Bacon's Rebellion

The Market Path to Green Energy

Jesse Morris with the Rocky Mountain Institute shows off the headquarters building’s rack of batteries. By storing electricity and drawing upon it at optimum times, RMI qualifies for advantageous rates from its electric co-op.

Economic forces increasingly favor wind and solar. Creating the right regulatory incentives could accelerate the adoption of renewables, says the Rocky Mountain Institute. 

by James A. Bacon

Consolidated Edison, the utility that provides New York City’s electricity, confronted a challenge in the summer of 2014. Forecasts showed that demand for electricity in parts of Brooklyn and Queens would overload the company’s electric grid by 69 megawatts on the hottest summer days by 2018. The traditional solution would have been to build a sub-station at a cost of $1.2 billion.

Wondering if there might be a better way, Con Ed solicited ideas for alternative solutions. So far, it has gotten 80 suggestions. Some were so good that the company plans to employ a portfolio of techniques — mainly energy-efficiency measures, fuel cells and neighborhood-scale solar — to shave off 52 megawatts at a cost of only $200 million, according to Inside Climate News.

Although 2018 is still two years away, early indications are positive. The so-called Brooklyn-Queens Demand Management project is being watched widely as an example of how energy efficiency, solar power, battery storage and other green energy strategies can not only reduce carbon-dioxide emissions but save rate payers money.

That’s just one example of how innovation is blasting apart the traditional electrical utility model, says Jesse Morris, a principal with the Rocky Mountain Institute (RMI), whom I chatted with when I visited Aspen, Colo., earlier this month. (Sad but true, my idea of a vacation includes meeting policy wonks in the places I’m visiting.) RMI bills itself as a market-oriented, environmentalist think tank. Re-conceptualizing the electric grid is one of RMI’s main missions. And Morris is one of RMI’s leading thinkers on the subject.

I wondered if RMI was thinking about things we should be thinking about in Virginia. Meeting me in RMI’s net-zero energy headquarters building in Basalt, Colo., Morris outlined three “big, disruptive trends” he sees transforming the electric grid.

The Internet of Things (IoT). The Internet is permeating everything; every new appliance, device, sensor and actuator is being assigned an IP address, and each device is capable of talking to the others. As a result, businesses can track energy usage with unprecedented precision, generate unprecedented volume of data to analyze, and control systems with unprecedented precision. When millions of thermostats, lighting systems, hot water heaters and other energy-consuming devices are connected, managing the demand side of the electricity system is getting easier and easier.

Declining cost of enabling technologies. The cost of generating solar power and wind power is dropping steadily. Renewables are economically competitive with conventional energy sources in geographic “pockets” around the country, and those pockets are growing. Meanwhile, progress is being made in related technologies such as lithium ion batteries which can store excess electricity production from wind and solar and release the power when needed most. “The cost trajectory of batteries is incredibly promising,” says Morris.

Corporate demand. Many corporations are insisting upon green power. Indeed, environmentally sensitive companies like Amazon Web Services are driving the demand for solar power in Virginia where the company is building many of their energy-intensive data centers. “Last year,” says Morris, “more solar and wind farms in Virginia and North Carolina were deployed by corporations than utilities.”

While the grid of the future isn’t here yet, says Morris, it is coming. At present most experimentation is occurring in places like Hawaii, California and New York where there is a strong commitment to green power and high electric rates make it easier to justify investing in alternative approaches. But change is occurring everywhere. Con Ed’s Brooklyn-Queens project shows that the potential exists to save literally billions of dollars.

The Brooklyn-Queens approach to electricity infrastructure is not pervasive, he says, because state regulations don’t encourage most utilities to think like Con Ed. Power companies make money by building stuff — power stations, transmission lines, sub-stations, distribution lines, and the like — and earning a Return on Equity on their outlay of capital. Approaching a problem as Con Ed did, which saves the expenditure of $1 billion, doesn’t help a traditionally regulated power company grow. Regulators need to change rate structures to incentivize companies to economize like Con Ed.

Morris sees the electric grid evolving from the Big Grid paradigm built around large power stations connected by a web of transmission lines into a Distributed Grid that accommodates many small energy producers, including even homes decked out with solar panels. The transition will be tricky because power companies are obligated to ensure the reliability of the system as a whole, which isn’t easy to do when wind and solar power are subject to the vagaries of the weather. But emerging technologies and business models are making the grid more flexible than ever before.

He points to Bidgely, a Silicon Valley company, which has developed a way to determine what appliances homeowners are using by analyzing the flow of data through the electric meter. Bidgely’s technology eliminates the need for comprehensive energy audits. Homeowners can see immediately how they are consuming electric power, which gives them the means to alter their consumption profile by changing the time of day, for example, they run their dishwashers and driers. Once upon a time, demand-side management was seen as a way for utilities to shave their peak consumption, typically late in the afternoon on summer days. Now it can be seen as a tool for more closely matching demand with the fluctuating supply of renewables.

Typically, electric utilities have focused on the supply-side of the equation because the supply of electricity is what they control. “Now we’re focusing on the demand side,” says Morris. To reach a future where 80% of electricity comes from renewables will take a lot more than battery storage, which adds a significant layer of expense. “That’s the easy answer,” he says. It takes a bit more imagination to figure out how to shift the electric load, which costs almost nothing.

Morris estimates there are 47 million electric hot water heaters in the country. If there was a way to tell those heaters not to consume electricity when demand was at its peak, it would permit a massive load shift. Another idea might be to pre-cool houses before people get home and turn on their other appliances.

The proliferation of electric cars offers both perils and possibilities. “It could be bad if everyone plugged in their cars when they got home” at the same time they were flipping on their big-screen TVs and cranking up the air conditioning, Morris says. But it would be a wonderful thing if they delayed re-charging their cars. If utilities could communicate with the car batteries and either charge them or draw from them as needed, enough economic value might be created to begin paying people to recharge their cars late at night.

To make these things happen, regulators need to create the right incentives for electric utilities and for homeowners. Right now, this is not a discussion we’re having in Virginia, where the debate over the next-generation electric grid is focused overwhelmingly on the supply side — how quickly to shift from fossil fuels to wind and solar. Without more flexibility on the demand side, there are limits to how much wind and solar Virginia’s electric grid can absorb without creating reliability issues. Perhaps it’s time to expand the conversation.

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