Has Distributed Generation (DG) Reached a Fall-line in the Utility Industry?

In follow-up to my previous post about the Internet of Things, I’d like to discuss one of the most prominently affected industries and a topics: Utilities and Distributed Generation (DG).

When Edison first performed Direct Current (DC) transmission of electricity, the concept of DG was the paradigm of electric consumption: consume electrons near where they’re produced.  Consumption remained this way for a small amount of time before Alternating Current (AC) allowed the gap between generation and consumption to literally widen.  Today, this model is even more evident as most consumers cannot even speculate as to where their electrons come from.  However, several evolving forces have renewed interest in this classic concept and reinforced the possibility of DG becoming a valuable energy alternative for Industrial, Commercial, and even Residential consumers.  It is being seriously evaluated by many agencies and utilities around the country.

                Utility administration must craft their perspective on this topic as it will be continually discussed in this and several upcoming decades.  First, they should settle upon why not to embrace this concept, which includes fundamental power production and distribution issues such as power quality.   Utilities traditionally discourage multiple generation sites on the account of power quality.  The introduction of various generation points, times, sources, voltages, etc. greatly affect the physics of producing and transmitting “good” power: load factor, voltage, harmonics, etc.  In many cases, DG directly erodes the effects of the natural Economies of Scale traditional to electricity generation and the very reason Centralized Generation (CG) exists.  On a purely mathematical basis, increasing DG, at least in 2012, will make CG less efficient.   Classic Economics assures us the most efficient player should always produce the appropriate good/services, which has so far been demonstrated by the AC generators of the last 100 years.  Interestingly, this paradigm is now also driving a resurgence of DG discussions across the spectrum of Utility customers. 

                There are increasing instances when the actual consumer of electrons may be able to produce them more efficiently than a centralized Utility and as such each Utility must render an opinion on why to embrace the concept.  Micro-generation technologies such as turbines, battery storage, PV, bio-reactors, etc. allow for this.  Utility point of view sometimes changes as they begin to run the numbers on Avoided-cost.  If the harm of DG on power quality and planning can be minimized, it may be more efficient to allow for DG, thus making the avoided-cost component an immeasurable real-time stat to monitor.  This is generally in contradiction to most people’s thinking of big Utilities in that many believe they simply want to sell as much electricity as possible just as any other business would.  In reality, Utilities want to sell the right amount of power, which is a delicate dance between bulk and efficiency.  So does DG stand a realistic chance amongst evolving fuel and technology prices?

                Real potential exists for DG to gain noticeable traction right now largely due to two macro trends.  First, the advancement of micro or hyper-local generation technologies across the Utility customer spectrum makes on-site generation economical.  Second, the real-time and decision-making power of a data-driven economy and energy marketplace make micro control and connection realistic.  The Classic Economics referenced prior state that the most efficient player should produce any given service/good, but this fundamental decision process has never been widely applicable to energy generation and consumption.  Energy has always been dumb.  The data-driven information revolution and the implementation of data analysis, real-time control, and networking technologies make it possible for Generators and Consumers to interact, which is a new element to the Utility industry.  DG can generate when most efficient while CG reduces peaking-plants and vise versa.  These are the data trends that are flipping a 100-year old Monopoly on its head and should surely become action-items on any utility CEO’s desks if they aren’t already.

 A Final Dash of Salt…

 Data-driven energy generation and consumption: the biggest change to the utility industry since AC

transmission?  I think so!

Extra Reading…

Check out the sections on the changing nature of risk.

http://www.ferc.gov/legal/fed-sta/exp-study.pdf

The Internet of Things

I'll begin my 2012 musings with a discussion of the Internet.  A digital information network that has been hyper-refined in the past decade to the point of resolving a Marketers once unachievable dream: 1-to-1 commercial messages.  The convergence of several technologies (geo-location, AI algorithms, wireless) now make it very possible for commercial messages to be acute, timely, and accurate for the individuals receiving them.  Those who participate heavily in the Internet have experienced this giant learning-machine and are very aware of how clever Google is in following them around.  For a humble computer network originally begun for the purposes of scientific research and review, the Internet now is purely a commercialization engine and one that is an increasingly apt business person.  This is being led by the comical amount of web/tech firms still setting up ship in the valleys of Southern California.  A drive through this area is like Cirque Du Soleil with acts such as Zynga and Twitter.  What's important to understand is the commercialization of the Consumer Internet is leading to big things for Industry.

Industrial communication and business understanding used to be a grab-bag of trend analysis tricks and executives knew it was a dismal science, but big and little corporate ships were steered in such ways.  "Business Intelligence" didn't even enter corporate jargon until the late 1990s.  In the oddest of stories, advancements in the consumer Internet is benefiting Industry, which is not the norm, to change this.  Industry usually works through problems or opportunities and passes the knowledge, products, or services to consumers.  Or consumers only benefit from certain things because they exist for Industry (i.e. the electricity grid).  By this I mean the consumer 1-to-1 Internet has ushered in the technologies, processes, and culture of Industrial Internet: the Internet of Things.

Micro-chips that require no electricity, can sense variables around them (i.e. temp, movement, etc.), and make educated decisions are the keystone to the Industrial Internet.  Whereas the Internet has been largely a digital facade for humans being, it is now perfectly possible for Things to be part of it as well and Industry can therefore refine their understandings and business management to micro levels.  The possibilities are truly endless. Every assembly-line widget can get itself to the correct destination, traffic signals can adjust to context, buildings adapt to the weather by the minute.  Mail-delivery persons only check boxes that have mail and tires talk to drivers.  Firms are beginning to scratch the surface of this network, but know that many are pouring cash into new ideas that exploit it.

A Final Dash of Salt...
I'm very interested in the Industrial Internet as it pertains to energy use because it's part of why the 120 year old Utility industry is being flipped on its head right now.  Dumb energy has always been consumed in dumb ways.  The Internet of Things is a game-changing force in the worlds of conservation, efficiency, and power management.  Don't worry though, Skynet is not here yet!

Here Comes the Sun!

Play this song while reading this post...

(Here's a more specific PV post stemming from my previous comments on Grid Parity.)

"Jimmy Carter makes the first presidential push for solar renewables in the 70s."  "If the small state Rhode Island were covered in PV panels the U.S. would be set for electricity."  "The thermal value of energy hitting the Earth's surface at any moment is many thousands of times greater than demanded by its inhabitants."  Among other Utopian claims, we've all heard about the Sun's potential to save us from the energy abyss.  It's a endlessly hot topic about a technology that has modernized and as such, legitimized itself in the past 10 years.  Because of these developments, unbridled enthusiasm reigns at many PV startups and has fueled a chaotic landscape of serious players.  But I need a less kabuki-esque presentation of where this technology really stands.

It may be the case that PV energy may finally be coming of age.  Much has happened in the past 10 years and even 2011 alone.  The historical troubles with the 60 year-old technology have slowly been tackled successfully and the trickiest are now being settled as well (i.e. low conversion efficiency, support material industries, etc.).  Most advancement has come from two things; the ramped-up production of traditional Silicon Wafer production now decoupled, scaled-up, and more responsive beyond its previous paternal semiconductor industry and the creation of cheap Thin-Film conducting inks and substrates, which can be printed at 100ft/min.  The former reason is a great example of the power of scale to reduce cost.  A PV Moore's Law has evened been discussed because of consistent 50% boost in production every 18 months as cost are halved.   The latter is a testament to a venture marketplace that truly values new tech and an engineering-focused business model that continually tweaks better manufacturing processes and rising conversion efficiency from Thin-Films.  Both trends address the paramount reason PV hasn't been able to achieve that idealistic idea of using the sun for electricity: cost.  Aside from the forward-looking CEO, the entire industry has long been considered a niche sector and still is by many because of this reason.    But now even big-time utility firms are crafting their PV strategies.  

Utility CEOs produce awesome amounts of megawatts in central locations and distribute it outwards to customers, which is the Alternating Current hallmark of Thomas Edison that allowed him to beat Nicola Tesla's Direct Current.  It's been the only way to deliver electricity for over 130 years.  However, this notion is challenged by the sun's endless ability to electrify every inch of earth, thus allowing each consumer to effectively detach themselves from big utilities, presuming a viably technology is available to them.  Distributed generation via PV and other home remedies are increasingly on the lips of analysts weighing the costs of either building new power plants or instating consumer incentives for PV.  Viable, affordable, and accessible consumer PV is on its way and as I've said before could be in $5,000 DIY kits at stores within years.  Growth of distributed generation is the primary reason a data-driven electricity market is in dire need and the tangent Smart Grid industry is so abuzz.  Too long a passive, reaction-less marketplace, technologies like PV coupled with real-time info-metric communications could really reshape how small and big consumers of an old-school commodity bring their relationship into a new century.  It's extremely exciting to me.  So much new, great work to be done in a old industry.

A Final Dash of Salt…

Silicon PV is efficient, but mostly cost prohibitive, currently.  Prices are incrementally lowering towards grid parity, which is assisted by the overall rise in level of cost for the other typical fossil fuels.  Thin-Film or CIGS (copper, indium, gallium, selenium) are cheap to make, but much less efficient.  Both address overall cost and are close to making the technology economically practical distributed and centralized generation alternative.  Further market and government assistance is needed to bring PV to the masses at the level as it's often spoken about.  Eventually everyone should have access to the original fossil fuel!

GAME CHANGER?

Interested in Thin-Film PV?  Here are some world class play-makers in the industry.

http://www.nanosolar.com/

http://www.avancis.de/en/

http://www.stion.com/

http://www.firstsolar.com/en/index.php

The Fight For A New Electrical Grid Parity

Talk to any energy, clean-tech CEO about what keeps them up at night and I'll bet he/she'll talk about the need to reach Grid Parity at some point. Grid Parity is the averaged cost energy producers pay to produce electricity, which as of late, tends to hover around $1/Kwh. Said CEO would, I'm sure, share anxious optimism over possibly bringing his/her respective energy technology to market at a rate that is competitive with base-load, cheap traditional fuels (i.e. "Big 4"; coal, natural gas, nuclear, hydro). Some of these company leaders are giddy their technology will be the first renewable to get the Grid Parity news headlines because it's just inherently awesome. Others with more subdued commercial egos might discuss renewable technologies and Grid Parity only being becoming a marketplace reality via government intervention. This discussion of risk tends to be the thorn in the side of all game-changing renewables as they try to scale-up and commercialize. So what's the best way to help these CEO's sleep and get their new-tech energy products to market at economically competitive rates… Grid Parity rates?


Rapid technology advances, consumer behavior changes, and a renewed entrepreneurial focus have brought technologies like PV into the realm of competition with the Big 4, though they remain mostly niche, premium products. As we know, these products must be made 'un-premium' quickly. (Commenting on why these products, such as photovoltaics, must come to market is beyond this posts intent.) The shift must be made more quickly than the market's free hand currently directs, thus outside help is needed. This help began at the State government level in the early part of this decade as Legislatures adopted Renewable Portfolio Standards (RPS) directing energy producers to source a certain percentage of their juice from renewables. Cheers came from many, loud yelling by a select few, but overall a big move for renewables like PV. But many people know the mighty USA still sits behind many European and Asian countries on these measures. What are they using? Is it that usual European 'heavy-tax' method or is it something smarter?


Feed-in-tariffs are the crown jewel of over 50 countries renewable energy marketplaces. The tariff is based on the leveled cost of electricity production amongst the industry and is paid by energy producers to many independent producers, which is very common through Power Purchase Agreements (PPA). However, these payment rates decrease over time. Their intent being to cover the cost and associated risk facing firms who want to bring energy technologies to market. It incentivizes these firms to then reduce their own costs to compete rather than allow commercial apathy. Apathetic firms are eliminated via the Free Hand as seen in the modern leader of FITs; Germany. Germany's policy success is so noted that it has every PV firm beating down its door to set-up world class manufacturing facilities there, much to the dismay of U.S. policy-makers.


Futurists here in the U.S. might wonder the difference between RPS and FIT policies. The important difference to note between these similar sounding policies is that a RPS mandates a certain percentage of power be purchased from renewables and is meant to curb greenhouse gasses. FIT are engines of encouragement in that they help subdue the heavy commercialization risks of these industries and provide a predictable regulatory and economic backdrop so PV can have the chance to scale and reach Grid Parity. These are complimentary policies for any nation seeking the benefits of ditching the Big 4.


A Final Dash of Salt...
Once FITs were used to help encourage the immature, but manageably risky renewables such as Wind, leaving the too-risky out (i.e. geo-thermal, PV, etc.). Now PV is close enough to hit the big time with the help of FIT and CEOs in the industry know it. They know Grid Parity could be quickly reached and even lowered by their new energy technologies such as PV. Imagine a day when you can buy a Do-It-Yourself PV system for $2,000 and be on your way to payback-day in a few years. This is the power of RPS, FIT, and a new Grid Parity.

http://www.nrel.gov/docs/fy09osti/45549.pdf

What is the Green Economy?

The biggest buzz-phrase in commerce since "teamwork," Green has developed into a socio-cultural and economic topic that has the potential to rewrite human existence.  At least it's touted as being such by countless organizations.  However, it's scoffed at by an equal amount of detractors who say it's an idealistic fad.  But what is it?  

At its root a Green economy is simply an efficient economy.  One in which ALL inputs are quantified, valued, and used efficiently.  The keystone word is all because ideally this includes every possible input.  This is the exciting part of Green economies.  The part that garners newspaper headlines about waste firms not using landfills or food producers getting amazing yields with GPS applied fertilizer.  All means non-financial accounting is becoming an increasingly thick part of company 10-Ks.  The accountants dream of being able to quantify, track, and make decisions from all the data affecting a firm is now being realized.  In example, Monsanto can calculate the payoff schedule of their financial support for local bee farms that end up fertilizing their client's fields.  Or Target Corp. reporting on the tentative social capital built by giving 5% of their after-tax profit away.  Traidcraft Inc, in the U.K., claims to have audited social statements and DOW Chemical has been quantifying what it calls "ecosystem services" for years.  So is all of this just pleasing corporate Green jargon or is it a genuine shift in corporate capital?

I believe much of the effort is valid and is the result of business evolution.  Firms are not pursuing Green because it's sexy, though it's often written as such in the papers, but because it saves them Green. Rather they are fulfilling their commercial credo; to build widgets in the most efficient manner.  Because of technological advances, organizations can increasingly account for all the factors governing their business, which leads to efficiencies and stories of the Green Economy.  So I applaud these actions, but measure my enthusiasm against the numbers that make this a New economy rather than a Green one.  Green sounds sexier than New, but New is closer to Perfect Competition than ever before.

Further reading from the UN's Environmental Program and Global Reporting Initiative…

http://www.unep.org/greeneconomy/Portals/88/documents/ger/GER_synthesis_en.pdf

http://www.globalreporting.org/ReportingFramework/ReportingFrameworkOverview/

A Final Dash of Salt...
The father of efficiency.  Rube Goldberg!