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The end of power utilities? Maybe not just yet…

By Dave Elliott

Local generation is challenging the power utilities in the US and elsewhere. Some of the implications of that trend are reviewed in a useful series of studies by the US Lawrence Berkeley National Labs on Future Electric Utility Regulation which look at Regulation in a High Distributed Energy Resources Future i.e. in the context of a potential future with a high reliance on energy efficiency, peak load management, distributed generation and storage.

One of  Berkeley Lab’s  studies (No.1 in the series) focuses on regulation of Distributed Energy Resources in terms of  advantages and disadvantages from the perspectives of utilities and customers and the potential role (if any) of the big power utilities in the future. The report says that the emergence of distributed energy resources (DERs) that can generate, manage and store energy on the customer side of the electric meter is widely recognized as a transformative force in the power sector’. It suggests that, as DERs become competitive in price and performance for many customers, ‘utilities will face reduced sales volume, more elastic customer demand, and greater opportunities to substitute DER optimization for traditional utility assets and services. It expects that ‘dramatic reductions in the cost of regulated distribution networks will be sought by all stakeholders’, and, although that could be good for all concerned, it raises the question of whether utilities will or should bother trying to enter DER markets, given what might be diminishing returns.

Certainly it says that it is not a straightforward decision, quoting Gregory Aliff, Beyond the math: Preparing for disruption and innovation in the US electric power industry, (Deloitte 2013): ‘A decision to transition to a higher overall risk profile will likely involve significant internal debate and high probability of negative reactions from the financial markets and shareholders. This barrier may ultimately be deemed insurmountable – and as a consequence, new business alternatives may be severely constrained.’

That has evidently already been judged to be the case in Germany, where companies like RWE and E.ON have in effect lost monopoly control of the consumer electricity market as prosumer self-generation  and local energy co-ops have spread, with PV solar especially challenging the utilities’ gas-fired plants in the lucrative peak demand market. The big utilities have had to retreat to servicing this new decentralised market (which accounts for around 40% of Germany’s renewable capacity) and managing the grid. The Berkeley report seems to suggest something similar may happen in the US – but with the added issue of trying to ensure that consumers stay on the grid. There’s evidently concern about ‘grid defection’. That would make managing the system (e.g. balancing variable renewables and variable demand) much harder, potentially undermining the role of DERs and making life hard for the utilities.

Instead, the Berkeley Lab report says that ‘by facilitating DERs, utilities can both lower their costs and increase the benefits they can offer customers who deploy DERs, providing an incentive to remain connected to the distribution system rather than defect from it’.  It adds ‘the fundamental role of the utility will evolve to support this lower cost, higher value service that can be provided when customer-facing DERs are coordinated to not only provide customer services, but to create value for the distribution utility and grid as well. However, that evolution may occur in different directions. One points towards a major utility presence in sourcing, financing and optimizing DERs for customers. The other points towards a major role for competitive firms in not only providing DERs through competitive channels, but also in competing to tailor DERs’ performance and optimize the total value they can create in this emerging, three-sided market comprised of customers, distribution utilities and the grid itself.’

The report also suggests that, in the US context, regulators may in any case not let utilities enter DER markets, quoting a comment in a recent New York Public Service Commission Order: ‘Markets will thrive best where there is both the perception and the reality of a level  playing field, and that is best accomplished by restricting the ability of utilities to participate’. Before the New York Public Service Commission, Order Adopting Regulatory Policy Framework and Implementation Plan, Case 14-M-101, Proceeding on Motion of the Commission in Regard to Reforming the Energy Vision, Feb. 26, 2015, p. 67.

The Berkeley Lab report seeks to steer in between rival views. One says that, having lost their market monopoly, the utilities will fade away, the other that their supply system will always be cheaper than DERs, or if not, that utilities would be best suited to deploying DERs. Instead, the report says that the utilities will not disappear, but they will have to change their role, from monopoly suppliers to energy service companies and new decentral market enablers, with only limited involvement in generation themselves, as opposed to supporting local distributed generation by others.

Maybe so. They do after all have the expertise, even if they may have lost the trust of consumers. And their traditional markets. Though the exact balance between the various possible elements of the new role that utilities might play is unclear, with the report suggesting that in one, utilities successfully evolve to play the major role in using DERs to provide services to customers, while in the other, ‘these functions are increasingly performed by competitive firms using advanced and largely decentralized digital technologies, and the utility “sticks to its knitting” in terms of providing and maintaining infrastructure needed to deliver basic energy and capacity services, while depending on DERs to entice its customers to remain connected to the system and help the utility maintain sustainable cost levels’.

 Either way, though, their role will be very different from now – and that’s a conclusion that has emerged after just an initial wave of successfully grass-roots decentralized power initiatives. Who knows what may come next, with, for example, pressure for municipal-level energy projects beginning to emerge and some US prosumers banding together in local shared ‘community solar’ micro-grid schemes and peer-to-pear trading:  and It does seem that we are moving away from centralised monopoly power. Though against some opposition, as this report from the US indicates:

Battles over net metering, with utilities trying to limit their losses, may lead more consumers to consider going off-grid. A recent Wired article claimed that, with domestic self-generation, smart meters and local storage  ‘the national grid itself may become less important’, in that ‘we could be living in a world where consumers have super-efficient homes and are mainly generating on site’.  Certainly some say off-grid systems can be viable in some locations:

That may happen to some degree in some countries and locations but, overall, the reality seems to be that grids, linking to larger geographically-spread generation projects, will remain vital for balancing local variations in supply and demand, although utilities will have to adapt to a new pattern of energy generation and use.

*The Berkeley Lab reports: Report No 1: Corneli/Kihm, Electric Industry Structure and Regulatory Responses in a High Distributed Energy Resources Future.’ Report No 2 in this ongoing series looks at market design and distribution issues, including local peer-to-peer exchanges between projects and consumers.

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Distributed energy: from supply to demand

By Dave Elliott

Energy networks and distributed energy resources in Great Britain”

The context for this IGov paper from Matthew Lockwood at Exeter University, UK, is the desirability of a fundamental shift in the underlying design of the energy system from the supply side to the demand side. It starts by quoting the words of Professor Strbac ‘The whole culture and philosophy of the system is based on a predict-and-provide mentality’. (more…)

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Germany- to the max

Germany now gets around 20% of it electricity from renewables with 28 GW of wind and 25 GW of photovoltaics, plus biomass and hydro. But it’s aiming to expand that dramatically, in stages, to 35% by 2020 and 80% by 2050. Can it be done?

Germany can currently meet about 40% of its of its domestic power demand from PV solar on sunny summer days, while wind can supply a significant amount in winter when its strongest. In addition, within each season, both sources obviously vary from day to day and from hour to hour- and solar is always zero at night! These basic characteristics are the first key things you might need to know when considering if renewable can take over the bulk of power production. The second key thing is to do with location- most of the wind sites are in the north, the best solar in the south.

Given these two factors (timing and location) you can see why Germany is very focused now on energy storage and transmission issues. The basic energy resources are not the main problem – there seems to be enough to support a vast expansion: see

But the overall energy system will have to be radically revamped in order to use them effectively, with upgraded grid transmission and new storage capacity. However it goes beyond that. What is needed is a new engineering philosophy for the energy system design.

At present most power grid systems around the world are built on the basis of having a few large power plants feeding electricity down the grid to a large number remote consumers. Some of these plants, often nuclear plants, are kept running continuously to meet ‘baseload’ demand i.e. the minimum level of demand, while other plants are kept ready to ramp up to full power to meet the daily peaks in demand. For the moment renewables have simply been added on to this centralised system. But they don’t fit very well. They are often variable, smaller scale and distributed around the country. They need a different, more decentralised and flexible system. And it has been argued that we need to decide which one we want to use in future.

Germany has already decided. The German-Federal Minister of the Environment Norbert Röttgen said in 2010: ‘It is economically nonsensical to pursue two strategies at the same time, for both a centralized and a decentralized energy supply system, since both strategies would involve enormous investment requirements. I am convinced that the investment in renewable energies is the economically more promising project. But we will have to make up our minds. We can’t go down both paths at the same time’.

On this view baseload isn’t a help, in the new decentralised flexible energy supply and demand system, it’s an inflexible hindrance. In the new system, rather than having ‘always-on’ baseload (e.g. nuclear) plants, and then following any extra load with peaking plants (usually gas), in the new system, variable loads and variable supply (from renewables) are balanced via a smart grid with demand-side measures, load peak shaving/delay, energy storage, and backup sources. That’s just what Germany plans to move to.

The backup/balancing power will, for the moment, mostly be from natural gas plants, although later geothermal or biomass plants could take over. In addition use can be made of hydro reservoirs for storage/balancing- and that’s going to be expanded in Germany. But the really interesting new idea is to use surplus renewable electricity to make green gasses, hydrogen and then also possibly methane, using some CO2, and store it for later use for generation to meet peaks. See

All this means that there’s no need for nuclear baseload and that the use of natural gas can gradually decline. The Fraunhofer Institute modeled the renewables projected for 2020 and found that the need for baseload power will fall by half by then. Depending on how fast biogas substitution for natural gas can expand, that could mostly be coal fired by then. Ideally, given their carbon emissions, Germany should of course phase out coal plants before nuclear plants, or fossil gas use, but coal and fossil gas will be needed for a while for balancing.

There are of course other ideas. Nuclear supporters may say that, rather than going to all the bother of having wind plants backed up, why not stick to the old system and keep nuclear for baseload, and dump coal, while using renewables when they are available, storing any excess renewables as gas to meet peaks. In addition some new nuclear plants can load follow, to a some degree. They also point to the alleged wonders of Liquid Flouride Thorium Reactors, claimed as a safer nuclear option. But these are long shot ideas, decades away at best, and few in Germany will now look at nuclear. It is out, full stop. Instead it’s pushing hard for a decentral system based on renewables and energy efficiency.

That has social and political attractions, as well as reducing carbon emissions and the threat of nuclear accidents. As Craig Morris has commented in an interesting review of the German programme, ‘Germany is replacing central-station plants that can only be run by large corporations with truly distributed renewable power. While Germany’s Big Four utilities make up around three quarters of total power generation, they only own seven percent of green power. Roughly three quarters of renewable power investments have been made by individuals, communities, farmers, and small and midsize enterprises’.

He notes that a ‘a small-town energy revolution is going on in Germany, with more than 100 rural communities becoming 100% renewable.’, and concludes ‘so one reason why Germans might not mind paying a little more for green power is that they largely pay that money back to their communities and themselves, not to corporations’.

Will it work?

Phasing out nuclear by 2022 is a bold move. The opponents have painted grim pictures of prices hikes, blackouts, increased use of coal, with more emissions, and massive imports of nuclear electricity from France and gas from Russia. But in March 2011 the Federal Environment Agency, said that in principle ‘all of Germany’s nuclear power stations could be taken offline permanently by 2017,’ without resulting in ‘supply bottlenecks or in appreciably higher electricity prices.’ Furthermore, it claimed ‘Germany’s climate protection targets would not be compromised and Imports of nuclear power from abroad are not necessary’. Given the 2022 closure date in the event chosen, although it will clearly involve major challenges, there should be fewer problems.

And certainly, in reality, the lights have stayed on, emissions have fallen (by 2.2% in 2011) and the small prices rises don’t seem to have led to much opposition given the wide scale opposition to nuclear. In addition, Germany is still exporting power (net) to France, and as Craig Morris notes, if excess renewable power is converted into green gas and stored, then it won’t have to worry too much about imports, or interruption due to the weather. He says that German researchers have estimated that getting 100% renewables would only ‘require up to two weeks at a time to be bridged during the winter,’ far less than the 4 months gas storage already available.

It looks like they can do it.

Craig Morrison’s article:
See also David Roberts helpful review:

German Renewable Energies Agency report:
The Federal Environment Agency’s 2011 report ‘Restructuring electricity supply in Germany,’ is available from:

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