For a long time, industrial companies have represented a highly variable and difficult to manage set of customers for utilities. Industrial plants and facilities can have big shifts in loads, and, as a result, utilities always must keep capacity readily available. That’s why this business relationship and pricing model traditionally has involved relatively low costs on a per-kilowatt-hour basis, plus additional "capacity charges."
The connections between the industrial sector and the utility industry will become increasingly complex and even more variable.
There's a shift toward more variable load-based processes today; but, just as significant, many industrial customers are embracing renewable energy sources often by deploying solar power installations on facility rooftops. Solar is variable. Another issue is the growing desire of many industrial companies to leave the grid to become more energy self-sufficient.
According to The Wall Street Journal, 16 percent of German companies are energy self-sufficient — a 50 percent increase from a year ago. Another 23 percent of businesses say they plan to become energy self-sufficient in the near future.
The industrial sector’s burgeoning desire for energy independence, plus its adoption of renewable energy, is having a profound impact on the utility industry’s financial future and could precipitate a structural crisis in energy supply.
As grid maintenance costs go up and the cost of renewable energy moves down, more industrial customers might feel compelled to leave the grid, pushing grid costs even higher for the remaining customers who might then leave the grid, too.
Despite this scenario, we believe that industrial customers can become an important asset to utilities that need to maintain a balanced grid. Why? Because the industrial sector’s variable loads can be controlled within limits, but with some flexibility.
And, if load control can be deployed when it’s needed — not just for general demand response during peak demand periods but also in response to solar generating conditions — two things can be accomplished:
- An individual facility's demand can be controlled and shifted in conjunction with solar (and eventually on-site storage) so demand becomes more consistent; and
- Even more aggressive management in response to overall system conditions could mean that the facility isn't just increasingly stable by itself but that it's actually helping stabilize the broader grid. In other words, as passing clouds temporarily reduce residential rooftop solar generation, a factory half a mile away could reduce its own demand accordingly.
All of this requires a demand-side controls system that can be: cost-effectively deployed; deployed across a broad range of commercial and industrial facilities; and integrated into utility transmission and distribution controls.
Once demand-side controls systems like this are in place, utilities might need to reconsider their pricing tariffs. When dealing with industrial customers, for example, it might make sense to drop the per-kilowatt-hour charge further while raising the capacity charge. This would incentivize industrial customers to get more actively involved in demand response and ancillary services.
In the meantime, utilities should focus incentives programs so they encourage as many industrial customers as possible to adopt intelligent load control systems. That way, plants and facilities will be assets-in-waiting when the utility-side economics and information technology systems are in place to use them.
Both the industrial sector and the utility industry must find new ways to deal with the intermittency and lack of predictability that renewable energy sources present.
To account for this solely on the supply side, many utilities might have to rely on standby peaking natural gas plants that idle or invest in grid-level storage to discharge stored energy when the renewable supply dips.
But by enabling quick-notice demand response, a technology solution like Powerit’s Spara allows demand-side load reductions to provide the grid with balancing capability. When the renewable supply drops, the load can be turned down. This can be less expensive than running standby peaking plants or investing in distributed storage.
Looking at this in another way, Spara technology makes solar less challenging (and even potentially a big positive) for utilities by providing stability and balancing the local grid.
On a more micro level, software like Spara can help a facility balance local generation and local demand within the plant. By monitoring the draw from the utility and managing the associated expense, the facility can take advantage of renewable resources while managing its traditional energy use to the lowest cost. Also, a facility can use automated demand response programs to bid its load flexibility into the grid and use local generation to offset that impact on its operation.
Sophisticated technology that’s affordable and easy to deploy will help determine our ability to efficiently and effectively balance energy supply and demand. And if they’re integrated thoughtfully, these solutions also can be instrumental in helping both the industrial sector and utility business achieve critical business objectives.
Rob Day is a partner with Boston-based Black Coral Capital. He has been a clean tech private equity investor since 2004 and acts or has served as a director, observer and advisory board member to multiple companies in the energy tech and related sectors, including Digital Lumens, Next Step Living, Noesis Energy and Powerit Solutions.
Kevin Klustner is CEO of Powerit Solutions, a Seattle-based international clean technology company involved in demand management. Its Spara DM technology links industrial facilities with the smart grid so customers can control energy use effortlessly for savings and sustainability.