The Smart Grid offers ample opportunities to introduce disruptive technologies and disruptive thinking into the electricity supply chain. Indeed, disruptive technologies and services that enable electricity production at the point of consumption or close to the point of consumption are prime examples of how the entire value chain for electricity may alter in the next 20 years. But the generation of electricity in a distributed manner should not presume that consumption must only occur at the point of production.
The existing grid configuration places centralized generation of megawatts (MW – a million watts) or gigawatts (GW – a billion watts) of electricity at locations that are usually far removed from the customers that use them. A grid configuration that incorporates distributed generation (DG) puts electricity production on a smaller scale close to consumers. Solar panels on business and residential rooftops are examples of DG, and offer interesting new business models that modify the electricity value chain.
An individual homeowner today may sell back excess generation capacity to the local utility at rates set by the local regulatory authority through Feed-in Tariffs (FiTs) or just run the meter backwards through net metering. But what if a business aggregated the output of many homeowners’ rooftops to represent large kilowatts (KW) or even MW of electricity for sale back to that local utility? That could result in better prices and greater revenues shared by all participating homeowners, and might also mean reduced costs for the utility since it was dealing with one entity rather than multiples of homeowners. We already see some evolving forms of this business model at work. Companies like Sun Edison focus on large expanses of rooftops found in commercial and institutional sectors, and do everything from purchase the solar equipment to monitoring its performance and dealing with utilities. Solar City uses a similar business model for residential homes as well as commercial facilities. Their residential model includes leasing solar equipment to homeowners and assuming responsibility for its upkeep. These companies literally “lease” the rooftop to create electricity that is consumed on premises, and reducing the amount drawn from the grid.
The driver for these business models is to reduce the costs of electricity for the participating businesses or homeowners. However, there are untapped markets for the owners of rooftops that don’t have expensive electricity bills to justify solar investments, but do have prime real estate to generate electricity from the sun. The disruptive thought here is to look at another industry – the minerals extraction industry – for leasing models that operate on a royalty basis. The natural gas well on a property doesn’t necessarily supply nearby buildings with natural gas. The property owner collects a royalty check from one company, and building occupants continue to pay the utility.
As solar materials improve in performance, as new software applications appear that can monitor and predict solar energy production, and as more states encourage utility purchases of solar-generated electricity, perhaps we’ll see new business models that harvest the solar energy landing on our rooftops and deliver monthly royalty payments on an infinite and clean energy source. It’s a paradigm shift to be sure, but the prospect of earning money from a rooftop would be a welcome technological and financial disruption for many homeowners and commercial property investors.