Posted by: nialljmcshane | June 20, 2010

The Smart Grid’s Killer App: Democratization not Demand Response.

How to engage the consumer in the Smart Grid revolution is a topic that engenders much debate.  Consumers are suspicious of utilities motivation when it comes to smart meters due to missteps by some utilities in Texas and California in managing customer buy-in and their failure to respond appropriately to complaints about errors, real or perceived, in the automated meter reads.  The concept of Home Area Networks and smart appliances also generates a lot of skepticism and many observers point out that consumers will not agree to allow utilities to reach into their homes and business to control demand.  There will be those, motivated by passion for technology or a desire to reduce their carbon footprint who will embrace smart meters, HAN’s, smart appliances etc but, at least initially, they will be in the minority.  Large scale commercial and industrial users are already working closely with the utilities to implement demand response or load control programs because the return on investment for these customers is significant but the industry needs a killer app to help launch the Smart Grid in the minds of small-medium size C&I customers and residential consumers.

I recently joined with some others in the Chicago area to launch the Green Technology Organization of Greater Chicago and we had a meeting on Thursday night at which Jay Marhoefer, CEO of Intelligent Generation, gave a presentation entitled Intelligent Generation: How green technology will democratize electricity.  Ok – Intelligent Generation is trying to sell a solution in this space but the presentation focused on defining the reality of today’s electricity supply industry and creating a vision for the future and was not a strong sales pitch for their particular solution. The feedback from those who attended the meeting was universally positive.

In his abstract, Marhoefer stated: Smart grid is just the starting point of the coming revolution in the electricity sector. What kind of role will other technologies like renewables, fuel cells and plug-in hybrids play? And is there a way for all of them to make electricity cheaper, cleaner, more efficient and more reliable?  The presentation provided an excellent overview of some of the key factors that drive decisions in the electricity supply industry and helped to define the context in which Smart Grid is trying to revolutionize the industry.  Some key realities of the industry that tend to get overlooked in much of the debate about renewable vs fossil fuels and Smart Grid implementation were clearly addressed.  Finally, Marhoefer brought it all together in a vision of a democratized future in which consumers actively partner with the utilities to manage electricity more effectively, unlocking the potential for real cost savings to consumers, reductions in demand and more efficient utilization of resources.

To understand the context in which Intelligent Generation works, it is necessary to have some basic understanding of how electricity supply works in the US today.  Many readers of this blog may be familiar with some of this context but I have not seen a more comprehensive explanation than that which Jay Marhoefer presented and so I would like to summarize that here with reference to some of the key slides from his presentation.

For most consumers, power is a commodity that they take for granted.  When they flick a switch, they expect lights to come on, appliances to start up and they give little thought to the system that exists on the other side of that switch.  At the high level, the electricity supply industry is relatively simple.  Large generating plants produce electricity from a variety of sources including coal, oil, natural gas, nuclear, wind, solar, biomass etc.  The resulting power is carried over high voltage transmission lines to centers of population where it is stepped down to lower voltages and carried on distribution grids to local homes and businesses where it is consumed.  A key challenge with the grid is to ensure a consistent voltage to match the varying demand.  For this reason, utilities have baseload generation that runs 24*7 and provides completely reliable, high quality power that meets a major portion of the demand.  During periods of higher demand, utilities need to acquire additional power to supplement this baseload generation capacity.  They do this by bringing on additional peaker plants, by purchasing power under contract from wind and solar providers or by buying power on the wholesale market which may be very expensive.  The high cost of these peak supplies are offset in most cases, by charging consumers a fixed rate for every KwH used, regardless of when the consumption occurs and regardless of whether the power that is being consumed is cheap baseload power or much more expensive peak demand power.

There are many factors that make the electricity supply market significantly more complicated than this simple model would suggest.  First of all there is the patchwork of utilities (some 3,000+ in the US alone), and corresponding regulatory environments at national, state and local levels under which those utilities operate.  Secondly, there is the issue of demand variability.  Demand varies significantly by season and by time of day.  Not surprisingly, in most areas, peak demand occurs on hot summer afternoons.  The second highest demand tends to be in the winter.  In some cases, the utility may own and operate the generation as well as transmission and distribution.  In other cases, utilities may be a wires and meters operation with no generating capacity and all of the power they sell may be purchased from generation utilities or other providers.  As demand rises above baseload capacity, the utility needs to be able to bring on additional sources of power to meet demand and keep the voltage on the grid steady so that consumers do not experience any shortage of power.  Nuclear and coal fired plants are used for baseload generation but are not suitable for responding to peak demand since they have startup times on the order of several days.  For this same reason, these plants are designed to run at full capacity at all times, even when demand falls below baseload capacity.  This is important as we will see later.  Load following natural gas plants can deliver power to the grid within 30-90 minutes and pure peaker plants can respond in as little as 15 minutes.  Wind power can be accessed in as little as 10-30 minutes (if the wind is blowing) and solar is instantaneous (assuming the sun is shining).  The intermittency of renewable sources such as wind and solar explains why these technologies will never be suitable for baseload generation but they are very well suited to providing peak demand capacity.  A corollary of this is that, when comparing the costs of wind and solar power, it is not appropriate to compare to baseload generation.  A true economic analysis of wind and solar power must be confined to comparison with other peaking capacity sources only which tend to be more expensive than baseload generation.

Looking in more detail at wind power, Marhoefer presented data showing average wind availability in the US.  These clearly show that, while there is good wind in the plains states, parts of the North East and the West, other parts of the country including Arizona and the South East are not suitable for wind generation.  Looking at this data seasonally however, we see that the availability of wind in the winter is much greater while, in summer it is much lower.  Wind also tends to be strongest at night and lightest during the day.  Herein lies one of the major problems with wind power: wind blows least when you need it the most and it blows most when you need it the least.

Another problem with wind is that most of the places where wind is most readily available are located far away from major urban centers where the demand for power is highest. There are  transmission lines that link most of the US into three major interconnects covering the East, West and Texas, but the price of electricity varies enormously from one part of the US to another and the regulations governing the movement of power within these interconnects are complex.  There is more than a 3:1 difference in price between the most expensive mainland state (CT) and the cheapest (WV).  Calls for a completely free and open market in electricity are likely to be blocked by politicians from those states where energy remains cheap because their constituents stand to lose in such an open market as power gets siphoned off to states where current energy costs are much higher.

For residential and small commercial and industrial users, solar is more attractive than wind for a variety of reasons.  Wind has more stringent zoning issues and, because wind power output varies exponentially with rotor size, it is less viable for small scale residential installation .  Data abstracted from AWEA’s Wind Energy Tutorial illustrate the relationship between rotor size and power output.  Unlike wind power, solar tends to track peak demand pretty well.  Hot summer afternoons when air conditioning use is high tend to be sunny.  However, the payback time for solar can be very long.  Even with a 30% federal tax credit, the payback period can be as much as 15 years.  In states that have mandatory renewable portfolio standards, consumers can sell Renewable Energy Certificates (REC) to their utility to further offset the costs but even with a REC value of $300/MwH, the payback period remains above 10 years.

So, what is the answer and what does Intelligent Generation mean when they talk about democratization of energy?  The industry solution is demand side management where consumers sign up for time of use programs in which the higher cost of peak electricity is passed on to the consumer who is thereby incentivized to adjust their consumption patterns and move demand into non-peak periods either manually or via a Home Area Network and smart appliances.  Utilities also promote load control programs in which consumers receive financial incentives in return for allowing the utility to directly control major appliances during critical demand periods.  Intelligent Generation proposes a supply side management alternative which involves residential solar, community wind generation, storage and distributed intelligence.

The first step in this model is to install distributed solar generation to take advantage of its peak demand following capabilities.  Remember that constant baseload capacity we discussed earlier that runs 24*7 regardless of demand?  The next step is to install battery storage capabilities to allow the consumer to purchase low cost power overnight or when excess wind power is available and store it for later use.  Finally, the IG Optimizer is a software solution that coordinates decisions at the consumer level.  It will decide when to buy power for storage and, in response to peak pricing signals from the utility, rather than adjusting consumption, it will switch to battery storage, thereby increasing the consumer’s savings and reducing peak demand on the utility. It may even sell power from the storage system back into the grid at a significant premium over the cost that it was purchased for.  The combined effect of this solution is to reduce the payback period for the system installation by 50%.  In a state where RECs are available, the REC revenue represents an ongoing income stream for the consumer even after the system has been paid for.  The appeal of this solution is apparent from an individual consumer level but, scaling up to a community or regional level, it offers the promise of a distributed network of renewable generation and storage owned and operated by consumers working in partnership with the utilities instead of being enslaved to the utilities.  Intelligent Generation estimate that 100,000 networked  buildings represent the equivalent of being able to bring a small nuclear power plant online instantaneously to meet peak demand.

Is this the killer app that the Smart Grid needs to capture the public’s interest and effect a transformation of our national and global relationship with energy?  Intelligent Generation clearly believes that it is.  It offers strong incentives to residential consumers, an ability to cap our baseload generating capacity and therefore our carbon footprint.  It maximizes the value of existing utility assets by providing a way to store the excess baseload generating capacity during periods of low demand and addresses the need for instantaneous response to peak demand events.  In conclusion, Marhoefer noted that, as with the PC revolution and the Internet revolution, those who democratize energy will be the major winners in the revolution that is happening within the energy supply industry.

A complete copy of Jay Marhoefer’s slides is available for download.



  1. Utilities expectations about customer willingness to provide access to internal customer equipment is unreal, for the following reasons; a) most customer sights are not logically prepared for this outside interaction. Existing BAS installations will require considerable reprogramming to ensure the utility expected KW reduction will in fact be achieved while at the same time allowing the onsite system to take steps to minimize the onsite interruption to services in use. Features such as load rolling and temperature setback may already be fully utilized when utility request is received. Owner onsite staff will have to intervene and or override Utility request at any given time. Failing to get timely responses will lead to multiple actions being taken unnecessarily.

  2. Yes. This was a cool idea when I invented it 10 years ago.

    US Patent 6,925,361

    • Herbert, I cannot comment on any similarity between your patent and the solution that Intelligent Generation is offering.

  3. The issue as I see it with consumers is not smart *meters* it is the smart *thermostats* being mandated by the utilities that potentially allow control of climate from outside the premises.

    Despite the fact external control by a utility would likely be illegal in most places, there is now a consumer fear of this technology that will be difficult to overcome.

    • John – I agree that there is a lot of fear and mistrust of this option but, as I understand it, that is what it is – an option. Can you provide specific examples of where utilities have been empowered to mandate this? I am not aware of any such situations.

  4. […] Generation in Chicago who are developing solutions that attempt to address the economics and make distributed renewable generation more cost effective with a shorter payback time for the initia… by adding intelligent storage of energy to take advantage of periods when energy is inexpensive.  […]

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