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Uber For The Energy Market

By Peter Morice

New York State is taking center stage in the energy sector after State Regulators and the New York Public Service Commission approved a roadmap for REV, the Reforming Energy Vision initiative. Still in the early stages of definition, the initiative aims at restructuring the traditional electrical utility model with a focus on six core outcomes: customer knowledge, market animation, system-wide efficiency, fuels and resource diversity, system reliability and resiliency, and carbon reduction.

Over the coming year, policymakers, market experts, utilities and private industry will meet to determine how best to serve these six outcomes. However, the initiative already has many in the private and clean energy sectors hopeful for growth of distributed generation, integration of renewable sources, and demand response efficiency measures. Consider these potential benefits a little like Uber for the energy market.

Uber, valued at a staggering $41 billion, disrupted the taxi service industry using today’s mobile technology to virtualize the car service market. The user-friendly marketplace matches the demand of those who want to be driven with the supply of people willing to drive them.

At the foundation of the REV initiative is the restructuring of the traditional utility, Con Edison of New York. In its new role, the utility will serve two functions of maintaining the infrastructure for electrical transmission and distribution, which it already does, and second the utility will host a new retail energy transactional market to integrate distributed energy resources and behind-the-meter solutions alongside the traditional power plants. Effective integration of distributed resources in the form of solar, wind, battery, and others will require a virtual, real-time marketplace in which these smaller suppliers can sell energy to the grid by bidding into the market.

Inclusion of these distributed energy resources in a real-time marketplace leads to the second way in which the REV initiative resembles the Uber model. One of the central benefits associated with Uber is the efficiency gained by matching the customer with the nearest available car. Distributed generation provides the same efficiency gains by matching a load demand with nearby generation supply.

In the traditional electrical utility model, large generating stations must transmit electricity over long distances before reaching the end user or load. The further the energy must travel, the more energy is lost along the way. Relying mainly on supply from a few large arteries also makes the grid vulnerable. If a problem occurs along a main supply line, as was the case in the northeast blackout of 2003, entire cities or even regions can be left stranded without power. Distributed generation reduces energy losses associated with transmission over long distances and can also bolster reliability by supplying the needs of local loads with local generation.

Distributed energy resources come in many forms, each with particular advantages and disadvantages. Some of the previously mentioned renewable sources including wind and solar remain intermittent on the availability of wind or sunshine. Battery storage can reduce this intermittent downside, but other forms of carbon emitting small-scale generation such as microturbines and reciprocating engines can provide value, especially when it comes to on demand reliability. In addition, importing energy from the large traditional power plants will continue to play a significant role in the power profile no matter how the REV plan takes form.

The challenge will be how to balance clean carbon reducing generation with more traditional on-demand sources. In order to accomplish the REV core outcomes of reliability, efficiency and carbon reduction, the retail market incentives must fairly account for efficiency gained by local generation compared to the reliability obtained by sourcing from generation with larger carbon footprints or from sources of distant generation. This balancing act between types of generation may resemble the way Uber balances the efficiency of the nearest car with the requirement of more space or greater luxury by differentiating between UberX, UberXL and UberBlack services.

To clarify, the nearest available Uber car may not always be the right size or style for the customer. The larger SUVs and the more luxurious black cars are more expensive to operate, resulting in higher charges to the customer. The same can be said for a market that integrates distributed generation where electricity demand requires supply from carbon emitting generation or sources imported from great distances, which may come at a higher price to reflect environmental costs and efficiency losses associated with these sources of generation.

There is a final noteworthy similarity between the services enabled by Uber and those of the future retail REV marketplace. The potential benefits of a real-time retail energy market include efficiency, improved renewable energy integration, and reliability, but the core of this push for change is rooted in growth.  New York is a high-load center grappling with the limitations of its overburdened energy infrastructure.  Although it is not unique in this problem, New York may be one of the more acute examples due to the higher density of load demands.

The problem resides in the limited capacity of transmission lines to reliably deliver power during times of peak demand. Building new transmission capacity is costly, time consuming and requires space. As a solution, distributed generation and load-side demand response or voluntary load shedding will reduce the burden to the transmission system. The driving market incentive under the REV model will likely take the form of real-time energy pricing. This market tool sets the price of energy based on the transmission congestion similar to surge pricing used by Uber during periods of high demand. Real-time pricing, like surge pricing, should reflect the higher cost of delivering energy during peak hours of demand.

While many in the clean energy space welcome energy democracy that gives consumers more choice and provides fair market based incentives for energy resource integration, concerns are also being voiced over the potential impact of REV on phasing out of subsidies for clean energy sources. Additional questions surround the inevitable role of the original power player—the utility—in executing and maintaining initiative goals, and at what price they will be compensated to do so.

As a more concrete REV plan emerges in months to come, any rollout will certainly take longer and meet greater challenges than Uber ever faced overhauling the taxi service industry. The scale and critical nature of the electrical grid in particular make this a unique challenge. One thing is for certain; the REV initiative has the potential to drive the energy industry into the 21st century.

About the Author: Peter Morice is a fellow with the Clean Energy Leadership Institute. He worked for three years in New York City as a consulting engineer on utility power generation, so he is particularly intrigued by the recent REV initiative, as you can probably tell.

 
 
 
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