“There’s something wrong with the world today. The lightbulb’s getting’ dimmed.”
The edge of the grid is one of the most exciting areas of the electricity industry. Encompassing renewables, distributed generation, energy management, energy storage, electric vehicles, and microgrids, the term “grid edge” refers generally to innovative technologies that connect to the electric distribution system. The distinction from traditional load sources, however, is that technologies at the edge also serve as an interactive platform with the rest of the system. If the traditional transmission and distribution systems are analog, the grid edge is digital. What’s required to bring them together?
The first step requires commercialization of grid edge technologies. This stage is underway, kick-started by Spain and Germany’s support of renewable technologies, continued in the U.S. with the 2005 Energy Policy Act and the 2009 American Recovery and Reinvestment Act and boosted by China’s entry into the manufacturing space for the component parts.
In theory, the need for external government support should decline over time, as the market scales production and improves service offerings to a level where costs and quality can compete with existing technologies. For some applications, this has already occurred, such as the Nest thermostat which combines digital communications with a traditionally analog device. For others, grid parity always seems five to 10 years away, such as fuel cells. As these devices become ubiquitous, they will break over the edge and more fully integrate into the grid.
New Business Models
Right now, a major barrier to technological impact is an outdated set of regulations and business models that do not fully monetize the value of new technology. Many of the traditional business models for distribution companies simply do not support investment in technology risk or reward grid edge capabilities. Regulated rates structured to reward growth in asset base and demand can create perverse incentives when the objective is demand reduction. In addition, regulated rates themselves may prevent competitive market players from coming in behind-the-meter if customers will not see a return on their investment due to fixed regulated rates.
Nearly 60 million smart meters have been installed in the U.S., according to the Energy Information Administration, with 88 percent of those installations on residential customers. However, most of these smart meters are being used with static prices that do not vary by time of day. Market price signals and new business models are required to change the tide.
The combination of new technologies, new price signals and new functions for distribution companies that offer controlled access to the system will open the door to new entrants. Already, a number of software companies have attempted to enter into the energy management space with mixed results. Some, such as Microsoft Hohm, were too early. Others, such as EnerNOC, have pivoted to expand from its original platform that focused on monetizing aggregated demand through organized capacity markets.
OPower seems to have gotten about $532 million worth of things right, according to the price Cisco paid for the utilities service provider in May. Indeed, it seems that there are plenty of new entrants; it is just a matter of time before one of them finds the killer app that surfs the waves of technology with viable energy business models.
The power sector could finally be at the point where its founding father Thomas Edison would not recognize it. Although centralized generation combined with high voltage transmission and a step-down to distribution remain, the grid’s edge is developing a new ecosystem surrounding distributed energy resources that could wash over and into wholesale electricity markets. What’s lacking? Well, a full suite of commercialized technology, appropriate business models and incentives, as well as new entrants that can navigate between the two.
That said, progress is being made. It is just a matter of time before the grid edge comes ashore.
About the author: Tanya Bodell is the Executive Director of Energyzt, a global collaboration of energy experts who create value for investors in energy through actionable insights. Visit www.energyzt.com. She can be reached at: [email protected] or 617-416-0651.