FORBES: Preventing the Next Black-out
By Josh Suskewicz
Forbes.com
The modernization of our electricity infrastructure--the so-called Smart Grid revolution--is underway, and not a moment too soon. As an interesting overview in a recent Wired issue made clear, the grid was cobbled together in ad hoc fashion over the last century, and is largely one-way, mechanical and dumb.
That's why a storm in Ohio can plunge New York City into darkness; why, as energy guru Amory Lovins preaches, every electron saved at the point of use offsets the production of three to four times that many electrons at the source (e.g., a coal fired power plant); and why the Department of Homeland Security is so concerned about terrorists targeting our power infrastructure. In short, our archaic patchwork of a grid is vulnerable, inefficient and unreliable. It is quite damaging economically and environmentally.
Smart Grid--the application of computing and two way control to the electric infrastructure--is the solution, but it is a massive undertaking (the Obama administration has pledged upward of $40 billion as part of the stimulus package alone). History has demonstrated that infrastructural shifts of this sort tend to be massively inefficient. Our research suggests that a great deal of this inefficiency stems from the widespread inability of incumbents and start-ups alike to create the new business models required by new markets.
In short, grid modernization will yield immediate gains in control, efficiency and security--at a considerable cost. We'd like to see that cost offset by the advent of new business models that open up new avenues of growth.
Indeed, Smart Grid promises to enable a number of new business model opportunities. It is widely considered the missing link that will make renewable energy work: The promise of decentralized renewables is blunted by our current grid, as it does little good to have solar panels on your roof if you can't sell excess energy back to the system. Someone has to design a scalable system that enables widespread deployment.
Another Smart Grid development we've been monitoring is demand response. Companies like EnerNOC optimize energy use throughout an opt-in network of office parks and industrial plants. It turns out that as much as 10% of the overall cost of electricity--and a similarly outsize proportion of the pollution--comes from just 1% of electricity generation.
This is because our grid functions in an incremental, as-needed fashion; we operate at just enough capacity at all times. The grid strains and sometimes breaks on hot summer days when everyone turns on their air conditioners at the same time. To meet the excess demand, power companies have to rev up old, dirty and expensive backup generators.
EnerNOC and its peers practice "peak shaving"; they reduce systemic load at critical times by coordinating lower energy usage across their network, which in turn enables power companies to avoid using their most expensive generators. Everyone shares the savings that result.
We've been excited about demand response for some time because it uses an innovative business model to solve a pressing problem. Rather than simply extending the old and expensive model by building a new power plant, we can now manage the grid in a more intelligent and much more cost-effective way.
The utilities analyst at a leading green mutual fund recently pointed me toward an innovation that makes demand response even more exciting. A company called Ice Energy is adding a relatively low-tech piece of capital equipment to the equation; they attach a chiller to conventional air conditioning systems in the buildings they manage that freezes water at night when electricity is cheap (and relatively clean). They then use the ice to moderate temperatures during the day, when electricity is expensive.
The company claims that air conditioning accounts for 40% to 50% of a building's peak energy use, and that their system can cut air conditioning electricity requirements by 95%.
We like this approach because it wraps an innovative business model around existing technology to get a job done. This is akin to Netflix making DVD-by-mail work, rather than focusing on Blu-Ray or digital delivery, or, in another cleantech example, Better Place building a recharging and battery-swapping infrastructure that enables electric mobility with today's limited batteries.
Innovative business models that make proven technologies work better are not at the whim of unpredictable technology development and uptake. They are, in other words, the most predictably efficient way to achieve transformation.