If you think that the grid is getting more dynamic as we move towards Utility 2.0 (as I wrote about in a previous post), just what till you see Utility 3.0.
“Wait!” you say. “We’re not even at 2.0!”
And you’re right. In the United States, a recent report by the Federal Energy Regulatory Commission (FERC) estimates that less than one-third of energy consumers have smart meters. Other places, such as Italy, have a much higher penetration rate of smart meters, but overall we are still just at the start of a ubiquitous smart grid.
Still, Utility 2.0 looks to be a transitional state that prepares the way for an even more dynamic energy system which is expected to evolve into what many now call the “Transactive Energy Market.”
With Utility 3.0, the energy distribution system will consist of numerous microgrids, and an even larger network of nano grids at the consumer level, that encompass centralized and decentralized energy sources. Our current utility-scale power plants run on nuclear, hydro and fossil fuel won’t go away overnight. The current generation of wind farms and utility solar will be functional for a long time. But added to their ranks will be numerous distributed energy resources such as residential solar, community solar and batteries of many different capacities, functions and locations.
Here’s what it will look like, according to a Gridwise infographic:
At the heart of all of this will be energy transactions between consumers, suppliers of all sizes, and energy markets from single people living in apartments to power plants and industrial sites.
What you know today as your local electric utility will likely morph into a distribution system operator, or DSO since we love industry abbreviations. In the infographic, the DSO sits squarely in the center. DSOs will operate and maintain the network (wires that move energy between buyers and sellers), and also the mechanism for reconciling all those energy transactions.
Think of this utility evolution as the difference between telecommunications companies (telcos) before Internet Protocol (IP) became widespread, and telcos today. Before the Internet, telcos were network operators (wires and airwaves) and the services provided on those networks were limited to what telcos offered (local calling, long-distance, three-way calling, call waiting, etc). Consumers were captive to those services and providers. With the emergence of IP, telcos faced a critical decision: do they continue to operate the wires, or do they create a platform on top of the wires with the ability to create and extract new value that might even combine third-party services with theirs? Or, do they turn their core services into commodities and let third party service providers extract the value from new, niche products?
Just like the telcos, utilities in the era of Utility 3.0 need to new ways to create value, including extracting value from enabling the transactive energy market. Keeping supply and demand balanced on a grid will be more complicated than moving bits across the Internet, for several reasons:
- One, reliability and safety are at the core of energy distribution network value. The health and reliability of the grid depends on the balance of supply and demand, especially given the fact that many more suppliers are selling into the energy market using the distribution network.
- Two, every buy order must be filled, or else people will go without power.
- Three, it will matter where a transaction takes place, since it involves physically moving a commodity (electricity) at a specific place and time. In the internet transaction, it doesn’t much matter where the parties are located, other than for legal and tax reasons.
The complex web of new services, service providers, and transactions will spawn new capabilities layered above the existing network, in what is called the Transactive Energy Platform. At the core of this new platform resides real-time and even predictive analytics that account for the time, place and network location of production, consumption and transaction. This new platform must dynamically optimize the network services and energy production and distribution assets based on reliability, cost, and market pricing at all levels of the distribution network. That will be the role of situational intelligence in Utility 2.0 enabling a successful transformation to Utility 3.0 and the transactive energy market. That’s what I’ll talk about in my next post.