Hurricane SandyIncreasingly frequent and severe weather events have starkly illuminated weaknesses in the 20th century electric grid. As I’ve mentioned in previous posts, problems with the grid go beyond susceptibility to failure during severe weather events. The convenience, safety, security and economic well-being of retail consumers are at stake in a successful transition to a 21st century grid.

The quality of life and economic productivity in the United States has been achieved largely as a result of an affordable supply of reliable electric energy. Modern life has been defined by access to as much electric energy as we want, for whatever we want, whenever we want. However, it’s increasingly obvious that the 20th century’s centralized, cost-plus monopoly model, once supported by economies of scale for huge centralized power plants, is not going suffice to make these practices possible through the 21st century.

Even if the traditional utility model could still work for another hundred years, new technologies, applications and business models will make possible dramatic improvements in meeting consumers’ and enterprise’s wants and needs, with the reliability, economy and security we’ve enjoyed in the past. These new technologies include what’s being dubbed “edge power”: decentralized generation, storage and energy management systems as well as distributed metering, monitoring and control devices ultimately operating in closed loop, with automation, linked to the so-called “Internet of Things.” Edge-power players will eventually bypass the traditional vertically integrated electric utility business model to participate directly in regional, transactive energy markets (e.g., EnerNOC in the PJM Interconnection).

Who are these edge-power players? They are entities willing to provide customers with things that incumbent utilities are unwilling or unable to provide. Customers will embrace edge power, but not because they are willing (or even interested) in the production, distribution and metering of electric energy. Utilities’ experiences with demand response over the past several years has revealed that most customers are uninterested, even averse, to the time and effort required to become electric utility experts, energy efficiency professionals or full time energy managers, even if it saves them some money or allows them to be “greener.”  

People and companies want to use electric energy not as an end in itself, but rather to maintain and improve their lives and livelihoods. They will gladly do business with companies that sell them products and services that provoke reactions such as “Wow!” “Cool!” “I need that!” and/or “I want one of those!” Electric consumers have little or no concern for the continued economic well being or even the integrity of operations of their incumbent electric utility. At best, economy and efficiency will be constraints on what they can afford, not their primary goals.

It is no longer possible for centralized electric utilities to continue to provide an increasingly reliable power supply with steadily declining real costs and acceptable levels of adverse environmental impacts as they did in the past century. This fact in turn drives consumers to alternatives that provide the economy, reliability and sustainability they want and need. As incumbent electric utilities attempt to accommodate and integrate edge power, their effectiveness will determine their fate. The less effective they are, the less attractive their price and quality of service will be and the greater the motivation for consumers to rely even more on edge power. At some point, as traditional electric utilities’ costs of providing service increase and their sales of power and energy decrease, edge power is likely to achieve grid parity. Consumers will find it beneficial to operate “off the grid” some or all the time, further accelerating a downward spiral for incumbent utilities that can’t compete in this new world.

Even so, traditional electric utilities will remain obligated to continue to operate their existing centralized grid so as to maintain a power source – perhaps primarily for backup – with acceptable levels of reliability, safety, security, economy and environmental impacts. The incumbents in this new world do not have the option of being mere spectators, much less becoming opponents of their customers. And it is extremely unlikely that they will be able to control the fast moving, innovative, highly competitive markets for edge power in the way that they have controlled centralized generation, transmission and distribution in the past.

What’s a poor utility to do? Get a lot smarter! Race to deploy the grid monitoring, analysis and control technologies and application that will be required for them to operate and maintain the part of the grid for which they are responsible. But that won’t be enough. Traditional base-load power plants and bulk transmission corridors cannot accommodate the swings of power resulting from increasing penetrations of:

  • stochastic (i.e., randomly variable) generation sources (e.g., wind, solar photovoltaics),

  • customer-dispatched generation sources,

  • electric vehicles and plug-in hybrid electric vehicles,

  • disintermediaries engaged in demand management, energy conservation and even energy trading in organized markets and

  • nanogrids and microgrids that come and go.

Utilities are going to have to figure out ways to partner with these edge power players, which include large industries, commercial enterprises and residential consumers and the various third-party entities that the latter will be doing business with.