Tag Archives: energy resources

The “Peer Economy” and the new future decentralized energy system

Sunil Paul of Side Car wrote on LinkedIn about how the emergence of the “peer economy” has allowed the emergence of new economic transactions.  Side Car uses a smartphone app much like Uber and Lyft to connect riders with drivers to connect for quickly arranged trips.

Paul writes: “The peer economy is the growing business segment of transactions between individuals – one person to another – without a middleman to manage and package it. Think eBay for everything. ” He goes on to say, “(t)o win in the emerging peer economy, it’s important for companies and organizations to listen to what is possible with the technology and connect that with the needs of consumers and businesses. ”

The electricity industry appears to be on the verge of entering the transition to the peer economy with self-sustaining households and neighborhood microgrids. The single largest barrier is institutional, not technological, from the incumbent utility industry. We need to consider innovative strategies and policies to have them embrace this transition rather than resist it.

At M.Cubed we’re working on those solutions–the objective is not to try to bull over the utilities because that is a sure loser in the political world. There are ways for change the perspective so that the the utilities can see their advantage. We did that for the mobilehome park industry in California when we got PG&E to back conversion of aging master-metered electricity and gas systems to utility ownership. Look for more from us on this topic in the near future.

How do we best induce technological innovation? We’ve already run that experiment

Improvement in new and existing technologies’ performance and costs is a function of responses to a mix of market and regulatory signals. Finding empirical measures of differing innovation influences is difficult due to confounding influences. Yet we may be able to look at broader economic trends to discern the relative merit of different approaches.

The most salient example could be the assessment of comparative performances after the fall of the Berlin Wall. The Allies conducted a 45-year experiment in which Germany was first split after World War II with largely equivalent cultures and per capita endowments, but one used a largely market-based economy and the other relied on central economic planning. When the two nations reunited in 1990, the eastern centrally-planned portion was significantly behind in both overall well-being and in technological innovations and adoption. West Germany had doubled the economic output of centrally-planned East Germany.

More importantly, West Germany had become one of the most technologically-advanced and environmentally-benign economies while East Germany was still reliant on dirty, obsolete technologies. For example, a coal-to-oil refinery in the former East Germany was still using World War II-era technology. West Germany’s better environmental situation probably arose from the fact that firms and the government were in an adversarial setting in which the firms focused on the most efficient use of resources and were insulated from political interest group pressures. On the other hand, resource allocation decisions in East Germany had to also consider interest group pressures that tended to protect old technologies and industries because these were state-owned enterprises.

The transformation of the West German economy, both technologically and institutionally, was akin to what we will need to meet current GHG reduction goals and beyond. This more clearly than any other example demonstrates how reliance on central planning, as attractive as it appears to achieving specific goals, can be overwhelmed by the complexity of our societies and economies. Despite explicit policies to pursue technological innovations, a market-based system progressed much more rapidly and further.

Rethinking the rates that utilities offer to customers

I just got back from an annual conference put on by the Center for Research in Regulated Industries. It brings together many of the applied economists and policy analysts working in California’s electricity industry. I presented a paper on reconsidering rate design.

Customers are often left out of the conversation about how to move forward into the new energy future, as they were at the recent CAISO Symposium where not a single customer representative was included in the “Town Hall Meeting.” Current retail rate tariffs seem to be designed with little thought about how customers would prefer to pay for their energy, and what might best encourage consumer energy management. And when customers are asked to take on more risk or cost to address energy needs, their revenue responsibility is often unchanged.

How should utilities align their rates and tariffs to fit customers’ preferences? Utilities both face a rapidly evolving energy marketplace and have available to them a larger portfolio of technologies to provide more services and to measure usage across different dimensions. One important step that utilities could take is to offer customers the same variety of contracts as the utilities make with their suppliers, so that rates mirror the power market.

Customers have a range of preferences, and some prefer to be more innovative or risk takers than others. To better match the market, should utilities offer a range of tariffs, and even allow customers to construct a portfolio of rates that allow a mix of hedging strategies? How should the costs be allocated equitably to customers to reflect the varying risks in those portfolios? How should the benefits of lower costs be allocated between the active and passive customers? The new metering infrastructure also provides opportunities for different billing strategies.

How should time varying rate (TVR) periods be structured to adapt to the potential shift over time when peak meter loads occur? Should the periods be defined by utility-side resources or the combination with customer-side resources? Is the meter an arbitrary division for setting the price? What is the balance between rate stability to encourage customer investment versus matching changing system costs? Should the utilities offer different TVR periods depending on the desired incentives for customer response?
In developing costs, how should utilities and commissions consider how resources are added, and in what capacity? Renewables are now part of the incremental resources for “new” load, and we can no longer rely on the assumption that fossil fuels are the marginal resource 100% of the time.

The “super off-peak” rate offered by Southern California Edison (SCE) to agricultural customers is one example of how a rate can be constructed to encourage customer participation in autonomous ongoing energy management. Are the incentives appropriate for that rate? Over what term should these rates be set given customer investment?

If you’re interested in this paper, drop me a line and I’ll send it along.