"Next Gen Grid Tech Commercialization" for Duke University Energy Initiative graduate level course entitled: “Emerging Energy Technologies – From Lab to Market.”
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Guest lecture on "Next Gen Grid Tech Commercialization" for Duke University Energy Initiative graduate level course entitled: “Emerging Energy Technologies – From Lab to Market.” (790-01)
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"Next Gen Grid Tech Commercialization" for Duke University Energy Initiative graduate level course entitled: “Emerging Energy Technologies – From Lab to Market.”
- 1. 1 Next Gen Grid Tech Commercialization Josh Gould: Director of Innovation @ Duquesne Light, former ARPA-E T2M The following is my opinion and not necessarily that of Duquesne Light or ARPA-E
- 2. Personal Background Part 1: Starting out Part 2: School of Hard Knocks Part 3: Grid Tech 2
- 3. Primer: Utilities & Business Models 3
- 4. Commercialization necessitates a business model 4
- 6. “Cost of service” business / regulatory model: What is it? Major capital expenditures, like power plants and transmission lines, but also buildings, computers, fleet vehicles, etc. Percent return utilities make annually on their investment Regular expenses, like labor, power purchases, fuel, insurance and other costs that recur regularly (Rate Base Investment x Rate of Return) + Operating Expenses = Rev Requirement 6
- 7. “Cost of service” business / regulatory model: How is value delivered / captured? Utility Distribution Transmission Generation Value capture: Bill payments flow from ratepayers to the utility, in exchange for energy consumed $$ Ratepayers Retail Value creation & delivery: Electrons flow uni- directionally from utility to the customer 7
- 8. Pros & Cons of CoS Business Model Pros: • Utility stability, low cost of capital • Investor stability • Universal energy access (in developed countries) • Improving reliability Cons: • Inherent capital bias • Energy efficiency disincentive • Narrow focus (e.g., carbon, environmental justice, resiliency not necessarily part of business model) 8
- 9. Important side note: Utilities come in different “flavors” Generation Transmission Distribution Customer/Retail “Vertically Integrated”: Owns and earns rate of return on entire value chain “Wires Company”: Owns, earns return on T&D (sometimes just “D”); some own customer relationship Independent Power Producers (IPPs): Private companies producing bulk power in competitive, wholesale markets (typically “wires company” jurisdictions) – NOT utilities Competitive Retailers: Provide retail electricity to customers, often competing against “wires company” and other competitive retailers. Most (not all) responsible for procuring energy supply and customer billing. NOT utilities (but some are utility subsidiaries) 9
- 10. Energy System Design Principles, Societal Values Changing CoS Business Model From a system historically designed for… Universal energy access to meet ever- increasing demand Improving reliability Minimizing the cost of service Climate change mitigation and carbon reduction Improved human health through pollution reduction Resilience to natural disasters and malicious threats Increased customer choice and energy democracy Affordability and reduced energy burden Environmental justice for disadvantaged communities System flexibility to incorporate renewable and distributed generation Economic development …to a system with a new, expanded set of values 10
- 11. Consequently, regulatory reform efforts are changing the ways in which utilities earn money… I. Revenue decoupling II. New DER procurement practices III. Shared savings mechanisms IV. Performance incentive mechanisms (PIMs) V. Equalizing Capex/Opex VI. Securitization of stranded assets VII. Multi-year rate plans VIII. Platform revenues IX. New utility value-added services 11
- 12. …which is changing utility incentives “De-coupled” Performance- Based Regulation Description Implications • Utility revenues “de-coupled” from electricity sold • Utility negotiates “revenue requirement” (all costs) w/ regulator, compensated for costs regardless of electricity sold • A feature, less a business model itself – can be paired w/ other bus models • Greater incentive for energy efficiency • Many different “flavors”; in general, utility compensated on ability to meet targets • Often focused on outcomes (e.g., environmental) arguably not incented in other models • Can be paired with other bus models • Newest, most nascent model • Highly dependent on nature of incentives • May be more cost-conscious, less capital driven “Cost of Service” 12
- 13. I thought this class was about commercializing next gen grid tech – why are we talking about regulations and business models? Follow – and please challenge – my logic: 1. Selling is in large part an exercise in empathy: In order to get anyone to buy anything, you need to understand how your product / service could make their business or life better (and convince them of this fact) 2. In order to understand the value-add of your product / service, you must therefore understand how your customers, stakeholders, and competitors make money, and what their underlying incentives are 3. In summary: Commercialization requires selling requires empathy necessitates understanding of business model, associated incentives 13
- 14. Customer & Market Needs: Next Gen Grid Tech 14
- 15. Growing need for next-gen grid tech to evolve from “yesterday’s” grid Current Power Grid • One-way power flow • Utility has control over electricity flow • Match energy generation with consumption Generation Market Transmission Distribution Customer Few large power plants Centralized mostly regional Based on large power lines Top to bottom Passive, only paying 15
- 16. What’s driving change? Source: Utility Performance Incentive Mechanisms - A Handbook for Regulators Customer Preferences 16
- 17. Double-click: Customer preferences over time 2010-2015 1900-2010 2015-2020 Beyond 2020 Transformation Trends • Renewable expansion • Decline of coal fired plants • Growth in energy storage • Smart cities and electric transformation • More electric vehicles • New technologies 17
- 18. Double-click: What does this mean about where the grid is headed? *Grid Modernization Playbook. EPRI, Palo Alto, CA: 2019. 3002015238 Stage 1: Grid Modernization Stage 2: DER Integration Stage 3: Distributed Markets Customer Adoption Distribution System 18
- 19. Summary: Grid today increasingly clean, bi- directional, distributed, customer-empowered Today / near-future Power Grid • Two-way power flow • Intermittent resources (solar and wind) • More difficult to match generation and consumption Generation Market Transmission Distribution Customer Fewer large + many small power producers Decentralized, ignoring boundaries Including small-scale transmission and regional supply Both directions Active, participating in the system 19
- 20. Grid “3.0”: Multi-directional with customers at the center System operators Generators WHOLESALE & TRANSMISSION SYSTEM Distribution system operators DISTRIBUTION SYSTEM Microgrids Generation & storage Other customers Aggregators CUSTOMER Customers exchange services & value with each other and the grid There is now the possibility for bidirectional exchanges between each step of the energy value chain, visualized here as concentric circles. For example, aggregators can now bid customer resources into wholesale markets. In this example, flows are directly counter to the traditional linear flow from generator to consumer. 20
- 21. Merging 3 infrastructures Electrical Infrastructure Communication and Data Infrastructure Transportation Infrastructure 21
- 22. Challenge in getting from here to there: Grid visibility for operators (utilities) • System Operators have certain visibility of current grid • “Edge of the grid” is less visible • Less metering/sensing out towards the “edge” of the grid • Why this matters? This “edge” is where DER/Customer Programs is interconnecting and needs managing the most 22
- 23. Challenge in getting from here to there: Power systems intelligence, control, dispatch Descriptive Analytics Diagnostic Analytics Predictive Analytics Prescriptive Analytics Difficulty Value Where artificial intelligence happens? Where the utility space currently is? 23
- 24. Shout-out to ARPA-E: Changing what’s possible via technology innovation • Device-level programs: • ADEPT / Solar ADEPT • GRIDS • DAYS • System level programs: • GENI • NODES • Grid-data • PERFORM • Grid Optimization Competition 24
- 25. Implications for grid tech commercialization 25
- 26. Test & iterate across valleys of death Create something no one wants / isn’t valuable Create something that doesn’t work outside the lab Death by pilot Long sales cycles, low gross margins Key: Common Grid Tech Commercialization failure modes 26
- 27. Apply scientific method to biz model 27
- 28. What they all have in common… • Customer-centric • Flexible • Partnership-driven • Refusal to die or quit 28
- 29. Final thoughts • Deep de-carbonization probably requires us to electrify everything • Electrification makes the grid ever more important • Therefore, next gen grid tech is one of the most important and impactful problems you can work on • It’s also fun…there’s few vocations that leverage the right and left side of your brain like this • We need you! 29