Economist: Power business seeks new models
The basic model of the electricity industry always has been to send high voltages over long distances to passive customers. Power stations were big and costly, built next to coal mines, ports, oil refineries or — for hydroelectric generation — reservoirs. Many of these places were a long way from the industrial and population centers that used the power.
The companies’ main concern was to supply the juice, and particularly to meet peaks in demand. Most countries — and, in America, regions — were energy islands, with little interconnection to other systems.
That model, though simple and profitable for utilities and generators, was costly for consumers and, sometimes, taxpayers. Now, however, it is changing to “a much more colorful picture,” said Michael Weinhold of Siemens, a big German engineering company. Renewables are playing a far larger role and, thanks to new technology, demand can be tweaked to match supply, not the other way round.
As a result, the power grid is becoming far more complicated. It increasingly involves sending power at low voltages over short distances using flexible arrangements, the opposite of the traditional model. In some ways the change is akin to what has happened in computing: A 2010 report for BCG, a consultancy, drew a parallel with the switch from mainframes and terminals to cloud storage and the Internet.
Traditional power stations and grids still play a role in this world but not a dominant one. They have to compete with new entrants and with existing participants doing new things.
One example is the thriving business of trading what Amory B. Lovins of the Rocky Mountain Institute has named “negawatts”: unused electricity. The technique is known as “demand response,” adjusting consumption to meet supply, instead of the other way round.
The most expensive electricity in any power system is that consumed at peak time, so, instead of cranking up a costly and probably dirty power station, the idea is to pay consumers to switch off instead. For someone running a large cooling, heating or pumping system, for example, turning off the power for a short period will not necessarily cause any disruption. For the grid operator, though, the spare power gained is useful.
This has been tried before: In France, after a 2003 heatwave that hit the cooling systems of nuclear power stations and led to power shortages, big energy consumers agreed to cut their power consumption at peak times, in exchange for generous rebates. The Japanese have installed 200,000 home energy-management systems that do something similar on a domestic scale.
New technology takes it to another level, however, allowing numerous small power savings from a large number of consumers to be bundled together.
In South Africa, companies can sell such spare power themselves, through a company called Comverge. Elsewhere consumers earn rebates either from their own power company or from a third-party broker that manages their consumption.
In Austin, Texas, for example, 7,000 households have signed up for a plan in which they get an $85 rebate on an Internet-enabled thermostat, such as the Nest,which costs $249. This has other benefits for them, such as allowing them to control their home heating and cooling remotely, but it also means that the power company, Austin Energy, can shave 10 megawatts from its summer peak demand, typically between 3 p.m. and 7 p.m. Nest is selling such plans all over North America, and more recently in Britain too. Customers of its “Rush Hour Rewards” program can choose between being given notice a day in advance of a two-hour to four-hour “event,” meaning that their thermostat will be turned down or up automatically, or being told 10 minutes ahead of a 30-minute “event.” This can cut the peak load by as much as 55 percent. In another plan customers agree to a change of a fraction of a degree over a three-week period