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The future of electric utilities – change and disruption ahead

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The utilities industry has typically been change averse, and often for good reasons, but with the technological advances of the past few years, the low carbon imperative, and pressure from customers, utilities are going to have to figure out how to disrupt their business, or they will themselves be disrupted.

I gave the opening keynote at this year’s SAP for Utilities event in Huntington Beach on the topic of the Convergence of IoT and Energy (see the video above). Interestingly, with no coordination beforehand, all the main speakers referred to the turmoil coming to the utilities sector, and each independently referenced Tesla and Uber as examples of tumultuous changes happening in other industries.

What are the main challenges facing the utilities industry?

As noted here previously, due to the Swanson effect, the cost of solar is falling all the time, with no end in sight. The result of this will be more and more distributed generation being added to the grid, which utilities will have to manage, and added to that, the utilities will have reduced income from electricity sales, as more and more people generate their own.

On top of that, with the recent launch of their PowerWall product, Tesla ensured that in-home energy storage is set to become a thing.

Battery technology is advancing at a dizzying pace, and as a consequence:

1) the cost of lithium ion batteries is dropping constantly Battery Cost

and

2) the energy density of the batteries is increasing all the time Li-Ion battery energy Density

(Charts courtesy of Prof Maarten Steinbuch, Director Graduate Program Automotive Systems, Eindhoven University of Technology)

With battery prices falling, solar prices falling, and battery energy density increasing, there is a very real likelihood that many people will opt to go “off-grid” or drastically reduce their electricity needs.

How will utility companies deal with this?

There are many possibilities, but, as we have noted here previously, an increased focus on by utilities on energy services seems like an obvious one. This is especially true now, given the vast quantities of data that smart meters are providing utility companies, and the fact that the Internet of Things (IoT) is ensuring that a growing number of our devices are smart and connected.

Further, with the cost of (solar) generation falling, I can foresee a time when utility companies move to the landline model. You pay a set amount per month for the connection, and your electricity is free after that. Given that, it is all the more imperative that utility companies figure out how to disrupt their own business, if only to find alternative revenue streams to ensure their survival.

So, who’s going to be the Uber of electricity?

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Comverge’s automated demand response is a win for utilities and their customers

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Electric utility companies have to supply electricity to a user base whose demand is variable but reasonably predictable. On particularly hot or cold days, demand will increase as people turn on air conditioning or central heating units. This causes a peak in demand which may only occur for a few hours per year but still has to be met by these utilities.

How do utilities deal with these peaks in demand? There are two ways generally. The first is to build peaking plants. These are generation facilities built specifically to handle peaks in power demand. This is the traditional way of handling surges in electricity consumption but it is expensive to build a power plant, especially one that will only potentially be used a couple of days a year.

The other way is to try to manage the demand for electricity so it doesn’t reach as high a peak – known as peak shaving, or more typically, demand response.

One company which supplies demand response solutions to utilities is Comverge. I spoke to Comverge’s VP of Marketing, Jason Cigarran recently, about their newest demand response product, SmartPrice.

Comverge have been working on demand response solutions with utilities for a number of years now and they have just published case studies with two of their customers Tampa Electric [PDF] and Gulf Power [PDF].

What is interesting about these case studies is that the utilities customers report increased satisfaction with their utilities, as well as lower power bills. And the utilities get more predictable demand response, as well as happier customers. Classic win-win.

How does it work so well? Well the Comverge demand response offering is an automated system. Utility customers access it through a web portal and set how their devices should respond to demand response events. Typically they might set their pool pump to turn off, or their aircon to increase its temperature a degree or two.

The utility companies in turn see how much demand their customers have signed up to shed and because it is an automated load shedding, they know how much demand will reduce. This is unlike more manual demand response systems where the utilities are hoping their customers will turn down their appliances.

Demand response is a solution I have mentioned many times on this blog, and it was always my contention that an automated system, where devices listen to pricing signals from utilities, and respond accordingly, was the only way demand response would work well. It is great to see Comverge making that a reality.

Image credit Adam Rubock