Toward a new energy economy
In one of my previous blog posts, I outlined a scenario imagining how the public utilities of tomorrow might operate. Today I want to talk about real-world experiences that various public utilities and energy providers shared at the congress “Public utilities of tomorrow” during E-world 2015. Speakers included German public utilities and energy providers from Mannheim, Gießen, Wolfhagen, and Kelsterbach. Their reports covered new lines of business, including energy monitoring as a service for commercial customers, marketing flexibility, operating storage, and generating power locally with combined heat and power plants – showing how these can contribute to business success.
All the participants were of the opinion that public utilities can’t afford to wait for regulations to come into force – nor do they need to. They can do a good deal now, within the framework of existing regulations, to actively shape the transition toward a new energy economy, to exploit the opportunities this presents, and to use new lines of business as a way to sustainably create value.
Here are the top 6 insights on the public utility agenda:
1. Citizens are the most active partners, the ones who most shape developments – and they must be the focus.
It’s a fact that in Germany it’s ordinary citizens that invest most in renewables.
That presents public utilities and energy providers with brand new challenges. For public utilities, it calls for a new way of thinking – or even a whole new culture – so they can offer services that meet customers’ needs and bring them additional benefits. Public utilities and energy providers have to gear themselves towards the individual requirements of their customers. In Mannheim, the energy provider has drawn on customer analyses to determine what customers actually want: energy has to be simple and fun, too (energy provision is acquiring an emotive aspect). It has to be possible to configure energy components to fit individual requirements. Customers want the freedom to decide for themselves. That’s why they team up in virtual energy communities, for instance, to get more advantageous conditions by pooling their custom in return for value-added services.
In Wolfhagen, 35 households are currently taking part in testing to determine the extent to which people are willing to alter their power consumption in reaction to hourly price incentives, and the degree of flexibility this might generate for the public utility company, which stands to benefit from the resulting load management potential.
Citizens in Wolfhagen can also get involved with communal provision by purchasing shares in the local energy cooperative (Energie-Genossenschaft eG). This makes citizens (the customers) the most active co-actors in the transition toward the new energy economy.
In Mannheim, there are a wide range of components that can be optimized through energy management for “prosumers” to choose from: decentralized power generation plants (solar, CHP), controllable power consumers (heat pumps, storage heaters, electric water heaters), and controllable storage elements (batteries, both mobile and stationary). To help its customers manage their energy in a stress-free way, the public utility company offers a range of value-added services that includes:
2. Partnerships across sectors…
- Energy providers work with tradesmen to combine roles and offer the full range of component services – installation, maintenance, and repair – from a single source.
- Other expedient cross-sector partnerships include the procurement and management of partner services such as financing, insurance, and supplying excess power.
- There are also new energy partnerships springing up with the real estate industry. In many communities, property developers are now providing smart buildings (energy, convenience, health, security). One example is a property development project in Kelsterbach called Süwag QuartierKraftwerk Am Mainblick.
3. … instead of in-house initiatives
In contrast, initiatives launched within energy companies seemed to be viewed as unproductive and difficult. An in-house initiative can be successful only if it can be freed from the constraints of daily business and act outside the line organization. One participant got a laugh when he summed up the situation as follows: “Initiatives are supposed to act as lean start-ups within the company, but when all the key decisions have to be approved by the main business the chances of success are slim…”
One example of a start-up that operates outside the line organization is BEEGY, a new energy service provider that has entered the marketplace as a joint venture. The stakeholders are:
- An energy provider
- An IT company
- A provider of systems components and services
- A provider of electric heating systems
One of the important insights gained is that all the partners absolutely must be on an equal footing, with all the key decisions taken unanimously. Only then can the overall service package be successful on the market. It’s important, too, for the energy provider not to be the controlling shareholder – but still to show commitment to the new energy economy through its shareholding.
This presents a further challenge and leads us on to point 4 on the public utility agenda.
4. Connecting the old world with the new
What happens to your existing business? And how can you keep these innovations separate from your existing business while at the same time making sure the two are aligned?
- Connectivity was considered key in all areas; this is not just something that affects devices (“things” in IoT parlance) but involves connectivity across the board: IT systems, services, partners, sectors, etc. Of course, the connectivity of many smaller systems took a central place in these discussions. Still, there are limits when it comes to integrating these sorts of systems in a cost-effective way (consider, for instance, the significant effort and cost involved in billing). Cogeneration plants with a capacity of under 20kW are not cost effective! Larger CHPs are more electrically efficient. However, you do then need to have the heat network in place to connect consumers.
- That’s why, for people such as the representative of the public utility company in Gießen (the head of district heating), connectivity is also specifically about building the physical infrastructure for a heat network – after all, heating accounts for over 50% of all energy consumption, making it the area in which we can do most to reduce primary energy demand.
The municipalities and energy provider are the right local/regional stakeholders to design and implement appropriate concepts. The most common hindrance in setting up a comprehensive heat network are the existing gas supply grids. In Gießen, it was possible to make use of the fact that large parts of the gas grid were outdated to replace it with a new heat network.
As a link between the electricity and heating markets, heat networks are vital to the full exploitation of renewables.
- All the experts agreed it was inevitable that there would be a certain degree of cannibalization in the contest between “new” and “old” if new lines of business are to be created – and that the process would have to be controlled. Examples of this include: replacing gas grids with heat networks when the gas grids are due for an update; targeted sponsoring of specific, cost-effective components (cogeneration plants over 20 kW); establishing cross-sector partnerships that are also productive on the local level, etc.
5. Getting the right mix and the right scale is critical
In mid-2015, Wolfhagen is expected to achieve energy self-sufficiency from renewables. How has it gone about it? In Wolfhagen, it is wind and solar, both volatile energy sources, that are the cornerstones of the energy transition. One of the reasons for this is the small amount of space taken up by wind energy facilities. Where wind energy isn’t an option, the local communities mostly rely on CHP and solar energy for their energy transition – in other words, a mix of baseload and volatile power generation.
We should also not overlook demand side management. Looking at the profile of energy fed in and out of the grid over the course of the year, it is possible to identify the periods when users were providing their own energy and, most importantly, the periods when too much/too little energy was being fed into the grid. At times at which energy is not currently being used by the providers themselves, load management can be a way to increase the amount of self-generated renewable energy used locally. What’s more, storage systems naturally have a crucial role to play for public utilities in developing a sensible overall concept.
Example: new housing development in Kelsterbach
The major components of the power system in Kelsterbach’s Süwag QuartierKraftwerk (figure 1) include: two central thermal storage units, a boiler for providing heating, a district heating network, currently one CHP plant (heat-led, 80kW with 50 kW electrical capacity, 80 percent efficiency), a central connection to the mains power grid, a PV facility (64kW peak generation), and an energy storage system (135 kWh, 50 kW elec. output). For all components, finding the right sizing is crucial. Deciding what is “right” involves looking at the standard load profiles of the consumers and the reference load profiles of the generation facilities, both by year and by day. Certain questions need to be answered: When are the peak times for generation and consumption? At what times does the grid operate at baseload, partial load, and full load? Which demand peaks can be smoothed with storage units – and to what extent?
As part of this project, CHP and PV facilities are deployed so that they complement each other over the course of a year. The PV facility complements the CHP facility especially in the summer. Additional support is provided by the energy storage system, which can shift demand at an hourly scale over the course of the day. The current strategy for operating the storage unit in connection with the specific power supply concept is not yet particularly effective in serving grid needs for PV generation, since the storage unit already gets charged by the CHP facility in the morning and is full the whole morning (figure 2):
When it comes to power consumption, the strategy for operating the storage unit in connection with the specific power supply concept is better at serving grid needs, but still not ideal, since the unit releases its energy too quickly and is soon empty (figure 3). For this reason, the operating strategy needs to be optimized to have the storage unit better meet grid needs.
Here is another instance where the metering concept is pivotal in providing the necessary data basis. Eight meters document the certificates of origin of every kWh in the Süwag QuartierKraftwerk in order to fully exploit differences in the applicable price. The result is a regional energy tariff for the Süwag QuartierKraftwerk (closed distribution grid) that is nearly 20 percent lower than the comparable basic provider tariff.
In general, the heating market is rather neglected in public discussions about the energy transition. Some public utilities representatives pointed out that demand for heat is the most important area in which we can achieve an efficient, sustainable, and cost-effective reduction in primary energy demand. In Germany, over 50% of energy consumption goes on heating; in Gießen, for example, it is as much as 65%. This highlights how important it is to make reducing primary energy consumption a key priority. Here it is vital that we measure our own primary energy needs exactly and exploit any opportunities (for instance, using the waste heat from a business to cover the heating needs of a whole residential area). Combined heat and power is central to making progress in this domain.
Public utilities managers also see largely untapped potential in the increased use of biomass to meet baseload requirements. In Gießen, for example, they are exploring fuel diversification options, including energy obtained from their own decentralized waste incineration and the exploitation of pruning residues. It is hoped that solar-thermal systems will have a larger role to play in the future.
6. Innovation is a management-level issue
Reports based on personal experience are clear: innovation within an organization has to happen bottom-up and cannot be allowed to overlap with existing business. However, innovation is equally a management-level issue and must be initiated and encouraged top-down if the organization is to achieve true and lasting innovation. This includes having the courage to test ideas and if necessary discard them, to develop a new corporate culture, and to involve customers in the process of defining new services.