Ahh, California. The land of milk and honey. And wine – lots of it. Silicon Valley denizens like me can find vineyards and wineries within a 30 minute drive in any direction. So it stands to reason that we’re more focused on the wine business than other parts of the country. There’s a term that is quite common in the wine business – négociant. A négociant is an entity that buys grapes and controls the wine-making process. Négociants are intermediaries between vineyard owners and wine consumers. Négociants add value to grape juice by blending and processing fermented juice into delicious wines.
So what does the wine business have to do with the Smart Grid? It’s an interesting analog for how our electricity business models could evolve. Our future could include electricity négociants that offer a range of services, and they could disrupt traditional investor-owned utility (IOU) business models as well as intermediate typical utility/consumer relationships.
We already have the first few intermediaries between utilities and consumers in the form of Demand Response (DR) service providers. DR service providers organize and aggregate large consumers of electricity, typically Commercial and Industrial (C&I) businesses that have operational flexibility to shift electricity usage to off-peak times. They are found in both the wholesale and retail electricity markets. One example is Constellation Energy, which offers services that help businesses function in DR as well as other energy markets. EnerNOC is an example of a company that has expanded beyond traditional DR programs with energy efficiency and carbon emissions management services. The electricity business model evolution has already begun on the consumption side.
A revolution will occur on the production side, with the introduction and adoption of cost-effective distributed energy resources (DER), which include electricity generation and storage. These Smart Grid technologies are disrupters to our existing electricity supply chain, which is based on a flow of electricity from centralized generation controlled by utilities or regionally organized markets called ISOs (Independent System Operators) or RTOs (Regional Transmission Organizations). Literally giving “power to the people”, DER products can transform this supply chain. Power produced onsite can serve multiple purposes. It can be used from a self-reliance perspective, which is what net-zero energy buildings aim to achieve by producing all the electricity necessary for their operations. Or, DER-produced electricity could be sold back to the utility as is already done with net metering tariffs and deliver economic benefits to the asset owner.
Electricity négociants could play interesting roles in this supply chain transformation. An electricity négociant might contract to manage the electricity produced by a campus microgrid, and deal directly with the local utility to sell specific amounts of power to the utility at peak times while simultaneously organizing consumption reduction actions within the microgrid environment. It might also deliver monitoring and maintenance services on all that microgrid generation capacity, offloading the responsibility from the onsite facilities management group. For instance, some solar companies offer a range of services from insolation analysis and financing options to maintenance of a site’s solar generation equipment. A segue into similar services for energy storage assets would be a logical next step. A combination of consumption and production services offered by an electricity négociant would also be the next evolution in the electricity business model.
These business models can intermediate the direct relationship that utilities have traditionally had with consumers. And that should trigger some soul-searching in utilities – particularly the IOUs and the regulatory agencies that interact with them. For IOUs, would it be strategically sound for electricity négociants to intermediate their consumer relationships? Could IOUs become electricity négociants too? What are the impacts of DER to their aggregated lifetime consumer valuations? For regulators, how would they work with négociants to ensure that consumers continue to get safe, reliable and cost-effective electricity services? Do DER deployments require a rethink of how utility rates are calculated? What policy shifts would encourage evolutions in electricity supply chains?
In the wine business, négociants provide consumers with a wide offering of wines varying in quality and price. Could a similar range of blended electricity production and consumption service choices from electricity négociants be available to consumers in the future Smart Grid?