Power utilities' morphing future

Business models are basic; will alternatives overtake them?

Phil Carson | Apr 11, 2012


In my spare time (on weekdays, that is, between 9 and 5) I wonder not just about what's holding up dynamic pricing, but I wonder also about the thundering silence between what utilities do today and what they'll be doing in a decade.

In my mind's eye, without pejorative intent, I imagine the business strategy people dividing into work groups that model various scenarios. One group is known as Status Quo, another is dubbed the Advanced Grid with Add-ons and yet another is known as the Off-the-Hook Group, where members tinker with Rube Goldberg-inspired contraptions.

Outside those rooms, the people charged with implementation pace impatiently for an outcome they can get their arms around. At least that's my cartoon version of the notion that business strategy in short-, medium- and long-term timeframes actually drives tactical moves, which dictate technology roadmaps, etc.

Translation: if you want to understand best practices on distribution automation, for instance, you've got to deal with those business strategy groups in rooms A, B and C. (These reveries confirm my status as ruminator and unfitness for utility work.)

The constraints that must shape these imaginary work groups' activities—be they financial, regulatory or technological—may be made of iron or they may be paper tigers, fierce at first glance, but perishable when confronted.

What the heck am I talking about? I've spoken with a number of people outside the utility walls this week and will offer one today, if only to make two points. One, that American ingenuity is unstoppable and it is being applied to the paradigm of centralized power, driven by a prevailing vision of a decentralized grid. Second, that vision of a truly interactive, decentralized grid has enough credibility for me to suggest that—as I've mentioned in other contexts—utilities can embrace it and perhaps even lead it or they can be caught off-guard and be overtaken by it. I'm just opening the windows for fresh air.

Meet John Farrell. He directs the Energy Self-Reliant States and Communities program at the Institute for Local Self-Reliance. He focuses on energy policies that expand the benefits of local ownership of distributed generation, particularly renewable energy.

Farrell and I agree that the "democratizing of energy" will, in time, become a tsunami that reshapes the landscape of power. The consumer will become the primary producer—the tail that wags the dog. Have a hearty laugh, at your own peril.

The ILSR is dedicated to "humanly scaled institutions and economies with the widest possible distribution of ownership," Farrell told me this week.

"When it comes to energy and the program I run, it's not necessarily about where we get our energy from, but how does the way we extract or generate energy mesh with the economic interests of local communities?" Farrell said. "How can we transform people from being energy consumers to energy producers?

"The motivation for this approach is how do communities extract the maximum value of their economic resources? In energy, renewable energy now allows people anywhere to become generators. So rather than a system driven by absentee ownership and economics, renewable energy allows communities to not only generate their own power, but to extract the related economic resources that previously left the community via a vertically integrated utility."

To what degree does such a philosophy create conflict with or confluence with utility interests?

"It depends on the structure and economic interests of a utility," Farrell said. "This approach potentially puts us at odds with investor-owned utilities, particularly when it runs counter to their economic interest, in the case of local ownership. Because they make their money by extracting value from communities—either by selling energy generated elsewhere or by using local energy resources and transferring the value to shareholders.

"We have nothing a priori against the investor-owned utility model," Farrell continued, "it's just that renewable energy is so unlike fossil fuel energy—you don't need large amounts of capital to build it, you don't need to produce it all in one place and use high-voltage transmission lines to transport it somewhere else. So that model is no longer compatible with the type of energy system that we're likely to have in the future.

"So in our work towards creating a distributed energy system, the idea that we would continue to have a centralized form of ownership and control of that system is really inconsistent with what the technology enables."

What about municipal and co-op utilities?

"The structure of municipal and cooperative utilities lends itself to this new system we're advocating, although a lot of time, the very organizations that might benefit are constrained by long-term power purchase contracts based on the old paradigm," Farrell continued. "Often they have little leeway even if local residents wanted to change."

To come tomorrow: real-world examples of what Farrell is talking about in Illinois, Minnesota, Vermont, Florida, Texas, Colorado and California, where the regulatory, policy and economic reforms will come and why the grid as  we know it will always play a role.

See you here tomorrow.

Phil Carson
Intelligent Utility Daily




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The article draws a nice picture but I have to add on the word, "IF" the nature of the distributed generation and the cost is agreeable with all members of the effort.

Human nature, particularly here in the USA strives to be independent not only in business but in habitation as well. Look at what is considered the Ideal living arrangement; at least here in the west. A small 5 acre ranchet separated from the neighbors with private roads connecting to the main arteries needed to commute. Now consider a collective joint energy endevor, all participants would be required to pay for the initial cost and then a monthly maintainence fee for the control and management of a storage system, if someone felt that their neighbor was using too much or reneged on their payments trouble would soon start, its just human nature. If this group was serious about being independent from the grid and planned for all contingencies such as prolonged weather events and the possibility of outages due to repair or other interrupetive events, then it might work but consider the cost to construct some system large enough to handle a number of participants and provide security so that power outages were minimised. I beleive the bill would be beyond most of the population today. Seemingly simple decisions such as on whose property does the storage system get put; who will take on the job of managing the system, who in the group will take on the responsibiliy of making sure everyone else is in compliance for cleaning the panels on their roof? It would take a pretty sound democratic system to work, at least in my mind. Good article. 

The essential point

I failed to mention the most important aspect of this, which is also the most important aspect of innovation in the traditional utility model when it comes to customers or participants.

All of this is predicated on like-minded parties working together voluntarily. This is bottom-up stuff. Where neighbors reach agreement, they make a pact, deal with details and face the future together; they're not joined at the hip in perpetuity. Same with dynamic pricing by utilities: it's likely to be opt-in for those who understand and can take advantage of the option.

The caveat you express would be applicable in a top-down model like today's energy paradigm, which would force people who are not inclined to cooperate to do so.

That's not what Farrell is suggesting.

Regards, Phil Carson

Good point

The answer is: those organizations already are up and running, with myriad examples, from co-operative utilities to solar gardens to community wind. Where neighbors get along, these initiatives have been up and running for years.

The co-op area is a good case in point, to answer your caveat. The rural co-ops I'm aware of here in the West have a very diverse set of members. The categories, if you will, are fewer than in urban environs (where community gardens work fine), but the differences among rural categories of people are greater, with less incentive to cooperate -- you're talking ranchers (who come in all varieties), small business people, alt-lifestyle folks ("hippies" 40 years ago), and rich yuppies. When you combine energy, self-sufficiency and ownership/control vs. dealing with outside powers, you'll often find solid common ground that lead rural co-ops to deal with diverse interests.

Sure, there are plenty of Hatfield and McCoy scenarios  that pit rural neighbors against each other. When it comes to energy, self-sufficiency and ownership against outside forces, you'd be surprised how many will bury the hatchet for the benefits.

Bottom line: it's been happening for years.

Regards, Phil Carson

What options are there beyond solar?

I'm not sure what options for distributed power generation there are beyond solar. Most cities are not prime candidates for wind, and even if they are nobody is going to install wind towers in the middle of a city. Most cities have enough rooftop space for a significant amount of solar, but with solar and wind you are once again left with getting some solution for storage.

Boulder, CO is in the process of exploring a municipal utility. While local installations of solar are encouraged, nobody is yet counting on them as a big factor. It seems we will be using mostly distant wind with natural gas backup (again distant). As far as I know, both of these sources will depend on using Xcel's power transmission lines at least part of the way to get the power to Boulder's city limits.

         Milton Scritsmier

         Boulder, CO

Distributed Generation Options

Milton, compelling on-site generation options go well beyond solar PV, although that option is growing strong (a recent Pike Energy report suggested a combined annual growth rate of 18% over the next several years for distributed solar PV). Alternatives beyond distributed solar PV systems include urban wind energy, geothermal and natural gas-fueled microturbine- combined heat and power (CHP) systems and fuel cells.

Urban wind energy systems take advantage of wind at the edges of rooftops. Geothermal offers generators tapping thermal pockets accessed through wells and geothermal HVAC systems with dramatic increases in operatiional efficiency. Perhaps the most exciting development is the opportunity to take advantage of historically low domestic natural gas prices through distributed microturbines (e.g., Capstone) and fuel cells (e.g., (ClearEdge Power and Bloom Energy).

Each of these alternatives highlight multiple alternatives at the distributed level created by new distributed energy technologies, bringing new business models and introducing new non-utility players into the emerging Community Energy field.

John Cooper, NextWatt Solutions

The Future Comes Faster Than We Expect

In 1980, serious computer professionals understood that a computer was an expensive mainframe or mini that was a business tool for large computations; 32 years later, a computer comes in many shapes and sizes, crafted to fit the purpose of the user. In the early 1980s, a mobile phone was a communication device attached to the car, a buisness tool for vital communications; 28 years later,  mobile phones come in many shapes and sizes, and smart phones now act as computers as well.

It's hard for any of us to imagine the future of energy tracking the development of IT and telecom, but energy change is driven by the same forces. It's doubly hard for those who are intimate with the current energy business model to imagine a dramatic departure from today's prevaliing conventional wisdom. Utility workers are the equivalent of the IBMers from 1975, or the ATT workers of 1980, with game changing paradigm shifts looming in their near-term futures, but their leaaders reacted to change differently.

IBM survived by changing itself, becoming a PC pioneer, then a services giant a decade later. ATT was acted upon by Judge Green, then the Baby Bells went through decades of gut-wrenching change, with ATT and Verizon coming out on top. Utilities are heading for the same path, which branches at the top. One road leads to self-imposed change and adaptation,with utility leaders firmly in control of their destiny. The other leads to change from the outside, with utility leaderss being acted upon and reacting, but from positions of increasing weakness, where most become victims of history, either consolidated or broken up into parts.

For me, the choice for utility leaders is stark. Act decisively and boldly, or be acted upon and suffer the consequences.

John Cooper, NextWatt Solutions