As Thomas Friedman reported in the New York Times, the shared economy is booming, with companies like Uber and Airbnb continuing to disrupt the incumbent taxi service and hotel sectors. The Ubers and Airbnbs of the world tap into the potential of underutilized assets and create millions of dollars of value for users in the process. Shared economy companies unbundle existing assets and enable value exchange out of those assets, with close to zero marginal capital cost since the users themselves own the actual physical assets, whether a car or a home.
Could the electricity grid be next to go the way of a sharing economy?
For more than a century, the electric grid has relied almost exclusively on centralized infrastructure, such as large power plants and long-distance transmission lines. But distributed energy resources (DERs) -- and the customers buying, installing, and using them -- are changing the economic landscape for the power sector. Energy efficiency, demand response, distributed generation such as rooftop solar, distributed storage such as batteries, smart thermostats, and more are poised to become the front lines of a sharing economy revolution for the grid. Shared economy solutions will help to increase asset utilization rates and improve consumer and overall system economics, just as they have for other sectors.
What’s been missing so far is a trusted, open peer-to-peer (P2P) platform that will allow DERs to “play” in a shared economy. An independent platform underlies the success of many shared economy businesses. At its core, the platform monetizes trust and interconnection among market actors -- a driver and a passenger, a homeowner and a visitor, and soon, a power producer and consumer -- and allows users to both bypass the central incumbent (such as a taxi service, hotel, or electric utility) and go through a new service provider (Uber, Airbnb, or in the power sector, Google).
Now, as millions gain experience and trust with Airbnb, Uber and Lyft, they may likely begin to ask, “Why couldn’t I share, sell or buy the energy services of consumer-owned and -sited DERs like rooftop solar panels or smart thermostats?” The answer may lie in emerging business models that enable both peer-to-peer sharing of the benefits of DERs and the increased utilization of the electric system and DERs.
Peer-to-peer (P2P) platforms empower consumers to directly buy and list a diverse set of products and services. For example, Vacation Rental by Owner (VRBO) allows anyone who owns a vacation home to rent it out when not in use. VRBO creates revenue streams for the house owner and expands accommodations options outside of traditional hotels for traveling consumers. Similarly, good old-fashioned farmers markets bypass centralized supermarkets, bringing distributed local foods direct from farmers to consumers. In both cases, P2P platforms provide consumers direct access to and enhanced information about the source of diversified goods or services.
On the electricity side, this past April, Netherlands-based Vandebron (literally translated as “from the source”) launched a platform similar to VRBO, which allows individuals to buy electricity straight from a local farmer with excess electricity production from solar PV panels or biogas-to-power installations. Forget farm-to-table food; this is farm-to-meter power. The website allows you to pick from different producers, each featuring a high-quality picture and a small story about their farm, betting on the trust component to change how people pick their electricity producer. In this example, farmers receive a higher compensation from the platform per unit of electricity than they would selling their power to traditional utilities.
Likewise, California-based Mosaic offers private investors a P2P lending platform for solar power, although Mosaic aggregates investors to fund larger solar projects, so it may more accurately be described as a group-to-peer platform. Mosaic customers invest in solar projects sited on top of schools and other locations and earn a rate of return that beats many investment vehicles in the market today. Revenue from the solar generation is shared between the investor and employed to offset the customer utility bill.
Increasing asset utilization
Any underutilized private asset is now a target for shared economy platforms, and that includes DERs.
Take rooftop solar PV systems. For grid-connected customers with rooftop solar, the majority of which are net metered, existing valuation and compensation mechanisms fail to capture or share many values among participants at the distribution edge.
Net energy metering compensates PV system owners for the kilowatt-hours produced by their system, but may not reflect the full range of system values that DERs can provide. These values -- including wholesale peak shaving, relief of distribution system congestion and emissions reductions -- are potentially left on the table, while a shared economy solution could enable direct exchange of those values between consumers. Peers on the same congested distribution circuit could buy and sell energy services from DERs to one another, for example, providing relief for their feeder circuit.
For another example, consider unused DER siting locations such as south- and west-facing rooftops of multi-family buildings and commercial buildings. These are prime targets for shared economy DER products and services. Emerging tariffs such as virtual net metering in California utility territories allow for sharing of these unused locations and the renewable energy they generate by allowing their value to bridge from building owner to tenant.
A P2P platform for DERs can also benefit the bulk power system. In Thomas Edison’s grid, as with much of the grid today, central-station bulk generators with monopoly power deliver energy and information unilaterally through transmission, distribution and metering networks to end users. According to the New York State Department of Public Service, “The bulk power system is designed to meet retail peak demand, which [...] tends to be 75 percent higher than average load. The total rate of system utilization is under 60 percent.” Similarly, SDG&E’s load factor has been steadily declining, falling to less than 50 percent in 2013.
With a growing difference between “base” and peak load -- and central power assets that sit idle much of time, more or less called into use only to meet the peaks -- the bulk power system’s decreasing load factor is a sign of increasing asset underutilization. It's just like the spare bedroom in your house that’s vacant most of the year, or the empty car seats so prevalent in Americans’ single-occupancy car commutes. That’s untapped value a shared economy P2P platform can access, including in the bulk power sector.
For example, optimally deployed and dispatched DERs (ranging from energy efficiency and demand response to generation and storage) can shave peak demand, reducing the need for utilities to purchase and deliver expensive wholesale energy during peak demand periods. DERs have the potential to produce a smoother load curve, resulting in a smaller amplitude difference between “base” and peak load, thus improving the grid’s load factor and improving the grid’s overall asset utilization rate. By enabling sharing of P2P DER energy services, the distribution system platform can more fully capture that economic opportunity.
P2P, but not without a central backbone
As decentralized DER markets emerge, the possibility that the power sector becomes a massive platform for shared economy businesses is real and exciting. As others have opined, the electricity consumer will quickly become a "prosumer" in a shared power economy, benefiting participants and non-participants alike. The question is how the incumbent grid can survive the coming energy system disruption, as it is a valuable component of the platform.
No P2P platform can work without a centralized backbone. For Airbnb and Uber, telecommunications and software infrastructure are critical enablers of a P2P sharing economy. The grid performs a similar function in the case of DERs, not just to literally make the platform work, but also to provide consumers with both choice and reliability.
Can’t find a ride on Uber? Take your personal car, or use a car-sharing service, or call a taxi, or rent a car, or take public transportation. You’ve got options, including several “centralized” ones, and those options give you both choice and reliability. So it should be with power, too. A P2P sharing economy for DERs doesn’t obviate centralized power resources and the grid -- it complements the grid to provide consumers with a more optimized set of choices and reliability.
P2P solutions are an exciting prospect, but other options, including grid-sourced power, will remain a piece of the puzzle that together offer the level of system reliability that people and businesses demand of today's electric power grid.
The path forward
Along with grid utilization improvements, the increased market adoption of decentralized energy resources creates new markets for democratized and transactive trading of power and information. In turn, the opportunity for trade creates opportunities for new business models to disrupt the current utility monopoly around power delivery.
The regulatory challenge and opportunity is to determine the best path forward to support innovation through markets, maintain gains in clean energy programs, and uphold regulatory compacts to provide reliable service at reasonable rates. Existing regulatory paradigms and utility systems are insufficient to enable the same type of information, payment and market disruption that spawned the sharing economy. New distribution system platforms are under development in several jurisdictions, either leading -- or being led by -- the explosive growth of DERs.
Matthew Crosby is a manager with the electricity practice at the Rocky Mountain Institute. This piece was originally published at RMI's Outlet blog and was reprinted with permission.