Utility of the Future: Paradigm Shift to Meet a More Distributed, Customer-Focused Energy System in the 21st Century
- July 17, 2014
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Image courtesy of Trilliant.
- Integrate more intermittent renewable sources such as wind and solar generation
- Integrate more distributed energy resources (DER), such electric vehicles and rooftop solar
- Balance the more intermittent and distributed energy supply with a shifting peak demand
- Comply with more stringent environmental mandates and constraints
- Continue modernizing the aging grid infrastructure
- Participate in new business models that are beginning to emerge
A paradigm shift of thinking in utility regulation and business models will be required to meet the needs of a more distributed, customerr-focused energy system of the 21st century. With distributed generation and energy efficiency efforts offsetting demand, some industry pundits characterize this challenge as an “existential threat” or a “death spiral” under existing business models.
Today there are more questions than answers, but one thing is already clear: Traditional Return-on-Equity and Cost-of-Service business models will need to evolve to ones that accommodate the dramatic changes that are expected to occur in both energy generation and energy consumption during the 21st century.
The quest to evolve new business models is already well underway. For example, industry veterans Ron Binz and Ron Lehr are pursuing Utilities 2020, whose ambitious goal is “nothing less than changing the way utilities and their regulators think and behave.”
Other thought leaders, such as Peter Fox-Penner of the Brattle Group (and author of SMART power: Climate Change, the Smart Grid, and the Future of Electric Utilities), are also exploring ways utilities can survive and even thrive in the face of so many challenges. According to Fox-Penner, “These unprecedented developments will prompt utilities to undergo the largest and most significant changes in their history, transforming them from regulated commodity energy firms to low-carbon network operators.”
Fox-Penner’s ideas for new business models range from the evolutionary, with utilities operating as Smart Integrators or Orchestrators, to the revolutionary, with utilities becoming full-fledged Energy Services Providers (ESP). Under the ESP business model there is a fairly radical shift away from traditional commodity energy sales (rates based on kWh) and towards actual services, such as lighting and cooling.
Preparing for the Business Model (R)Evolution
In addition to the recognized need to evolve business models, another thing is now fairly evident: the need for the utility of the future to have a capable and flexible smart grid platform. Both needs were identified in the Renewable Electricity Futures study conducted by the National Renewable Energy Laboratory (NREL), which found that “system flexibility can be increased using a broad portfolio of supply- and demand-side options, and will likely require technology advances, new operating procedures, evolved business models, and new market rules.”
In The Advanced Smart Grid: Edge Power Driving Sustainability, authors Andres Carvallo and John Cooper characterize the new paradigm for energy distribution as the “two-way flow of both energy and information in dramatically different ways than the original power design ever encompassed.” The authors also address the need for future flexibility under such a substantially different paradigm in the context of Austin Energy’s Pecan Street Project: “Putting together a model for future integration proved a significant challenge, as it needed to be robust enough to incorporate multiple DER elements as they are developed and deployed while managing transitional business model issues.”
Integrating more distributed energy resources while supporting new systems and services under evolving business models will indeed require a quite robust smart grid platform. While exactly what constitutes a robust smart grid platform continues to evolve, there are four capabilities that should be considered fundamental.
The first and most critical is extensibility. Given the (r)evolutionary nature of smart grid applications and standards, any platform that is not substantially extensible in both its capabilities and capacity is doomed for obsolescence. Can anyone fully predict what additional applications utilities will need in the future? Probably not entirely. That is why a smart grid platform should be as “future-proof” as possible by being capable, versatile and scalable.
Because every utility has different smart grid business drivers, territories and regulatory environments, support for multiple communications technologies is another critical capability. While cellular services and power line communications may be suitable for some applications and/or topographies, the more demanding ones will require the broadband data rates and real-time performance for which fiber optic cabling or a wireless mesh network is more suitable.
Support for multiple devices is also important. At a minimum the platform must comply with applicable standards for interfaces and protocols, and must also support open architectures and application programming interfaces. A related requirement is for solid security, and industry standards are the best way to ensure the integrity and privacy of all communications among devices throughout the smart grid.
Finally, the platform must be cost-effective in the long term. Achieving the lowest total cost of ownership will likely depend on the business cases of the various potential smart grid applications that will run on the platform. A common and important consideration for cost-effectiveness is centralized management for all of the smart grid’s many services and applications on a single, unified platform, for today and tomorrow.
It’s an old cliché, but it aptly characterizes the situation facing electric utilities today: The only constant is change. New services. New business models. New regulations. New applications. New technologies. In the face of such uncertainty, at least one thing is certain: utilities should think long-term by investing in a proven, robust smart grid platform. This will help utilities prepare for whatever the future might hold.