Severe weather events are occurring more often with greater severity resulting in bigger and longer customer power outages. The destruction and associated power outages have caused many homeowners and business people to conclude that their electric utility may no longer be able to serve them when they need it the most. And what is their recourse? To own and operate their own backup generation.

Utilities and regulators by and large are resorting to the century-old centralized generation and transmission paradigm, contemplating massive investments to harden existing generation and transmission. I’m hearing that customers are thinking differently. Utilities and regulators also need to rethink that paradigm before massive investment is made to rebuild existing grids that in most cases were neither modern nor resilient.

This is an atmosphere in which utilities should be adopting new strategies for the future that not only accommodate, but actually spur “edge power.” I discussed in a previous post the concept of utilities partnering with non-utility third parties to accomplish this. (See “A Good Offense is the Best Defense.”) This will prove to be far better than making the steep investment needed to harden the existing grid.

I’m seeing a growing emphasis on decentralized generation, storage and energy management. This includes smart buildings, even energy-independent buildings which some call “nanogrids.” The simplest example of this is a residence operating on its own standby generator during a centralized utility service outage. Multiple dwellings and businesses can combine to share generation in what we know as microgrids. As John Cooper and Andres Carvallo stated in their recent book, The Advanced Smart Grid: Edge Power Driving Sustainability, this will be the only way to ensure reliability, economy, security, safety and sustainability.

Utilities have always preferred to develop strategies and implement methods that remain under their  traditional monopoly control. In this “New World” they are going to find it necessary to cooperate with edge power that is not under their direct control. The tremendous investments required for a modernized, resilient grid will more and more be made at the edge, not at the center. These investments will be made non-utility entities if utilities don’t make them.

The central components of edge power are distributed generation, distributed storage and distributed energy management systems. When centralized grid facilities cannot deliver electricity reliably, customers will generate their own power or use stored power locally. Since electric and heat storage remain somewhat immature at this stage, the near term will be mostly about distributed generation and energy management systems. This could take several forms ranging from residential rooftop solar to distributed generators in commercial and industrial facilities.

Entities like Solar City are moving forward with individual residential rooftop solar. Other entities like National Power Partners are moving forward with non-utility distribution systems serving multiple residential and/or commercial customers. New residential/commercial developments (e.g., Sun City) will in the future likely be served by their own wholly owned distribution system or non-utility third party providers. This approach is also applicable to a consortium of casino hotels on the Vegas Strip or the facilities in an oil and gas field. We already see military bases, hospitals, universities and the like taking such steps.

The economic justification for all this is driven primarily by the insecurity, inconvenience, danger and financial losses associated with loss of centralized utility power service. However, once installed, the distributed generation, storage and energy management can have considerable additional value in achieving greater efficiency, sustainability and even revenue from organized energy markets. We’ll be talking more about this concept in future posts.

In all of these scenarios, prioritizing loads to be served is critical. It may not be technically or economically feasible to serve all of the load, all of the time, with local generation, so advanced energy management systems will be required to manage these microgrids and nanogrids. The U.S. Department of Defense is aggressively developing microgrids for its bases with the must-serve loads being mission-critical activities while other base loads may be lower on the priority list.

Another growing segment of load which exceeds two percent of the total load in the country, is made up of data centers which simply cannot tolerate power service interruption. Data centers cannot afford to blink. They long ago concluded that they can no longer rely solely upon a centralized grid, even with supply from two or more “independent” transmission sources, so they install their own backup generation and operate as nanogrids during centralized utility service interruptions.

It’s interesting that in the early 20th century most of the generation and distribution was owned and operated by commercial and industrial customers and small residential communities. Economies of scale and the cost-plus monopoly franchise allowed electric utilities to displace almost all of this by the 1950s. Then the world began to change as economies of scale began to be outweighed by economic, environmental and operational risks and PURPA (Public Utility Regulatory Policies Act) caused the cost-plus monopoly franchise to begin to unravel. In the “New World,” electric utilities will have to quit thinking of edge power players as “disintermediaries,” a negative, value-laden term coined by incumbent utilities who see their monopoly being challenged. They must instead think of them as partners and, more importantly, as customers.

And, by the way, regulators need to play a role in enabling the transition to “The Advanced Smart Grid.” On every hand, in the U.S. and abroad, we are seeing that the centralized power industry simply cannot continue to sustain the ways of the past. It’s not just the impacts of derechos and Hurricane Sandy that underscore this point. National security is at risk. The competitiveness of the U.S. in the world is at stake. The convenience, safety, security and economic well-being of customers is at stake. The stars have aligned. A confluence of factors and events dictate sustainability through edge power.