Quanta Technology Blog

Just What Business Are We In?

Post author: Lee Willis

Traditional electric utilities that do not adapt to a “private microgrid” world could be looking at eventually losing up to half their customer base.

Renewable power systems and smart technologies will soon enable individual homeowners and small business owners to own and operate private, environmentally-acceptable power systems, if they chose. A combination of local, renewable distributed generation (PV, perhaps wind, etc.), energy storage, automatic load management and a smart automated site control system will provide them with a viable option to purchasing traditional electric utility service. These systems will appeal to energy consumers due to the independence they provide, the individual tailor-ability of their system characteristics and capabilities, and the real and perceived carbon footprint advantages they have.

The development and availability of these systems will be an evolving process, as equipment and systems improve and prices come down, and perhaps more important, as standardization takes place, an industry evolves to sell, service and maintain these private power systems, and the public gets used to the idea and sees these systems working well for early adopters. But it is hard to see how, twenty-five years from now, having their own local power system independent of the utility will not be a real option for many energy consumers, one with noteworthy competitive advantages as perceived by some, and noticeable market penetrations in some markets. These future utility-independent power systems should be ignored.

Not that ignoring them right now is easy for utilities, or home and small-business owners. PBS News recently did a signature segment on homeowners who have installed PV, only to discover their local utility cannot handle the volume of power injection into its system and refuses to connect them so they can “upload” power they produce at home to the grid. Recent articles in the New York Times and other national papers and periodicals have focused on how utilities see these trends of private, distributed solar generation ownership as threatening.

There is a role for the traditional, central-station-generation-with-power-flowing-only-toward-the-customer electric utility in this future world. Smart 21st century private power systems will not meet the needs of all energy consumers. To begin with, there are likely to be energy consumers who understand that a private, utility-independent system could work for them, but who choose to remain with utility service. Beyond that, many industrial and large commercial customers simply need amounts and availabilities of power that a private PV- and wind-based system located on their facility cannot possibly provide. And they are unlikely to find economical fossil-driven power options available to them that will satisfy local environmental and operating restrictions that prove economical.

I saw this first-hand in a study I recently supervised. I tutored a young man at the North Carolina School of Math and Science, a residential high school for the state’s top math, science and engineering students, in his senior engineering project, a feasibility study for converting his school’s nineteen-building campus (roughly 3 MVA peak demand) to a PV, wind and energy storage based microgrid independent of the local utility. We used Quanta Technology’s microgrid engineering software to run 8760 hour annual simulation studies over a ten year period, comparing various scenarios of equipment type, size and operating procedures, and looking at only the feasibility and reliability of power. We completely set aside any issues of cost. This was a feasibility study, and our working premise was that if it can work, maybe cost would eventually come down to where it would be affordable.

It just would not work at any practical level. One can cover the campus completely with PV panels – every square inch over the entire site – and fill a parking lot with energy storage, but unless several large wind turbines are added, with noise and aesthetic characteristics that would clearly be unacceptable to the dense residential neighborhood around the school, the system is simply not going to collect enough energy to provide availability of power to match the school’s current electric utility service needs.

Further investigation indicated that the school’s situation is hardly unique, that about 30-65% of utility customers have energy and reliability needs that cannot be entirely satisfied with an independent, private-property only, renewable power system, even if one assumes efficiencies and equipment performance modestly improved over today’s systems and sets cost aside entirely (again, because eventually cost may likely come down to the point it is not a barrier).

So a traditional local delivery utility can look to the future, perhaps not with optimism, but knowing that its demise is not imminent; roughly half of its customer base will need to remain connected to its local system in order to make up some, if not all, of their energy needs, even as distributed renewable systems become cheaper still and as their performance and availability increases.

But it might be better for those utilities to ask what it would take for them to hold on to the customers they might lose. To answer that question, it helps to look at the options those customers will have. What is the utility going to be competing against by mid-century? Home and small-business power systems of the mid twenty-first century will be combinations of PV and perhaps wind generation, energy storage, and automated, adaptive “optimizing” demand and system controls. In many ways, they will resemble modern HVAC systems, consisting of several large and complicated units of equipment that take up noticeable, but not overly burdensome, space and require well-trained skilled technicians to install, set up, maintain and occasionally repair. Size, complexity and cost (at projected mid twenty-first century prices), will likely be about twice that of good HVAC systems, and service and maintenance needs will be roughly proportional to cost. They will be broadly competitive with utility service in the eyes of a noticeable part of our population. It is easy to envision companies like those currently providing HVAC systems and service moving into this space, making it easier still for homeowners and small businesses to opt for this alternative, by offering services to scope, design, finance, install, service and maintain these systems, as needed.

Certainly a utility could do that. In fact, some leading utilities are already heading there, offering distributed and integrated resource service plans. But beyond that, a savvy utility might want to look to how it could provide more value than either its current utility system service or these future-competing, independent consumer-owned systems will provide. The answer seems clear and tailor-made for the utility. A private home or small-business power system connected to the grid, so the owner can sell excess PV and wind power back into the system, when needed, should not be too hard to sell on the basis of its additional advantage. It will be even easier still to sell when the utility shows the prospective customer the realities of energy storage and its cost. A private, mostly independent home or small-business power system connected to the utility grid, so it can fall back on utility service during those infrequent times when there is a week of badly overcast weather or damage to the system’s equipment, will require significantly less space devoted to storage equipment, and require less maintenance over time, and be cheaper overall.

So it appears that utilities expecting to do more than survive at reduced size by the mid twenty-first century, that not only want to maintain their current market share, but grow, will have to get in front of this “private microgrid” trend. They will have to offer and service privately-owned or utility-owned, packaged, home and small business PV storage-demand control systems that potentially make 30-60% of their customers mostly independent of the local utility system, and operate that system so it not only accommodates the customers’ needs and systems, but maximizes the advantages they see from those systems.

There are a lot of challenges in doing so. Utilities and regulators, have to frame pricing and service standards so that future utility services can adjust to fill these needs. Utilities will face a major cultural shift: for a century they have been tied up in a very real way with their system and its operation. Now more than ever, they have to have a greater customer focus and distributed business perspective. It will be, literally, a new type of business, even if they are, in some sense, serving the same customers with the same ultimate product. That will require a lot of effort, not just a little bit of growing pains, and a certain amount of luck, no doubt.

And as I said, it’s not required just to survive. But it is required to win.

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