“Support Your Local Power Grid” Why cheap solar doesn’t solve everything

2015 has proven to be another record year for clean power globally. As for 2016, wind and solar are cheaper than ever, the US just signed a major climate change agreement in Paris and everyone seems to hate coal, so look for another record year. On top of this, the “Internet of Things” and energy efficiency technologies promise to make us more efficient than ever before. With some obvious exceptions, the global market place seems to be embracing a reduced dependence on fossil fuels.

Despite the optimism, major shifts such as this can create new problems. Increased intermittency of the generation base is one of these, and while the US has found itself flush with natural gas that can provide the needed back-up power, it just isn’t that simple.

The intermittency presented by renewables is not just challenging if the wind suddenly dies, but also if the wind kicks up when demand is extremely low. Providing too much power is just as problematic, and natural gas back-up generators can’t spin the other way.

Perhaps less well understood is that these issues are being exacerbated by increasingly dramatic changes in demand impacted by efficiency and consumer behavior. This is wreaking havoc with system frequency and voltage. A 2014 report by EIA highlighted the changing Peak-to-Average ratio (the annual peak power demand in an hour over the average) across the US. As an example in New England, the “ratio has increased from 1.52 in 1993 to 1.78 in 2012” according to the report. Said another way, in 1993 the highest hourly power demand was 52% above the average, but by 2012, this number was 78%, an increase of over 17%, and it only promises to get worse.

While the 2014 report focused on the impact on generators, the grid must deal with instances where there is too much power, as well as too little, and efficiency and renewables are contributing to these swings becoming faster and more extreme, despite overall consumption remaining relatively flat. This is often referred to as the “Duck Curve”, which describes the shape of power demand over a day (Rocky Mountain Institute report).

In Hawaii, the issue is even more pronounced and has been described as the “Nessie Curve” by GTM. The high cost of power contributes to this, creating peaks and valleys as consumers seek to cut power costs despite having similar usage patterns. For example, it is not uncommon to see water heater on/off switches in houses in Hawaii, which, while saving only a small amount of energy when off, all get turned back on at generally the same time, creating a surge in demand. These swings in power consumption require larger more expensive amounts of available capacity, driving up prices and creating a negative feed-back loop. Regardless of capacity, if Hawaii is to get to 100% renewables by their 2045 target, all the spinning capacity in the world will not solve the grid stability problems.

What does this mean? To start, what is clear is that the grid will need fast responding resources (seconds, not minutes), which can curtail as well as consume. Consequently, demand side resources and storage will be critical for maintaining the stability of the future power grid and not just ways for consumers to reduce energy costs.

The temptation might be to look to batteries to solve the problem. However, the reality is batteries are still expensive and utilizing a battery system in multiple applications can dramatically impact its performance and life. While energy storage technologies are improving, we should be focusing on demand side resources, which are much cheaper, more widely distributed, and often more flexible. While several companies are deploying commercial and industrial solutions, residential represent a relatively untapped resource.

Right now the “intelligence” baked into residential assets is mostly customer-facing and focused on reducing energy use. If we can redeploy these assets with improved intelligence, we can also make them grid-facing, improving stability and lowering costs across the system. The Nest thermostat does a nice job of monitoring how you use power in your house, but for now it couldn’t care less what issues the grid is facing, some of which are being generated by the consumers’ new found efficiency! For this trend to continue, consumers are going to be called upon to participate in the management of the power grid, and will likely get paid to do so.

For example, instead of a typical demand response technology that turns devices off to reduce consumption, what is needed is technology that can identify the state of the equipment, predict the usage patterns to limit service interruptions and respond rapidly and accurately to the grid either on or off depending on the need. It will no longer be enough to just turn off a water heater when there is too much demand. Within a matter of seconds the modern grid will need a water heater capable of:

  • Receiving a signal;
  • Identifying the localized assets capable of responding;
  • Assessing their capability of being turned up or down to consume or provide power, and for how long;
  • Overlaying this with expected usage patterns to avoid service interruptions; and
  • Accurately assessing the capacity of the assets responding, and react to the grids needs.

This grid-facing need will impact how demand side assets are designed, managed and even purchased.

So while we all stand to benefit from improving efficiency and falling renewables prices, remember that there was a reason we started burning cheap readily available coal: it was a great source of reliable stable energy. As we shift away and find new ways to control costs, we will see some major unexpected impacts on a grid that was designed over 100 years ago. As such, expect big opportunities for using the demand side to provide needed grid support, and hopefully as consumers we will embrace our role in supporting our local power grid.

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Mr. May has a background in private equity and investment banking. Prior to founding EIP, he was a Principal with US Renewables Group (USRG), a $750 million renewable energy focused private equity firm based in Santa Monica, CA. As an investor, Mr. May has participated in all aspects of sourcing, analyzing, and closing transactions and managing portfolio companies across the renewable energy space. This includes working with dozens of start-up and later stage companies. Prior to USRG Mr. May was with Lehman Brothers, Inc. in New York City, as one of the original members of the Sports Advisory and Finance Group. Finance experience includes, M&A advisory, equity and debt placement as well as structured and project finance.Mr. May holds an MBA and a Master of Environmental Management from Duke University and a BA from the University of North Carolina at Chapel Hill.

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