Power utilities' morphing future
Business models are basic; will alternatives overtake them?
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.
Intelligent Utility Daily