“The convergence of several technology trends heralds the largest energy market disruption since the arrival of national grids”
The Internet of Things (IoT) and 4/5G networks enable many new devices to connect to the electricity network.
Over the last thirty years the business of producing and supplying electrical power has changed substantially and utilities have endured many disruptive developments. Throughout these changes there was one constant; power flowed from the utility to the consumer.
The convergence of several technology trends, however, herald the largest energy market disruption since the arrival of national grids: power flowing in multiple directions.
The Internet of Things (IoT) and 4/5G networks enable many new devices to connect to the electricity network. These devices range from smart meters to electric vehicles, and from rooftop Photo Voltaic (PV) solar panels – typically falling in the 2-10 kW range – to energy storage battery solutions.
Moreover, the use of Artificial Intelligence (AI) and Digital Twins – a digital representation of a real-world entity or system – will make possible real-time models of generation and network assets. This will help network operators cope with a rise in the number of connected devices and the need to maintain a reliable supply.
Technology is empowering the consumer in the energy sector, just as it has in retail. Now, electric vehicles provide ready-made energy storage devices, IoT-enabled devices can measure and track the flow of energy better than ever before, and the cost of home based renewable energy has fallen considerably. For example in Germany – where deployment of PV rooftop systems is the highest in the EU – the installation price dropped from around €4700 per kW in 2006 to around €1200 per kW in 2016.
The combination of domestic power generation and energy storage technologies, such as rooftop PV and battery based storage units (the size of a small fridge, but half as deep) in the garage, provides homeowners with a degree of independence from the grid. It also provides them with the option to trade the power they generate.
The Rise of Prosumers
This change raises big questions, however. Questions about who owns and pays for the power grid of the future. Decentralisation looms as a single household can be a player in the energy market, as many consumers become producers of energy.
Utilities will no longer be at the centre of the relationship between the producer, the consumer and the regulator of electricity. In practice, these energy ‘prosumers’ will work with an aggregator – an intermediary that brings together the generation, storage assets and capabilities for many prosumers – to store and sell energy to others.
The rise of the prosumer could become a heated political issue in coming years. Utilities may experience a drop in traditional commodity sale revenue, as less of the energy they produce is consumed by prosumers. The normal consumer, without access to generation facilities of their own, could find their utility bills intensifying considerably to meet the utilities’ operating costs and national subsidies.
Undeniably, this might drive new regulations, as well as the renationalisation of the electricity distribution infrastructure in certain regions, to drive the investment required to upgrade networks.
Utilities should be wary of the rise of the prosumer and must respond with a new operating model: one that effectively integrates and orchestrates the contribution of prosumer-owned distributed energy sources in new energy markets.
On the energy technology side, utilities need to take note of the operational benefits of energy storage to improve network performance and reliability, to buffer renewable intermittency and to enable prosumer market arbitration.
Historically, we’ve had a relatively small amount of large power producers and buyers participating in wholesale power markets. While it’s unlikely that a single householder will participate directly in the established centralised power markets just yet, they may do so indirectly through a third party or aggregator. This aggregator could be a utility, or a new entrant.
In the longer term, this process could be managed and optimised by AI. Blockchain technology is already in use in some regions as means of creating and operating new local energy trading markets, on top of existing physical networks. For example, Brooklyn Microgrid is developing a community-powered microgrid where participants can engage in a sustainable energy network and choose their preferred energy sources, locally. And in the Netherlands, Powerpeers launched by Vattenfall, is a marketplace where customers can decide who they receive their energy from, and who they supply with their self-generated energy.
While this disruption is nascent at the moment, the impact on existing, traditional and centralised electricity markets could be profound.