The energy industry’s business model has remained fundamentally unaltered over the last century. It’s a model that emerged out of the Edison age, where the utility was responsible for generating power and selling it to the customer. Customers were simply energy consumers, power flow was one way from generation to load, and demand was fairly predictable.
Today, the utilities model is undergoing a paradigm shift. With the emergence of advanced, smarter technology, consumers can now make more informed choices about energy usage and become energy producers and storers themselves – known as “prosumers” -resulting in a two way directional flow of power.
But the transformation doesn’t stop there. Imagine a world where energy customers are able to proactively choose which energy source they want to consume. Imagine that green, renewable sources are supplying most or all of the energy needed for every purpose: lighting, heating, processes, and transportation. Imagine an electricity supply that is completely reliable.
While it’s clear that the rise of the prosumer has inverted the utilities model as we know it, what opportunities exist for customers and utilities in this new era of two-way energy management? What challenges stand in the way of a smooth transition? And who will be the real winners?
Prosumer driven organisations
As energy costs continue to rise in Australia, educational campuses, military bases, hospitals, commercial buildings, factories, residential homes – even whole city districts, are becoming ‘prosumers’ who consume, produce, and control their energy use. One of the biggest areas of opportunity to trim business operating costs is in managing energy consumption.
With the increased availability and accessibility of intelligence, consumers now have the tools and understanding to take control of their energy consumption. In electro-intensive industries such as steel making, workers can observe patterns in energy production and highlight areas where efficiencies could be applied. In corporate settings, intelligence on energy use can be shared with staff and used to encourage them to actively partake in cutting costly usage.
At a higher level – once business consumers learn what their utility bill means and how to control it, they will quickly realise that powerful financial incentives exist for consuming energy in a pre-set, predictable way. Power utilities and grid operators in some regions are introducing smart grid programs to encourage commercial and industrial consumers to use energy management best practices, especially during peak times when there are risks of grid blackouts.
True “prosumer” organisations are also investing in onsite energy production.This can include solar panels, wind turbines, combined-heat-and-power systems, or diesel or gas engine-generators. Building this kind of local microgrid can not only offset the cost of buying energy from the central grid, but if a renewable energy source such as solar is installed, it can also reduce the carbon footprint of an organisation and boost their image as a ‘green’ corporate citizen.
Many organisations are already seeing the benefits of the prosumer way; according to the Clean Energy Council, more than 15,000 Australian businesses have now installed a solar power system, helping them save a collective $64 million on their power bills every year.
Smart energy management at home
Utilities are also incentivising energy consumers in the home to reduce energy consumption and generate their own. As part of Smart Grid modernisations, new programmes are being launched or expanded that encourage energy customers to adjust their consumption in response to pricing signals, penalties, or curtailment requests. Due to this potential flexibility, a customer’s energy consuming loads and any on-site energy generation capabilities are now considered important distributed energy resources (DERs), critical to helping balance the grid.
At the same time, many customers have begun taking more direct control of the cost, reliability, and green mix of their energy supply. They are enabled on this journey by a convergence of new, widely available technologies that can automate and fully monetise their energy resources. It is estimated that 3 million energy users in Europe are already generating at least some of their own power. By adding an energy storage system, customers are maximising self-consumption of this energy and gaining more control over when to use it.
The opportunity for Utilities
Electric grids everywhere are under stress. Our increasing demand for energy is putting strain on an ageing generation and transmission infrastructure. And our appetite for energy is only set to rise, with consumption predicted to increase 41% by 2035. Weather events are also becoming more severe, with related damages in the US alone already running as high as $33 billion annually. Even in the face of these harsh realities, utilities are expected to maintain or improve grid stability. Stricter environmental regulations mean that adding traditional generation capacity is less viable. New renewable energy is coming online, but is inherently intermittent. This is all adding up to a grid that is more difficult to keep balanced, energy pricing that is more volatile, and greater risks to power reliability for businesses and at home.
The prosumer revolution presents a huge opportunity to help address these issues through effective ‘demand’ management. Demand refers to everything behind the meter or any load-pulling electricity from the network; and ‘management’ applies to the level of control over that load. The goal of demand management is to provide utilities with an alternative to building more power plants to meet capacity needs.
By having the ability to modify energy usage on the demand side through smarter technology, education, and energy-efficiency improvements, utilities can both save money and accommodate the demands of the prosumer movement. For example, a grid operator could switch off a piece of equipment at a factory for a few seconds in order to thwart the need for bringing a marginal peaking unit online. In another example, a homeowner could remotely configure a load of laundry to run during off-peak hours, based on real-time data from the utility. The trick is to do this in real time, and not only using day-ahead or hour-ahead signals for voluntary load reductions.
Ensuring a smooth transition
While both utilities and prosumers can benefit from this new energy model – there are challenges to be addressed to enable a smooth transition.
Before bringing a demand management programme to life, many utilities will need to research whether or not the expense of these new services and technologies can be justified and improve their bottom line. And it could prove risky too for those consumers who have signed up to demand response programs that will pay you for agreeing to reduce your energy consumption. Turning on local generation or turning off some loads can put operational processes at risk, if not managed carefully.
Renewables are clearly at the heart of the prosumer movement, but greener energy sources bring challenges of their own. Not only are upfront installation costs high, but renewables require more upkeep costs. There are also additional costs and technicalities involved with integration into the grid.
These costs are beginning to come down though and financial subsidies for seeking a more sustainable option can help. Variation in supply can also impact the reliability, safety, and efficiency of energy generated from renewables. Where do you source your energy when the sun isn’t shining?
However, these challenges are certainly surmountable – and Utilities are seeking better ways to engage with customers and manage and optimise these new levels of complexity.
Looking forward to a new interdependent model for utilities
The emergence of the energy prosumer heralds a significant shift in how energy will be generated, distributed, and consumed in the future. It is enabling a green, locally controlled, reliable energy supply, while maximising the financial benefits of participating in the Smart Grid. It is also dramatically changing the relationship between utilities and their customers who are now able to monetise their generation capability and flexibility.
Despite challenges along the way, it is clear that a new interdependent model for utilities is here to stay. And there is much to gain on both sides.
Simon Mouat is the Vice President, Energy Business, Schneider Electric Australia.