Bringing Renewables to Scale Requires Aligning Policy Goals with Markets
(3BL Media/Justmeans) — Looking forward, the dynamics of today’s electricity industry look a lot like the auto industry. You have your traditional players, who have been doing this for a long time, being challenged by tech-enabled upstarts coming out of an entirely different sector, with offerings that are quite compelling. The Tesla-EV parallel cannot be denied.
However, the two markets are almost entirely different. While cars and trucks are sold in a relatively free market where vehicles compete primarily on their merits, though there are some government incentives aimed at encouraging more sales of certain vehicles, the energy market, on the other hand, is heavily influenced and indeed regulated by state, local and federal government agencies to a degree that goes well beyond the setting of safety and fuel economy standards. It also varies widely from state to state, and in some cases, from city to city. Many utilities are regulated. Others, in states like California, New York and Texas, are not. Then there are those that are vertically integrated, across the various services of generation, transmission, distribution, etc., and those that are not. The political and business climate in each state also tend to shape the markets within them.
In California, for example, the independent system operator (ISO), CAISO, behaves in a way that is largely driven by environmental policy. Other states have no policy goals in this area. If the power authority is regional, like the Southwest Power Pool (SPP), or Midwest ISO (MISO), the stakeholders tend to carry more weight, and policies tend to be more reactive. A map of the different state and regional authorities can be found here.
That’s why this whole question of aligning policy goals with markets, which is really what we’re talking about here, is so much more complicated than the auto industry.
With all this to consider, what might be the biggest “blind spot” for the industry going forward? Could it be the impact of EV’s on the market? That question was asked on the closing day of the GTM: US Power & Renewables Summit. Prajit Ghosh of Wood Mackenzie thought it might be. He pointed out that if 60,000 people wanted to charge a 100 kW/hr battery in five minutes, at the same time, that could consume the entire capacity of ERCOT, which manages the Texas power grid. That’s not that as unlikely as it sounds, considering that there are 22 million vehicles currently registered in Texas.
In another panel, devoted to EV’s, Laura Renger, of Southern Cal Edison Air, said that EV’s will be a good thing for the grid once it’s been modernized. But then California has lots of solar that needs to be stored or at least utilized while it’s available. If they can develop a rate structure that incentivizes drivers to charge their cars when the sun is shining, that could definitely work. Today, however, most people charge up overnight.
When it comes to the question of integrating renewables into the grid, both Lenae Shirley, Director of Technology Innovation for the Environmental Defense Fund, and Sanjeev Addala, Chief Digital Officer at GE Renewable Energy, feel that software will be the key to integration, utilizing the vast amounts of data being generated to optimize the overall performance of the system with multi-directional control and much better visibility into the grid than is available today. Kerinia Cusick, from the Center for Renewables Integration, said she felt regulation was the key, while agreeing with consultant Alison Silverstein, that renewable providers needed to be compensated for more of the numerous value streams that they provide and that these services should be sold separately rather than packaged in complex rate structures.
Storage is another area with huge potential, but it has not been taking off that quickly. Part of that is that the technology is still immature and expensive. The other reason is that the demand will not ramp up (outside of California, where it has been mandated), until more conventional fossil plants are retired.
Finally, there is the question of BlockChain, which could be applied here to provide an “Uber for energy.” Will it totally democratize the energy market, taking it out of the hands of utilities altogether? This might be the only context where you will hear the word disintermediation bandied about. Blockchain has the three characteristics of being distributed, permissioned and secure, making it an ideal method for tracking high volume, computerized transactions. The idea would be to allow businesses and individuals to exchange power from solar panels or energy storage batteries in a peer-to-peer manner. Prototypes of this system are already being tested in Australia, India and Liechtenstein from now through 2018. While it sounds like it could be a populist revolution in energy, what’s more likely to happen, is that, being as nimble as it promises to be, it could become an effective means to marry centralized and distributed energy sources and dynamically connect them with thousands, if not millions of “prosumers,” that could become suppliers as the sun moves in and out from behind the clouds.