When the market is no longer the main player

Distributed energy, smart appliances and shared storage are creating parallel energy systems that challenge the central role of electricity markets, writes Alan Pears.

Can new business models and technologies bypass electricity markets?
We are seeing rapid growth in ‘Distributed Energy Resources’, also called ‘community energy resources’. Energy businesses, market and system managers and policy makers are keen to capture these new business opportunities and to ‘orchestrate’ them to help optimally manage the electricity supply system.

This transition is occurring in a context where many consumers do not trust market players, institutions or governments. Confusion, disengagement and ignorance are widespread. Prices at times of high demand are high, driving up overall consumer energy prices.

Disruptive technologies and business models are challenging the existing mostly ‘top down’ approaches. Network utilisation is declining due to increasing ‘peakiness’ and behind-meter generation and storage, which is visible as a reduction in demand on energy grids. This drives up fixed network charges. Retailers are, not very successfully, trying to get consumers to sign up to long-term Virtual Power Plants that allow them to manage demand. To some extent, they are cannibalising each other.

Renters, occupants of strata premises, those without access to capital and the disengaged mostly miss out. We are seeing a widening gap between those who can take advantage of government incentives and those who can’t. The winners are mostly homeowners and those who can switch from gas and manage demand in the middle of the day, including charging the EVs they can afford to buy.

Others will likely pay higher prices at times outside the ‘free’ or cheap time window. All consumers will pay increasing fixed charges unless they go off-grid.

Governments are subsidising energy waste with blunt, populist programs and necessary welfare subsidies, using funds that could be better spent on building appliance and process efficiency upgrades.

All these factors are driving development of options that operate outside energy markets.

Purchase of energy efficient appliances and improving building thermal performance already change energy demand and impact on energy markets, while delivering improved service quality and multiple benefits. Plug-in ‘balcony solar’ systems that are designed not to export electricity are expanding in Germany. Smart, efficient appliances with built-in energy storage are emerging. Controllable heat pump hot water services and induction cookers with built-in batteries flag the likely appearance of other efficient, smart appliances with built-in energy storage.

These will help to avoid the costs and hassles of upgrading building wiring and networks where urban density is increasing. They will also improve resilience to power outages—an increasingly highly valued consumer service as weather events become more extreme and frequent, and media and politicians highlight the risk of power shortages as coal-fired generators die but delivery of new infrastructure faces barriers.

Energy markets don’t have a monopoly over these options. Their purchase and use are not easily orchestrated by market operators. Appliance retailers will play an increasing role.

Emerging outside-energy-market options
Apart from efficient, smart appliances, new models for sharing rooftop solar and behind-meter energy storage are emerging outside energy markets. These can be adopted by renters and strata title occupants without having to involve energy markets, landlords or owners’ corporations.

Some models involve a business or community group funding installation of rooftop solar and batteries on large roofs, capturing economies of scale. Households, community groups and other businesses can fund or ‘buy’ any number of solar panels and battery storage capacity that is part of a bigger system located behind the meter of another consumer. Their return is driven by the cost difference between the operation of the solar/battery system and the retail prices avoided. This is often much bigger than the wholesale price and can reduce demand charges too. A community group that funds such systems would receive a money stream that it could use to fund all kinds of community-beneficial projects.

Another model allows individual consumers or groups of consumers to virtually share the costs and benefits of PV and behind-meter storage.

The Allume Solshare model already offers this for apartment buildings. A building has one connection to the grid and each unit has its own utility quality meter, so each can choose their own retailer. The Allume software tracks demand and onsite supply (from PV and batteries) to recognise if it looks likely that ‘excess’ electricity would be exported—at a low, zero or even negative price. It can shift consumption to individual units that are using electricity or storage for later use, increasing behind-meter consumption that avoids retail electricity prices.

In principle, one consumer could help to fund energy storage for another one with an existing PV system that now exports a lot of excess PV output. This would allow it to store what would otherwise have been exported for little or no return for use, at times of higher prices. The funder would receive the difference between the cost of the storage and the avoided retail price of the host.

This could help households with existing big PV systems previously purchased on the assumption that exports would repay a loan or provide a significant personal revenue stream.

These options are outside the energy markets. They simply involve consumers and hosts entering into financial arrangements.

I have previously written about the potential for a ‘behind the power point’ revolution where a consumer would plug in a smart storage module that includes small swappable batteries to run multiple appliances. This could be useful for households in power outages. And renters can take it with them. Similar products are emerging in the caravan and camping markets.

Of course, the potential for electric vehicles to interact with consumers, storage and PV separately from the grid also exists.

It will be interesting to see how energy policy makers and energy retailers and network operators respond to this ‘democratisation’ of the electricity system.

Adaptability and futureproofing: essentials for affordable and rapid emission reduction
If we look at the bigger picture, we really need widespread adaptability so we can affordably and rapidly cut carbon emissions. At present, every new building, vehicle or appliance purchase we make locks us into embodied emissions from manufacture and ongoing operating emissions and operating costs for its life.

We need to futureproof and design for adaptability. We must aggressively develop ways of adapting existing vehicles, buildings, manufacturing processes, minimising up-front impacts while futureproofing new investments. We need to identify and target inefficient and faulty buildings and equipment, especially those with long lives, and repair or replace them while minimising impacts of disposal.

We can’t afford to wait until ‘end of life’ to change. And we need to recognise that our success in decarbonising electricity still leaves a lot of emissions and energy waste to be avoided, while we have not given enough recognition to the impact of energy efficiency/productivity, as shown in this graph.

The graph can be interpreted as showing how little contribution renewable energy is making, and the enormity of the transition task. That’s wrong. It just shows that we have focused most of our attention on renewable electrification of existing electricity supply. The focus on replacing petroleum for transport and gas and coal for heat is in its early days. If these transitions are led by efficient electric technologies, the transition task will be much more achievable.

We need to keep in mind that inefficient use of grid electricity over the next decade or so can actually increase net carbon emissions due to residual coal and gas generation. The simplistic focus on ‘electrification’ ignores the reality that the lower emissions and operating costs of emerging electric appliances, equipment and vehicles is due to their much higher efficiency, not the use of electricity by itself. End use efficiency improvement and smart optimisation of processes plays a major role. That’s why the International Energy Agency calls energy efficiency ‘the first fuel’.

For example, a heat pump can be four or more times as efficient as a gas appliance. An EV can achieve similar efficiency improvements relative to petrol. Alternatives to compressed air systems in industry can achieve up to 90% savings, while enhancing data management to optimise overall business productivity, as shown in the paper I wrote for A2EP a couple of years ago.

If we are smart, the energy transition will be much faster, easier and beneficial than most experts think.