The Smart Grid – Shifting Paradigms for Consumers

Resiliency.  It’s important for people (how well do we survive challenges), cities (how quickly can urban environments rebound from an earthquake or major weather event), and nations (how effectively can a country recover from a widespread catastrophe).   As discussed in previous articles, today’s electricity grid lacks resiliency, which impacts the number and time length of power outages.  Evolving to a different electricity value chain can build resiliency, but it means changes for utilities, markets, and consumers in terms of roles, expectations, and valuations.  For consumers, it means the opportunity to become prosumers – consumers who produce electricity as well as consume it.  For utilities, it means the opportunity to leverage new assets from these consumers.  This is a real paradigm shift for utilities, regulators, and residential, commercial, industrial, and agricultural consumers.

Today, utilities and regulators focus on negawatts through energy efficiency (EE) and demand response (DR) programs.  These types of programs are designed to reduce demand for electricity on a permanent or temporary basis.  But prosumption can be factored for kilowatts too, and that’s particularly important to build grid resiliency.  Smart Grid technologies create the potential for individual consumers to produce kilowatts of electricity and become additive rather than subtractive participants in electricity markets. Local, highly distributed generation, through various forms of renewables such as microwind, rooftop solar photovoltaic (PV) systems produce kilwatts that can be tied to the grid and sold back to utilities.  Electric vehicles (EVs) and home batteries let consumers leverage energy storage into time-shifted electricity generation.  These types of technologies can reduce the severity or scope of major power outages and make the grid more resilient.

But that means that prosumers must get a new and different valuation by utilities or other energy service providers.  While we have some limited reckonings on the value of consumer participation in EE and DR programs, there’s little understanding of the lifetime consumer value that full participation in both negawatts and kilowatts can offer to a utility.

What is lifetime consumer value?  It’s a concept that is used in many other business sectors to provide a numeric value – usually monetary – of individual or consumer segment contributions to the business bottom line.  For example, a retailer may determine that one category of consumers has a lifetime consumer value of $10,000, but another consumer segment who participate in a “frequent shopper” program have a lifetime consumer value of $20,000.  For utilities, consumers who participate in EE or DR programs will have a lifetime consumer value that factors in the avoided costs of peak power plants or peak purchases.  Consumers who are also prosumers will have a higher lifetime consumer value because of the positive impacts on utility resiliency and reliability metrics.  It may take some time, but smart utilities will build consumer-centric operations and programs to build the lifetime consumer value in their customer base by encouraging transitions from consumer to prosumer.  Those that don’t will risk consumer intermediation as other alternative energy service providers become the trusted entity for electricity services – especially if they can promise better grid resiliency and reliability.

The Smart Grid is inspiring many innovations in technologies, services, policies and business models.  A prosumer-based business model can inject resiliency into the distribution grid.  Regulatory policy has the capacity to be an accelerator or a brake on creating a new prosumer paradigm within utilities.  But policy will have to contend with forces beyond its control as various consumer segments recognize new possibilities for market participation and opportunities for top line and bottom line benefits.