Other states are targeting energy storage as an industry of the future but Virginia may have the most hospitable climate for it.
by James A. Bacon
Will Gathright was living in New York, where he had earned a Ph.D. from Renssalaer Polytechnic Institute, when he got fired up with the idea to use storage batteries to help business customers cut their electric bills. The idea was to buy electricity when it is cheap to charge the batteries, then draw down the batteries during periods of peak demand to offset consumption when electricity is expensive. For the business model to work, he needed to find a location where there was a wide differential in the cost of electricity.
Initially, he figured he might wind up in Hawaii, California or New York, states that are putting a high priority on energy storage. But after conducting a national search to see where his value proposition would fare best, Gathright moved to Northern Virginia.
“Virginia has the winning combination of three factors not present elsewhere in the country,” he explains. First, although Virginia’s peak-demand rates aren’t the highest in the country, they are relatively high. Second, while a few states have cheaper base rates, Virginia’s are significantly lower than the national average. The spread between low base rates and high demand charges creates a bigger potential for savings.
A third factor, Gathright says, is that Virginia electric utilities belong to PJM Interconnection, which manages the electric grid and wholesale markets for 60 million people in the Midwest and the Mid-Atlantic region. When his batteries aren’t helping shave a building’s peak demand charge, they can help PJM fine-tune short-term fluctuations in the supply and demand of electricity.
Welcome to the new world of electric load management. Power companies around the country are experimenting with novel rate structures that encourage customers to curtail their electricity consumption during periods of peak demand — typically summer afternoons when air conditioners are running flat-out. One of the most promising strategies for shifting electricity demand is energy storage, usually using batteries, and other states are targeting the sector as a strategic priority. California is requiring its utilities to purchase 1,325 megawatts of energy storage by 2020 and the state of New York state has invested $1.4 million in six battery and energy storage start-ups.
Gathright thinks Virginia may be the most promising location in the country to implement energy storage — not that the idea has gotten much attention here. What Virginia has done is experiment with dynamic pricing: using the price mechanism to encourage customers to shift electric consumption away from periods of peak demand when it is most costly to supply.
The results of Dominion Virginia Power’s dynamic pricing pilot program have been modest so far — positive enough to encourage Dominion to continue the project but not dramatic enough to persuade the company that a revolution in electric consumption is in the offing. But the outlook could change if entrepreneurs like Gathright figure out how to help customers capture the savings that the dynamic-pricing rate structures make possible.
With the encouragement of the State Corporation Commission, Dominion rolled out its dynamic pricing program in 2011, branding it as the Smart Pricing Plan. “The basic premise,” explains SCC spokesman Ken Schrad, “is that if customers are willing to modify behavior and use less electricity during high price periods, they will have the opportunity to save money, and the company in turn will be able to reduce the amount of energy it would otherwise have to generate or purchase during peak periods.”
The pilot was limited to 2,000 customers under a residential tariff and 1,000 small and midsized commercial customers under two commercial tariffs. Participation required having Advanced Metering Infrastructure (AMI) or Interval Data Recorder (IDR) meters that record energy usage every 30 minutes, thus allowing Dominion to measure consumption with greater precision.
Dominion provides customers at least 280 days a year with low-priced electric rates (“C” days), up to 30 days with high rates (“A” days), and the balance with medium rates (“B” days). Dominion communicates the classification to customers the day before to allow them to plan accordingly. Additionally, the company designates up to 25 five-hour blocks, or critical peak events, per year to commercial customers with two-hour notice. The rate differential for the critical peak hours could be literally dozens of times higher than the lowest rates.
For most customers, the jet savings have been minimal. Between October 2013 and October 2014, residential customers saved an average of $48 annually (3% of their electric bills), small commercial customers saved $92 annually (3%). However, larger customers saved $5,900 annually (14%), according to Dominion’s 2015 annual report on the program filed with the SCC.
As of July this year, 310 customers had unenrolled. Most drop-outs were due to customers moving to new addresses, but some customers said the program was too complicated or didn’t yield the savings they expected. The program did lead to some energy conservation — residential customers trimmed consumption 3.5% on high-cost days. But a large number of residential and commercial participants responding to a survey said they did not change their behavior at all.
Dominion has no plans to implement the experimental tariffs on a large scale, but the company is asking the SCC to extend the pilot, says David Botkins, director of media relations. “Who knows where the future might go? Dominion wants to be part of the solution.”
Extending the dynamic pricing pilot program may give entrepreneurs time to figure out how to make it appealing to a broader array of customers. One company, Wilmington, N.C.-based Utility Management Services (UMS), provides electricity auditing services and analysis on how companies can shave their gas electric bills. The company does not charge fees unless it identifies tangible savings. In its 2015 summer newsletter, the company said it had intervened in Dominion’s dynamic-pricing case before the SCC “to get fairer and more favorable rates for business customers in Virginia.” The company did not respond to a Bacon’s Rebellion request for details on its position.
Meanwhile, Gathright is working to get his own pilot project up and running in Alexandria. His company, Tumalow Energy Ingenuity, he says, is in the “start up” phase. The six-person team includes Gathright, who holds a Ph.D. in computational materials science; John Gathright, software architect, real-time controls expert and Will’s father; and four others. The company’s primary asset at this point is software that tells batteries when to charge and discharge electricity at the optimal time.
Gathright’s value proposition is this: He will install a rack of batteries in the customer’s facility, charge the batteries on days/hours when the price of electricity is low and provide power when Dominion is charging top dollar during periods of critical peak demand. “I can install the batteries at no up-front cost,” he says. “The whole project is cash-flow positive from the very first minute. … People don’t know how to evaluate it. I do. The people who know the most are taking the risk.”
Here’s the kicker: Tumalow’s batteries also would tap into the PJM wholesale market. One of PJM’s jobs is to ensure that the electric grid for 60 million people in the Midwest and Mid-Atlantic functions smoothly, which means keeping the supply and demand of electricity on the grid in equilibrium. PJM has created a market for “frequency regulation,” which buys and sells electricity in five-minute increments. Even the most flexible power plants cannot ramp power up and down that quickly. Batteries are ideal. Because PJM runs this market year-round, Tumalow’s batteries can generate revenue year-round, not just when its customer needs to avoid paying critical-peak rates.
There is no way of knowing whether Gathright’s up-by-the-bootstraps venture will succeed. But it’s an example of the kind of creative, entrepreneurial thinking that’s being applied to the problem of electricity demand management. And if Gathright is right, Virginia is where the action is.
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