of the marketplace. Energy production is becoming decentralized. With each passing day, more of us are able to produce and store electricity affordably on our own. In addition, the Internet has made us more aware of the demand that exists and what supplies are available to meet it from moment-to-moment. This is the dawn of what futurist and economist Jeremy Rifkin refers to as the “energy internet” in his bestselling book, The Third Industrial Revolution.

In his book, Rifkin asks us to imagine “hundreds of millions of people producing their own green energy in their homes, offices and factories, and sharing it with each other in an energy internet, just like we now create and share information online.” This evolution redefines what it means to be a producer and consumer. Those roles are no longer black and white. It blurs the lines. However, it enables new peer-to-peer business models to emerge that improve efficiency and cost.

Think of successful startups like Uber, where just about anyone with a car and some free time can supply a ride for someone needing a lift, or the Lending Club, where individuals can pool their money with others to easily offer interest-bearing loans to peers who want to buy a car or pay off a credit card. These epitomize a “sharing economy” where people and organizations use information technology to determine demand, evaluate their excess capacity, and then redistribute, share, and reuse it for optimal benefit. That infrastructure is beginning to emerge for energy. It’s exciting to ponder what lies ahead for developers of cloud-based solutions, IoT devices, and big data analytics as regulations in the energy market begin to relax. Following are a few examples of future opportunities.

Open Meets Local

Besides being attractive, user-friendly, and one of the lowest cost lithium-ion solutions for stationary storage on the market per kWh, Tesla’s Powerwall and Powerpack are unique for another reason. Like all Tesla technology, their patents are “open source.” CEO Musk has stated, “Tesla will not initiate patent lawsuits against anyone who, in good faith, wants to use our technology.” In his blog announcing this decision, he notes that Tesla, the competition, and the world would all benefit from a common, rapidly evolving technology platform.

Randy Perretta sees that potential, as well. “Open source and local management are a marriage made in heaven,” he said. Consider the transition to micro-grids—small energy systems capable of maintaining a balance between energy supply and demand within a defined boundary. Many predict this to naturally arise from the mass decentralization of electricity production. If so, Perretta envisions, “By having free standard software interfaces and reusable code with public access, software developers can and will economically provide products to the micro-grids and individual customers which allow them to better manage this resource and discover new ways to avail themselves of it.”

This opens the door to greater awareness of what’s happening at the street level, the building level, and even down to the local environment where equipment like the inverter lives. With that awareness also comes an opportunity for greater local management. Perretta muses, “The day when local (energy) storage/generation management becomes seamless with building HVAC management, climate data and financial date will be a breakout moment.”

As an example, he points to three-phase motor starts in inverters. Three different voltages are applied to these motors all at once to get them spinning at full speed. Because the motors begin at rest, the initial current is much higher than full load to get them moving. These “hard starts” cause wear and tear on motors. However, when sudden unexpected power surges occur, they really take a toll. As Perretta notes, “A power pole in the alley can absorb the current hit of electricity without even noticing it. Utilities put switchable capacitor banks on the pole to offset the power factor issues. However, to an inverter on a wall in an electrical closet, a number of three-phase motor starts can seem like being hit by a cannon shell.”

Enterprising developers can create software and algorithms and deploy wireless sensors to proactively monitor this impact. “Suppose we watch that from day to day?” Perretta said. “For instance, motor starts happen on a regular schedule. As time goes on and one of the motors begins to fail, it starts harder. The change in building current and power factor over those few seconds every day as the motor fails can get noticed. With this local building profile analysis, you can replace or repair the motor before it fails.” As a result, it saves downtime and enables the local energy storage and generation equipment to stay online. Otherwise, the system would revert to the grid to satisfy its energy needs, incurring a higher cost for electricity during peak periods of the day.

Micro Virtual Utilities

Someday, in the not-so-distant future, landlords of multitenant properties may find it financially attractive to act as micro virtual utilities. Because they control the flow of electricity into the commercial and housing units they lease, they also have the ability to enhance that service through the use of energy storage and any renewable energy produced on-site. Landlords could operate like mini-utilities, providing tenants with power that they’ve purchased and resold from the grid and/or power that they’ve generated themselves. The only electric bill the tenant would receive is the monthly invoice from their landlord.

Here’s how it could work with energy storage alone. The 7 kWh Tesla Powerwall can provide adequate energy storage for the average home. Because Powerwalls are modular, a landlord with a handful of adjoined properties could just purchase a few and link them together. A Powerpack would be best for landlords with larger multitenant properties. With an energy storage solution in place, they could then buy cheap energy from the utility during off-peak hours, store it, and provide the stored energy to tenants during peak hours when utilities charge the most for electricity. When reselling the energy during peak hours, the landlord could even charge less than the utility, because there’s often a sizeable margin between peak and off-peak rates. This would benefit both parties—tenants would pay less than the market rate while landlords would still make a nice profit.  

The “buy low, sell high” approach also works well when on-site solar, wind, and even biopower are introduced into the mix. Landlords can profit by continuing to sell their own energy to tenants during peak periods, even after their stored energy supplies have run out. Renewable energy also adds two other financial benefits. First, it enables landlords to get PACE financing for the purchase and installation of the power generation and storage equipment. This can spread the payment out over decades, substantially lowering upfront cost. Second, it enables landlords to more easily secure LEED certification for a building. That’s a plus, since the U.S. Green Building Council shows that vacancy rates for green buildings run slightly lower than for nongreen properties and LEED-certified buildings continue to command the highest rents.

The key to making this work is an IoT-based billing platform. The solution would rely on a centralized smart inverter to guide the flow of energy from the on-site renewable source or the electric grid, to and from the Powerwall or Powerpacks, and to the tenants. A smart meter would be installed for each tenant. It would sense local demand, communicate it to the inverter, and track energy use. All of this data would be conveyed back to a cloud-based software system that, among other things, would assign the appropriate billing rate per kWh based on time of use and provide the landlord with an administrative dashboard to monitor all energy use throughout the property and the health of the overall system. It would even offer tenants a web page—just like the local utility does—where they can check their energy use, view their bill, and make payments to the landlord online.

Distributed Storage Network

As more consumers and businesses install energy storage systems in their homes and facilities, it’s intriguing to consider the collective impact. Most will likely stay connected to the electric grid, at least for backup power. Together, all of those connections represent a vast network of distributed storage. If utilities could control most or some of that resource, it could help them meet peak energy needs for all customers while reducing their expenses for infrastructure and operations. It could also generate financial discounts, incentives, or income for businesses and homeowners who allow the utilities to tap into their stored energy supplies.

This strategy is similar to the demand-shaving programs many utilities already have in place. They offer intelligent, programmable thermostats and installation to customers at little or no cost. In return, customers voluntarily allow the utilities to adjust indoor temperature higher or lower, depending on the season, to reduce overall demand during periods of peak demand. The utilities benefit by not having to fire up their peaker plants as much, which cost more to run than their base-load operations. Customers benefit by receiving new thermostats. They can program these devices to stay at set temperatures at different times around the clock, curbing energy use and lowering their electric bill.

Instead of focusing on demand, a voluntary program for shared energy storage would address the supply side of the equation. Utilities could offer substantial discounts or leasing arrangements to customers who want to acquire and install energy storage systems and smart inverters. If customers already have approved equipment in place, the utilities could offer them energy credits or compensation. All of this would be in exchange for allowing the utility to tap into the customer’s reservoir of stored energy, within certain parameters agreed upon in advance.

The benefit for utilities is two-fold. First, they can avoid the cost of building, maintaining, and operating their own centralized storage facility. Most of this cost for energy storage is shifted to customers in the network or an approved partner, like Solar City, that provides, installs, and finances the equipment for customers. Second, utilities can reduce their use of peaker plants even further—potentially decommissioning plants as the capacity and reliability of the distributed energy storage network becomes sufficient. Customers benefit by receiving equipment subsidized by the utilities and from credits or income generated by each stored kWh they contribute back to the grid.

All of these benefits can be realized only if there’s an IoT-based solution in place. It requires sensors distributed throughout the network to monitor energy storage levels and demand—at a micro and macro level. It also requires a cloud-based software system that can assess demand and supply, then draw just the right amount of energy from each of these reserves without overloading the grid.

Toll-Based Energy Highways

With the rise of individual energy producers—businesses and homeowners who generate and store their own power—will eventually come the trading and selling of their excess electricity. In time, this collective supply of individually produced energy may become so large and well-networked that utilities may decide to scale back their energy production and diversify into other areas of business.

Utilities have a deep understanding of how to finance, produce, and distribute energy; forecast and meet market demand; manage risk and respond to outages; bill and provide customer care for services; and more. In this new era, they may find it more lucrative to offer value-added services like the following to individual producers:

• Consultation on technology, operational efficiency, and risk
• Back-office services including customer care and invoicing
• An Uber-like platform for matching supply with demand
• Aggregation services that bundle supplies for large customers
• Brokerage services to help clients compete more effectively

Between now and then, one thing remains certain. There will be escalating tension over who pays for expanding, upgrading, and maintaining the grid that makes the distribution of electricity possible. Today, this cost is borne by the utilities. They currently produce the vast majority of energy available in the US. Therefore, they rely most on the electric grid to get that power out to their customers. That’s as it should be. Those who benefit most from a system should carry the largest cost of supporting it. However, what happens when that balance begins to shift?

Individual producers contribute excess electricity to the grid today. While it’s a relatively small amount compared to the whole, it’s still been enough to give utilities pause for concern. This can be seen in the slow adoption of net metering over the years. As you’ll recall, four states still do not support it. It’s also apparent in the disparity of net metering rules between states. While some are encouraging, many still significantly limit how much energy individual producers may generate and the net metering credits received in return.

Utilities significantly influence these regulations. While they have a historical bias toward limiting competition, there’s another primary reason utilities seek to slow this trend. They don’t want to see their revenue siphoned off bit by bit while being left to hold the entire bag on funding the grid’s infrastructure. In that light, it’s easy to begin seeing individual producers as freeloaders. Unless a system is established for cost sharing, tensions will continue to rise as individual producers contribute a larger portion of the electricity in the grid.

Here’s one way to solve for it. Develop a smart solution that emulates a toll road. Just as drivers pay for a minute portion of a highway’s maintenance and upgrades each time they use the road, a system could be created to monitor energy flows into the electric grid from any producer and assess a toll based on that usage. A nominal fee paid per kWh would enable the grid’s upkeep and improvements to be funded proportionally by those who rely on its use. Implementing this solution would require each gateway controlling the flow of energy into the grid to have a unique IP address associated with the producer. Internet-connected smart meters would track how much energy each contributes to the grid and communicate it to a centralized clearinghouse in the cloud. That party would bill each user on a pro rata basis. It could also use the data to project many things, including local areas where supply is increasing and the grid’s capacity should be enhanced.

The Era of Smart Energy

As we’ve seen throughout this report, the energy space is undergoing an exciting evolution. Advancements in power generation technology have paved the way for cleaner production and empowered businesses and homeowners to produce their own electricity. The development of affordable power storage solutions, like the Tesla Powerwall, is accelerating adoption of these technologies, primarily solar and wind, by evening out their intermittent production. It is also enabling individual producers to contribute more of their own energy into the grid.

Lastly, these systems are now connected. Through the deployment of IoT-based sensors on-site and throughout the grid, we know much more about how energy is being produced, stored, sourced, traded, and used. Through this energy internet, we also have the smart devices, software, and analytics to optimize all of this data for maximum benefit, regardless of where one fits into the energy marketplace. This is giving rise to a range of new business models and rolling out the welcome mat for innovation. The era of Smart Energy has arrived.