Much of the focus when discussing smart grids has been on hard-ware, such as heat pumps and energy storage opportunities offered by electric cars. It has struck me that not sufficient importance is given to the IT infrastructure and the operational intelligence required to actually run a smart grid.
Smart use of smart grids
Energy utilities are in an ideal situation to take a leading role in the development of smart grids as long as they remain agnostic about the elements that form part of the smart grid. The moment energy companies try and start dominating the heat pump and energy storage market they will be focussing on the wrong thing.
The money is in the smart use of the smart data supplied by the smart meters of the smart grid.
It will enable the energy company as a spider in the web to determine when to use what asset and optimise its revenue.
The money is in the data
This means that energy companies should be focussing on the collection and interpretation of data. Data has become a most valuable asset judging by the valuation of Facebook and the same applies to energy companies.
Privacy objection are temporary
Collection and use of data has privacy implications. These privacy implications stopped the rapid introduction of smart metering in The Netherlands, It is however my impression that the majority of internet users are gradually coming to terms with the benefits of the web knowing what our preferences are. It would not surprise me if people actually start liking the fact that automatic marketing systems create offers for them in line with their preferences; and even if we do not like it, data collection about us appears to have its own unstoppable momentum.
Smarts grids means lower costs
The collection of data by energy companies has definite advantages to consumers because it will lower their energy bill.
It will lower their energy bill because:
- the smart use of energy will reduce the amount of overcapacity that energy companies now have to maintain and
- it will lower their energy bill if they can respond to the pricing incentives that a good smart grid system can send to the clients connected to it.
Lower costs by moving the demand curve
Currently energy prices are set by energy companies using their cost efficient power generators first and their least efficient reacting to more or less fixed in-elastic demand.
The price is determined by the least efficient generator.
The moment demand becomes more flexible energy companies will see their revenues drop as consumers will take less energy when they try and increase prices. It will no longer be the most inefficiency/expensive power generator determining the price.
The price will be determined by the flexibility of the consumers fixing .
How to make money out of lower costs
Unable to set the price energy producers will see their income reduced, to make up for some of this loss they can position themselves at the heart of the smart grid and make money as a result of that position.
- By enabling consumers to get the best price out of the market some of that benefit will stay with them.
- By optimizing the use of the various hardware parts of the grid. Energy companies will be paid for that service and,
- By supplying energy to the grid (using their efficient wind parks and gas powered generation capacity)
- By reducing its own costs as a smart grid will enable an energy producer to reduce its overcapacity.
Smart grids, in other words, offer energy companies an excellent opportunity,