June 2016

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The New Utility and the Farm to Plug Movement

Distributed energy is local, so distributed energy markets (and prices) must be local.

Toby ConsidineToby Considine
TC9 Inc

The New Daedalus

Contributing Editor

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I just got back from the Third International Conference and Workshop on Transactive Energy in Portland. There is wide consensus on the inevitability of transactive energy even as there are struggles as to how to get there.

Transactive energy was initially conceived of as a way to set spot market prices for electric energy (power) during times of peak demand or temporary supply shortfall. Transactive energy is based on the path-breaking research of Clearwater and Huberman at the Xerox Palo Alto Research Center (PARC) published in 1993. At PARC, they created moment-by-moment thermal markets to manage data center cooling; an agent on each server bid for the cooling it needed. This approach eliminated hot spots and reduced energy costs even as it eliminated the need to develop ever more complex control and sensing strategies.

Distributed energy makes the problems of effective grid operation worse. Distributed energy refers to the developing model in which every node on the grid is potentially a power source as well as a power user, driven largely by renewable energy such as solar photovoltaics (PV) and wind. Distributed energy changes the centrally managed, essentially hub-and-spoke distribution model in which energy flows down into what is potentially a two-way peer-to-peer network over the same infrastructure. Sites which contain Distributed Energy Resources (DER) can choose whether or not to come to market at any moment. Transactive energy is the developing means to manage this growing complexity.

Distributed energy is local, so distributed energy markets (and prices) must be local. Traditional local prices in power, referred to as locational marginal pricing (LMP) or nodal pricing is based on physical limits of the transmission system—a single bottleneck can affect all “downstream” points. LMP can be set centrally, calculated based on line physics and historical use. DER potentially places the power sources downstream of the congestion, and alongside the power customers. Nodes containing DER can decide whether the energy available is used to support the grid or internal purposes. Only actual markets and set clearing prices for DER.

There is no effective ownership of DER without local storage. Without local storage, grid nodes are always price-takers. Grid operators have a strong and legitimate interest in throttling how much DER is dumped onto the grid at any moment. Without local storage, grid operators must be able to turn off DER, i.e., set when a node can come to market. Even if a node invests capital in DER asset, if a third party determines what prices the node must take for the product of that asset, and controls when that asset can come to market, then the owners of that node cannot be said to own the asset.

Local markets will not really work without local storage. Local storage is necessary to create actual economic ownership of DER.

The best use for DER is and will always be local consumption. A building need not be Net Zero Energy (NZE) to consume power locally first. Use energy locally first. The next best use for DER is to store energy locally, perhaps for later consumption on site. Any excess, or any deficits in local power can then be made up through market operations. This is the essence of the new power movement, sometimes called Farm-to-Plug.

Transactive energy changes the power paradigm to value rather than costs. This model relies upon storage, which is not just batteries. Storage is any means to relocate power in time to create reliability and additional market opportunities. Storage is kinetic batteries as well as chemical batteries; some new kinetic storage has losses of less than 5% per month. Storage is hydrogen paired with fuel cells, enabling renewable-based re-generation.

We should maintain a distinction between pre-consumption and storage. Pre-consumption starts with strategies such as cooling a building before the price goes up, or making ice to support the day’s cooling... Pre-consumption has many of the same the same day to day characteristics of storage, but it limited to only some power needs cannot provide the resilience that storage adds.

Microgrids that include storage command a premium price today. Storage prices are dropping, but remain high. Storage-based solutions are best for sites and customers that need some sort of premium service. A potential customer who will pay a premium for renewable-based reliability and resilience is the ideal early adopter for this suite of technologies.

Reliable Controls A customer who is willing to pay a premium to avoid short outages is a customer who will not accept longer outages. Storage is the most expensive component of a storage-based microgrid. A technical developer who presents the customer with a design providing the amount of reliability that they need will face a customer in sticker shock. The daunting up-front costs lead to months of indecision.

Fortunately, there are new business models developing, ones that will provide the customer with access to capital at prices that compete with the access to capital the traditional utilities have. Large funds are now ready to buy storage-based microgrids upon completion, selling service to the customer/host over the life of the asset. The technical developer may well be able to get a long term maintenance contract from the owners of the microgrid fund. The barriers to proceeding, the barriers to getting to yes, can now be addressed.

This market is just developing. For example, it is just beginning to attract secondary capital markets willing to fund any construction project with a commitment in hand from the microgrid asset REITs. These are then driving conversations about widespread transactive energy trading platforms.

Automated Buildings readers have long been sellers of improved efficiency. Storage becomes a new value stream for efficiency; a smaller load profile may be the least expensive way to acquire longer storage life. This should not blind readers to new types of opportunities in this new market. The New Utility is virtual, and has distributed ownership on the edges. Innovation no longer needs to wait on central approval.

Go through your portfolios of stalled projects and consider which ones could be freed up by these new market forces. Look to refreshing older projects with a dose of storage. Now is the time for microgrids containing storage.

As always, drop me a line if you want to discuss this or any of my articles.


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