As the number of “prosumers” with batteries grows, huge opportunities will be opened up for aggregators who will be able to optimise these behind-the-meter-assets, writes energy expert Fereidoon Sioshansi, publisher of newsletter EEnergy Informer. Sioshansi explains how this development is likely to transform the electricity sector.

If the number of prosumagers grows, as expected, they will no longer be dependent on net kWh purchases from the grid – in fact some may become net exporters. For prosumagers (a prosumager is a prosumerwho has made additional investments in distributed storage, usually in the form of batteries  editor), the critical service provided by the network is no longer energy per se but rather balancing services, voltage and frequency support, power quality and, most important, service reliability. After all, prosumagers will not cut the cord as they continue to rely on the network during extended periods when there is no sunshine and their batteries dry up.

Changing values

This fundamentally changes the value proposition for being connected to the network. It will no longer be about energy, the net kWhs, but about service reliability, not worrying about how much juice is left in the battery before the lights go out. It is the equivalent of “range anxiety” for current electric vehicle (EV) owners on a long cross county road trip.

In turn, this requires fundamental new thinking about the value of service and how much should prosumagers pay when and if they consume very few net kWhs, if any. In this context, volumetric tariffs make little sense while reliability of service makes a lot of sense and has a lot of value. The grid becomes a form of insurance and backup for prosumagers who essentially operate their own mini micro-grids.

That, however, is not the end of story as two other developments are rapidly emerging:

  • Aggregation and optimization of distributed loads, generation and storage; and
  • Intermediation and peer-to-peer trading through open platforms.

The former is already here as businesses emerge to aggregate the distributed loads, generation and storage of multitudes of consumers, prosumers and prosumagers while remotely monitoring, controlling and managing the portfolio of assets in real time. This allows the intermediary not only to optimize the virtual dispatching of the diverse collection of resources but to monetize and capture their value.

New opportunities

Aggregation and optimization of massive portfolios of behind-the-meter assets is likely to grow as a business opportunity because individual prosumagers will have limited capabilities and/or financial incentives to mess around with capturing the modest value streams of their own mini micro-grids, creating a huge opportunity for the aggregators.

It is the equivalent of the powerful network effect in social media. Facebook or LinkedIn may not be the best, but who wants to set up a second social network when everyone is already using these? The exponential power of large numbers favors aggregation of massive portfolios. Scale matters.

Numerous companies have emerged in the past few years to take advantage of the collective capacity of hundreds, thousands – and, in the future possibly millions – of diversified loads, distributed generation and storage. While the business models vary, virtually all are focused on remotely monitoring individual customer loads, generation and storage, managing and optimizing the aggregated portfolio and maximizing the inherent flexibility and diversity of the behind-the-meter assets.

By doing so, they can monetize streams or stacks of value

  • By charging customers’ batteries when wholesale prices are low, or discharging them when the opposite is true;
  • By adding flexibility to loads by scheduling energy intensive devices or operations – say preheating or pre-cooling buildings depending on the prevailing prices; and
  • By supporting local distribution networks at times and locations when/where they are stressed.

In theory at least, these and a multitude of other services can be offered at substantial cost savings to participating assets in the portfolio with little or no inconvenience or service degradation.

How? Through remote real-time monitoring of multitudes of devices on customers’ premises, which can be analysed and optimised by software using artificial intelligence (AI) and machine learning (ML). There is no other way to do it – the task gets quickly complicated.

Participating customers define their operating requirements – such as: I don’t want the lights to go out during business hours, or the freezer to thaw, or the water storage tank to be empty or overflow, or the elevators to get stuck between the floors, or the warehouse get too cold or too hot. In practice, the software gets to know each customer intimately over time. Some fine-tuning may be required. But once the basic parameters are understood, the software essentially takes over, refining and optimizing so that the customers are not even aware that their operations and equipment are being remotely monitored, controlled and manipulated. Nor do they care that the aggregator is making money off the portfolio, so long as their energy service needs are met at a cost lower than they could do on their own.

The aggregator’s business model, of course, is based on sharing a portion of the achieved savings from the optimized portfolio with the participating customers. It is win-win, indeed win-win-win if the benefits to the network are included.

How much can be gained and shared is an open question since many technical, operational, contractual and regulatory hurdles need to be resolved. And there are risks to all parties as investments have to be made in remote sensing, real-time communication, software development as well as taking measures against cyber-security and other risks. Most important, the participating customers have to get comfortable with the aggregators and vice versa.

Opportunities in open platforms allowing peer-to-peer (P2P) trading and transaction energy – are likely to follow along with business models to monetise the value streams. While promising, they are mostly work in progress.

Read the full article on the Energy Post website.

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