We’re living in an era of rapid and sustained technological change that can sometimes feel like chaos. But many analysts say the recent spate of frenetic innovation is beginning to take shape into three primary trends that will ultimately reshape the electric utility industry.
Jim Spiers, NRECA vice president for Business and Technology Strategies, compares these trends to “tectonic plates moving beneath the industry.”
He identifies the three plates as increased consumer focus, with consumers becoming more aware of their power options and desires; distribution optimization, the result of smart-grid and other technologies that are vastly increasing the control and analytical capabilities of electric co-ops; and an evolution of the wholesale/retail model, which includes both the growth of distributed generation and evolving state regulations intended to further decentralize power generation.
“We’re seeing the non-stop, ubiquitous change in the industry over the past several years begin to organize into macro trends,” Spiers says. “At the recent round of Regional Meetings, we held workshops with CEOs about the convergence of these trends and heard from more than a hundred co-op leaders who are feeling the effects of this major transition.”
The convergence is proceeding at a different pace in different parts of the country and, like the movement of tectonic plates, the changes can be hard to track. But in the end, they have the power to remake the industry landscape.
That landscape, Spiers says, is going to include more distributed generation, greater use of storage, more sophisticated and demanding energy consumers, and enormous quantities of new data detailing what’s happening on the grid every second, in some cases right down to individual appliances. As electric co-op personnel know, all these trends are already underway, but as they converge, they reinforce each other and accelerate change.
The good news is that electric co-ops are uniquely positioned to succeed in this new environment because the convergence further empowers consumers, and co-ops exist to serve their consumer-members.
“If this is all about the ‘consumer-centric utility,’ well, we are clearly the original consumer-centric folks out there,” says Martin Lowery, NRECA executive vice president for member and association relations.
The convergence also opens up new business options tied to smart-grid technology, an area where cooperatives have led the industry, and puts more emphasis within the power grid on the distribution level, which is the heart of the electric co-op network. These are all reasons why these shifting “tectonic plates can lead the cooperative business model to a new plateau,” Spiers says.
He notes that the challenges and opportunities facing co-ops will differ. “You’re going to have to assess this convergence from the perspective of, ‘What does it mean to my co-op?’” he says. “You have to find out what’s right for your co-op, your membership, your system.”
But the unifying factor for all co-ops will be an effort to help their members navigate this new landscape.
“Co-ops have to think about how they position themselves as a trusted energy advisor,” Spiers says. “If their consumers are making decisions, how do co-ops help them make informed decisions?”
To do so requires a closer look at the converging trends.
The Other Side of the Meter
Increased consumer focus comes about as a result of both technology and changing American priorities. The growth of solar power reflects how the two work together. A greater desire for green energy has combined with a reduction in solar costs to fuel significant growth in solar photovoltaic distributed generation.
While battery storage is still in its infancy, it’s following a similar but accelerated growth curve, says Greg Starheim, senior vice president of business and industry development at the Dulles, Va.- based National Rural Utilities Cooperative Finance Corporation (CFC). “Over the past four to five years, the cost of battery storage has fallen 50 percent,” he says, and California alone has set a goal of “adding 1,300 megawatts of battery storage by 2020.”
Distributed generation and storage give consumers more options and a greater sense of independence from the grid. They also increase awareness of power consumption and how to manage it. That awareness goes even further with the growth of products that allow “load disaggregation,” or the ability to see how much power each device in a household or business uses.
Vern Dosch, president and CEO of the National Information Solutions Cooperative (NISC), says load disaggregation is part of long-term growth in the information available to consumers. At the start, users received a bill that gave them a monthly tally of their power consumption. “But the electric utility had no way of telling you what day or what time you used the most power,” he says.
That changed with smart meters, which gave utilities the ability to provide a reading as often as once every few minutes, depending on their advanced metering infrastructure system. “The next question that comes up with members is: If I used that much more electricity in the last hour, what made that up? What used what and how much?” Dosch says. “This information is the natural progression in making energy consumers more informed consumers.”
This increased consumer focus is a continuation of the co-op tradition, he notes. Conservation programs, for example, have long been popular with cooperatives, and co-ops also have been leaders in home energy storage through water heaters. But as consumer focus grows within the industry, the need to help members navigate their way through a multitude of choices will also grow.
Two kinds of load disaggregation are available. The first is software-driven, relying on algorithms to provide estimates of expected use for major household appliances based on the size of the home, the number of people living there, and other factors. The second, more expensive option is hardware- driven. Wi-Fi-enabled plugs or monitors attached to the home breaker box can measure electricity use for different circuits. Several companies, such as Sense, offer consumer products that provide home load disaggregation. As these products become more popular and economical, “the next question that comes up is, “What can I do to conserve use?” Dosch says.
Spiers compares the process to peeling the layers of an onion. “The first layer is, if our consumers are making decisions we’re not involved in, how do we make sure we’re providing them the information they need to make sound decisions?” he says. “The second layer is, when do we get involved in providing those new services, or build on programs we already have to expand our services to members?”
Lowery sees consumer focus as the next wave in the evolution of the smart grid. “Fundamentally, what we’re going to see is more and more technology on the other side of the meter,” he says, “much of which can be harnessed for good in terms of better energy management and better communications.”
That intersects with another of the tectonic plates shifting beneath the industry: distribution optimization.
The advances in transmission and distribution system control that came with the advent of the smart grid have already transformed the power industry. The level of monitoring and measurement made available through information-age technology has provided electric system operators with a much more granular understanding of how their systems are operating in real time.
The change also has led to geometric growth in the volume of data available to co-ops and other power utilities. That will only expand as more data becomes available from the consumer side of the meter, Dosch says.
Spiers notes that getting maximum value out of the wealth of data is one key to making sure co-ops continue to optimize the operation of their systems for the benefit of all members.
As part of that optimization, increased information from the “other side of the meter” provides an opportunity to strengthen member education and engagement. “We’re doing consumer analytics now that allows us to show members how they stack up with neighbors or similar houses for consumption,” Dosch says of NISC’s work. “As we get more detailed data, we can go even further, helping them to understand how their daily habits and the choices they make affect the power they use.”
Better analytics also allow cooperatives to operate more efficiently, saving money on everything from how often trucks have to roll to long-term system planning. “It allows co-ops to be proactive and take care of maintenance issues ahead of time and system upgrades before they become critical,” Dosch says.
But to reap these benefits, it will be important that co-ops have access to the data being collected, he says. If important information ends up being controlled by third-party vendors selling technology like smart thermostats or load-disaggregation software, cooperatives won’t be able to provide members with the informed advice they need, and opportunities for system optimization will also be limited.
“There’s always been a reluctance among co-ops to go on the other side of the meter, and it’s understandable because it brings more risk,” Dosch says. “But helping our end-consumers be more informed users of electricity is part of our job. And we now have the technology and the data to help them understand where and when they’re using power. The question is, do co-ops feel comfortable venturing into that area? But we should make no mistake about the additional value it can give our member-owners and co-ops as a whole.”
Distributed generation is changing the wholesale/retail model that long dominated the power industry. As utility professionals know, electricity no longer simply flows one way in the grid. Myriad sources can now generate electricity, from rooftop and community solar to wind turbines to landfill methane plants.
The proliferation of distributed generation has led to calls to systemize how it’s integrated into the grid through distribution system operator (DSO) functionality and models, which establish controls at the retail level on both distributed generation and other energy management resources, such as battery storage and conservation programs.
The critical question for cooperatives is how DSO models are implemented. New York state is leading the way on a state-regulatory model that establishes top-down requirements and standards. Several other states, including Minnesota, Massachusetts, and California, are considering a different form of the model.
New York’s move to establish DSO standards came following Hurricane Sandy, the 2012 “superstorm” that led to outages affecting more than 2 million residents. The notion was that a system that relied less on centralized generation would be more resilient in the face of disaster, says Jan Ahlen, NRECA senior regulatory specialist.
But the move is also driven by the convergence of consumer choice and technological advances that can put more control in consumer’s hands. “The main reason here is consumer choice, people saying that the utility is in the way; we need to make room for consumer choice and all these new technologies that are coming online,” Ahlen says. “Another reason is that it’s a way to encourage distributed energy resource adoption.”
The New York model, which was established by the state public service commission in April 2014, does not apply to co-ops because they are regulated by the New York Power Authority. Still, Ahlen notes, it provides a look at the way DSO standards could be imposed upon cooperatives from above.
In essence, the New York approach requires investor-owned utilities and some municipals to prove that they have explored distributed generation and energy efficiency options when making system upgrades. Over time, Ahlen explains, the approach “envisions a system where the utility does not own any generation and would simply operate the grid in a way that permits third-party energy providers access to the grid so that they can sell services directly to consumers.”
The model would be particularly disruptive to distribution co-ops that receive their power as part of a G&T co-op or a supplier like the Tennessee Valley Authority or Bonneville Power Administration. It would be less so for those that buy power on the open market. But Ahlen still sees the model as “disruptive to any co-op because it would change the relationship between the co-op and its members.”
The more cooperative-friendly option is a DSO model that leaves control in the hands of electric cooperatives that have decades of experience in serving their members.
“NRECA thinks there’s a middle ground where we can provide consumers with choices at the same time we’re doing something that works for the system as whole,” Ahlen says. He cites community solar, which can bring economies of scale that make it a more affordable option for consumers than individual rooftop systems. Through community solar, he says, “the co-op is enabling consumers to pool their resources, reduce the price for everyone, and integrate distributed generation in a way that works for the system as a whole.”
Consumer focus, system optimization, changing retail/wholesale models—they’re all converging to shift the ground beneath the power industry. Spiers, Lowery, Ahlen, and others emphasize that each co-op will need to determine how to respond in a way that allows them to optimize the benefits for the co-op and its members. As they do, they will be continuing the mission of electric co-ops that has existed since they were formed.
“This is really a natural progression in the role of cooperatives,” Spiers says. “From the very beginning, we’ve been the optimizers.”