Innovations in Electricity Business Models Must Overcome Two Challenges

Distributed generation (DG), distributed energy resources (DER), and microgrids are business model innovations that disrupt the existing supply chain of remote, centralized generation sources and long distance transmission of electricity.  Distributed generation includes renewable energy sources like rooftop solar and wind that produce kilowatts to a few megawatts of electricity per installation that is injected directly into the distribution grid.    Distributed energy resources include energy storage in the form of stationary batteries and electric vehicles (EVs) batteries in addition to localized generation sources.  Microgrids, which are self-contained deployments of DG and DER, are gaining traction as more organizations adopt these Smart Grid technologies and new ways of thinking about energy.  Together, these models make it possible to consume electricity close to its point of creation or entry into the distribution grid.   More importantly, DG, DER, and microgrids offer innovative approaches to improve grid reliability and secure our energy independence from fossil fuels – two major sources of economic pain for Americans. 

These innovations are starting to take shape in practical deployments that deliver benefits beyond reliability and energy security.  Taxpayers are major beneficiaries of a recent solar project for the Santa Clara Valley Transportation Authority (VTA).  The VTA has a large fleet of buses providing public transit in Silicon Valley.  Their 3 bus yards were recently outfitted with solar panels that do double duty as shade shelters for buses.  The bottom line is that the solar panels on the shelters create 2.1 megawatts of electricity that are projected to reduce the organization’s energy costs by $2.7 million over the next 20 years.  There are other additional tangible and intangible benefits.  Buses sitting in the shade require less energy to cool, thus reducing their fuel consumption and costs.   The greenhouse gas reductions created by this local electricity generation are the equivalent of taking 9,000 cars off the road. 

Private enterprises are also deploying DG, DER, and microgrids in their energy strategies.  IKEA, that big box retailer of all things that require assembly by Allen wrench, recently increased its percentage of US-based stores that will house rooftop solar panels to 85%.  They are also installing EV charging stations at some of their retail locations.  And they are not alone.  Other retailers, like Macy’s, Kohl’s, and Walgreens are also building charging stations into their properties to attract customers with free charging.  Clearly, profit-driven businesses are finding compelling financial reasons to invest in DG, DER, and microgrids. 

While private enterprises may be more focused on reducing their energy costs than increasing energy security, the US military is pursuing microgrid deployments for both reasons.  Any disruptions to the national and regional electric grids would have negative impacts on their readiness.  Building microgrids gives them assurance that they can continue operations despite outages in utility power grids.  The military services also recognize that shifting energy sources to domestic renewables will reduce our overall reliance on fossil energy sources to create electricity or transport fuels, and thus increase our energy security. 

There are two big challenges that can slow the speed at which these innovations can be deployed in the USA.  The first is whether regulated utilities will be encouraged to disrupt the traditional centralized generation models.   For some states, the answer is yes.  Regulators and utilities have the vision and courage to transform business and policy models to encourage DG, DER, and microgrids to participate in energy markets.  Smart utilities can leverage DG, DER, and microgrids as new tools to manage supply and demand of electricity.  New grid management approaches that connect and disconnect these resources from the distribution grid as electricity requirements change reduce strains on distribution and transmission grids, thus improving reliability. But evolving from electricity’s stone age to the Smart Grid age will require policy innovations at the local and state levels.

The second challenge is whether the US political party that is wrapped around the fossil fuel lobby’s axle will realize that an American energy policy that improves our energy and economic security should override their agenda, which appears to be “the only good energy policy is a broken energy policy”.  The coming battles over the most recent budget unveiled by President Obama will provide that answer soon enough.

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