Prosumers, electricity grids, and systemic change

Last week I wrote about some of the challenges we face when trying to integrate renewables into electricity systems. One of the key changes we’ve seen in the last few years is around where electricity is being generated and by who. Prices of solar photovoltaics have been falling rapidly (in fact, the current trend is that the price is halving every 13 months!), battery prices are dropping, and consumers are becoming more actively engaged in the energy system. They are becoming prosumers; producing energy to use, store, or sell back to the grid.

However, countries (and even states and regions) aren’t united in their response to solar.

A recent report from the Center for Biological Diversity (CBD) showed that US state policy settings and related standards are a key influence on the presence of a solar market, the affordability of solar, the ability to connect it to the grid, and the way in which utilities interact with customers, which are key factors that can either enable or block solar uptake.

And it’s not just the US where policy settings are at play. Last week Solarcity New Zealand filed a legal complaint following the introduction of a “solar tax” by one a distribution company. Solarcity says that the new tax may dissuade people from putting solar PV panels on their roof. But the distribution company argues that they remain supportive of people choosing to install solar; their aim is simply to ensure that customers without distributed generation don’t end up paying higher prices as a result.

However, moves like this could have the same social inequity result by driving consumers off-grid, as we have seen happen in Germany and Spain. This could be particularly pronounced as storage prices continue to drop and demand for home battery packs rises. Tesla delivered 25MWh of storage to customers during Q1 of 2016, with delays in delivery caused by the sheer demand for their system. The company has now ramped up the production schedule at its new Gigafactory, which could create further price reductions and performance increases.

This trend away from centralised provision of power toward distributed resources could cause issues for countries wanting to ensure that electricity grids continue to provide affordable and reliable power to consumers. To ensure the lights stay on across all homes and businesses requires a rethink of our entire electricity market structure.

Adrian Tuck, CEO of Tendril, is one person striving to re-define the energy industry. In a recent interview, he spoke about how "innovative utilities are starting to think about ways to bundle products and services in a way that might include buying energy like you would buy broadband.”

We’re also seeing a break into the market in the peer-to-peer trading space from companies like Piclo and Sonnen, enabling customers with excess capacity to sell their energy to others that don’t have solar or whose systems don’t produce enough power to meet their needs.

Solutions like these could take us a long way, but to fully address challenges posed by the rapidly changing renewable energy landscape requires a radical redefinition of how we manage electricity systems and markets rather than small incremental changes. We need to find a solution that considers the location of prosumers to allow constraints to be managed at multiple scales, that accounts for the different market dynamics of investment in and operation of renewables, and that considers the role and value propositions for ALL stakeholders.

In a recent talk at the Oxford Martin School, Professor Malcolm McCulloch proposed one potential solution, which he calls the Fractal Grid.

The Fractal Grid creates a moves away from the flat relationship between utilities and consumers to a hierarchical approach, where the trading patterns between different entities are replicated at each level. This, he proposes, could enable the inclusion of a large number of distributed energy resources, while simultaneously ensuring supply with low variability in pricing and availability. Existing mechanisms have traded one of these of the other, but the fractal grid could - if constructed in the right way - deliver both.

And while this may not be the only solution, it demonstrates the sort of systemic change that’s needed to transition to a low carbon future. Of course the meta challenge will be in finding a way to transition scale of operation, market structure, levels and types of social engagement, and policy and governance together while continuing to keep the lights on.