Local Storage is Changing the Decision Making Power of the Energy System (Episode 52)

John will be walking us through the findings of the report and the implications they have for electric utilities and the customers served by them. So John, welcome back to Building Local Power.

And so, I think that one example paints a really important picture for the implications of low cost energy storage and what it means across the country.

What that also does then is affect the other form of the word power. So it’s not just the electricity that is changing direction, but it’s the power over, the decision making power over the grid. And I’ve got a great illustration in the Webinar describing this report as well as in the report itself about how over 800,000 rooftops in California now host solar rays. That’s 800,000 power plants that were planned without an energy commission or a public utilities commission or a utility involved. It was just a customer saying, hey, putting solar on my roof is a good deal. What that implies then is that the way that we make decisions about our electricity system have completely changed. That we’re reversing the power flow, it is now coming from the bottom up instead from the top down and it has enormous implications for the way that we structure the rules for the electricity system and for electric utilities.

Now, what’s interesting in this report is that rather than focus on those technical implications of how we can have round the clock energy supply from renewables, what we’re talking about is how it affects the power relationships on the grid system. In this case, energy storage is super interesting because as you mentioned, all of those customers that have solar on their rooftop are still reliant on the utility. They can produce energy during the day, they can reduce their energy consumption. They can even in some cases, reduce their electricity bill down to near zero. They don’t have the power, for example, if the utility changes the rate structure and makes more of their bill a fixed charge every month to impact that, or if they have a demand charge in the bill, many commercial customers have a demand charge on the bill that’s related to their total peak energy use in a given month and it’s much more difficult to control that with solar because maybe a cloud happens to pass over that one moment you were hoping to reduce your energy use.

So with batteries, what’s happening is that customers are getting an unprecedented ability to control and manage their energy use and to respond to whatever it is that utilities try to do to try to maintain their revenue. And so, it means that utilities have to be much more responsive to what customers want in this energy system because customers have more power than ever to defect. We talk about in cellular phones, folks cutting the cord and going off of a landline. Now people aren’t going to cut the cord to the grid in the next decade, it’s just not going to make sense to do that. There’s all these benefits to being connected to the network. But what we’re talking about is what some folks call economic defection. It’s the ability to move almost all of your energy supply away from the utility and to be almost totally self reliant. That has such important financial implications for utilities that it’s going to motivate a lot of the choices that are made.

So let me get back to your other question now, which I think is a great one, which is wide bother with local. Why does it matter where this stuff is installed? Because a lot of people, and this goes back to that letter that we wrote to the California Energy Commission think it doesn’t really matter where we do renewable energy, we should just produce it wherever it’s the cheapest to produce at the point of production and not worry about location. But the implication here is actually really big and we cover this as well in our electric vehicle report choosing the electric avenue from last year as well as in this report is that we sort of doubled down on the economic and local benefits.

So if I have energy storage available in a neighborhood, it’s going to increase the amount of solar energy that we can produce there because right now the limitation on the grid is save me and 10 of my neighbors, I’ll put solar rays on a roof and we’re all pushing power back onto the grid at noon when many of us are at work and we’re not using a lot of energy in our homes. There’s going to be a limiting factor somewhere in that grid system as it goes upstream back to the utility. And right now that’s a technical limitation. Maybe it would require some sort of upgrade. So to the degree to which we can use that power locally, we increase the amount of energy that we can keep a within our system, which also increases the economic benefits of course because the more energy I’m avoiding buying from the utility, the more dollars I have available to use in my community.

So that could be an electric vehicle, it could be a battery storage system like Tesla’s Powerwall or sold by some other company. But any amount of energy storage that we have gives us that ability to generate more energy locally, to put more energy into that local system. It also makes us more resilient, of course, because a battery storage system of any type is an ability to have a resource that will work when the larger grid goes down.

I’m always fascinated for example, my wife texted me the other night because the power went out at our house. I’m just thinking to myself, hey, she can still communicate with me. 20 years ago when the power went out, like I would have had to be near a landline phone that she could have called and a phone that would be the only thing she could use. But she had her phone and when I got home she was watching Netflix using her cellular data connection in the dark. But she had something that she could use. And so, that’s just a great example of resilience powered by the battery in that tiny smartphone. When you talk about batteries for homes or batteries and cars, you’re just amplifying that resilience power because now you will get even more energy that you have available for local use.

By 2022, just four years from now, that’s in 40 states that you now have people that can economically compete with the power provided by the utility company with solar and energy storage. Just to give you a sense of how fast that’s moving, we have another comparison that we did in the report, was we looked at forecasts. So we looked at a really exciting Rocky Mountain Institute report on, of course I say exciting because I’m an energy nerd and I spend my life doing this. It was a great report by Rocky Mountain Institute that looked at price forecasts for energy storage. And so the forecast date back to about 2013 and the chart in the report shows that costs would be declining over time and pretty aggressively actually over the first 10 years of that forecast through 2023. What we did is we went back and said, okay, but what prices did they actually hit over that timeframe?

So there were a number of different forecast. Some of them ranging from sort of modest to very aggressive. Battery prices have outstripped even the most aggressive forecast by about 50% in the past five years. The numbers that people were expecting to see have gotten so much better so fast that the implications they were talking about being a decade or two away are now coming in five years or less. Will that continue, I don’t know. There’s lots of issues about the supply of lithium for lithium ion batteries for example, or other potential technical limitations or market supply issues that could get in the way as this stuff scales up. That happened with solar for example about a decade ago. There was a shortage of silicon and that raised the prices of panels for a couple of years artificially. But eventually, that was figured out and the supply chain caught up and production moved on.

Frankly, this is the lesson of distributed power and mass production, which is instead of building very customized big power plants, which gives you very little amount of learning that you can do from one to the next because you build so few of them, we are building millions and millions of power plants and now millions and millions of battery cells and battery packs. Elon Musk is building a gigafactory that kicks out a gigawatt of battery capacity every year but so are many other manufacturers. And so the learning curve is going incredibly fast. We’re mass producing these, we’re driving down the cost. So I think that the lesson that we get from that in terms of the implications is number one, this is happening faster than we thought and number two, that means we have to prepare even more quickly for what that means in terms of the structure of the electricity markets and the power of the relative parties.

So this notion that we had to build anything as a bridge to renewables it’s kind of crazy because we had plenty of other power plants that were mostly just sitting around waiting to step in in case we needed backup. That could be used more frequently, at least a portion of their capacity to smooth out when the wind picked up or dropped off or to handle that day and nighttime variation from solar.

So that number one is kind of the issue that we faced with gas. Now, a lot of environmentalists who were willing to sort of swallow that marketing thing under the notion that natural gas when you burn it is in fact a cleaner fuel than coal. And so we were getting reductions in greenhouse gas emissions at the power plant and lots of other harmful pollutants, whether that’s mercury or other things. And so, I think people looked at it and said, okay, well, if we’re replacing a coal plant with a gas plant, at least we’re winning somewhat. The bad news from a climate perspective is that we may not be winning anything at all because in fact there’s a lot of leakage of natural gas in the supply chain and unfortunately it’s a much more potent greenhouse gas than is carbon dioxide. And so, we have made a critical error in terms of our acceptance of it environmentally.

The second thing though, and I think this gets to what you’re saying in terms of moving forward and the implications of the technology of solar and energy storage is that it would be a crucial mistake now for any utility regulator who is overseeing a utility, proposing a natural gas power plant to go ahead with that proposal without considering the advantages of just trying to wait a year or two. Because as we pointed out, the costs of battery storage are coming down so quickly, the cost of solar continues to decline. There are so many thousands of customers that are going to make their own choices because of what is economic for them that is going to reduce the need for more centralized power plants. There’s almost no chance you could build a natural gas power plant today and be sure that over a 40 year life of that power plant that you could actually pay for it as a utility company or as an independent merchant.

And that really is the crucial issue at stake in the findings of this report, that with any power plant, there is an element of risk, with any construction project, there’s an element of risk and right now what we’re talking about is a huge risk for any of these new centralized power plants.

Thank you so much for tuning into this episode of Building Local Power. Now this is the part of a podcast where you usually hear something about a mattress company issuing loans for audio books or something like that, but that’s not really how it works here at ILSR. We’re a national organization that supports local economies which means we don’t accept national advertising. Please consider making a donation to ILSR. Not only does your support underwrite this podcast but it also helps us produce all the resources and research we make available for free on our website, like the one we’re discussing today. Please take a minute and go to Ilsr.org/donate any amount as welcome and sincerely appreciated. That’s Ilsr.org/donate. Thank you so much and now back to John Farrell, ILSR’s Energy Democracy Initiative director.

So now we’re going to turn to the way that electric utilities have responded to this new trend, this new trend of battery energy storage becoming a lot more cost effective and giving customers more control. So, John, you kind of hinted at it earlier with some of the anecdotes you were sharing but how are electric utilities responding to this.

So in three crucial ways there, they are threatening the utility business model. And so what utilities have done in response, the first thing that they’ve done is try to put up the stop sign. You think of yourself going past a construction site on the road and it gets down to one lane and the guy out there in the vest is there with the stop sign. Utilities are out there everyday with that stop sign trying to find ways to put a halt to customers installing their own power generation and energy storage. Sometimes they’re doing it by trying to change the rate structure to make an uneconomic to install solar. Other times it’s they’re trying to reduce the compensation for folks who do install solar or install a fee on the bills. There are dozens and dozens if not hundreds of stories of this. In fact, we track them for a while over the past few years and called it distributed generation under fire. It was a regular blog post that we did and we updated on a quarterly or annual basis. So it happens a lot.

There’s a couple other ways that utilities are approaching this as well though. A lot of them have invested in utility scale renewable energy. And for folks who are mostly interested in renewable energy from an environmental perspective, I think what utilities are hoping is this will be sufficient for them. They’re like, hey, we’re building huge wind farms, we’re building big solar arrays. The grid is greening up, the carbon emissions are reducing, the pollution is reducing. That’s what a lot of people care about. It’s true. When we are talking about approaching climate change, getting carbon emissions down is super important.

But there are a couple of other things that people do care about that are not covered by that. One is the economic opportunity that comes from renewable energy. I have a much bigger stake in terms of the value to me of putting solar on my own rooftop and capturing all that economic value myself than at getting a tiny fraction of the potential savings that the utility might pass through after it’s rewarded shareholders for power plants that it’s built.

Now that differs of course based on the kind of utility you have. Most Americans are served by investor owned utilities, they’re owned by shareholders, they’re regulated. Sometimes successfully and sometimes not by public agencies. A lot of people are served by cooperatives or by publicly owned utilities. In those cases, the calculus might be a little bit different where as a co-op owner, for example, I actually own a slice of the utility company and I do share in the benefits when renewables are invested at a large scale. But it doesn’t necessarily address the fact that people may simply want to exercise their right to capture the entity that falls on their property. People may want to take advantage of those economic opportunities. And as well, a grid is more resilient when it’s more distributed.

And so, like we talked about before with people, my wife watching Netflix in the dark because the power is out, if there are batteries distributed all around in communities owned by people that are not the utility, they provide that resiliency in the event of outages. And so those could be in community centers and they can be places where folks gather during natural disasters or it could be in homes and businesses where people are able to keep the lights on and the refrigerator running or something like that at a minimum.

So there are a lot of benefits there that aren’t captured with utility scale. The final thing that utilities are doing is they’re trying to get into utility ownership of distributed systems. So you have, for example, Tucson Electric Power and Arizona Public Service, two shareholder owned utilities in Arizona and what they’ve invested in and what they’ve been allowed to pilot is owning the solar arrays that are on people’s houses. So the folks in those homes have a solar array on the rooftop but rather than getting a very large reduction in their energy bill as would be the case, if they owned it, they might be getting a nominal monthly payment of 10 or 20 or $30 as sort of a roof rental fee.

As we cover in the webinar presentation and also in some previous blog posts, what that really does is suck a lot of the economic value and opportunity out of the transition to clean energy. Writ large, we have a lot of people especially who have been lower income or maybe not had the capital to invest in clean energy who are finally going to get the chance to as the costs come down. An opportunity to shift the wealth in the energy system and distribute it among a lot more people, especially those who’ve been traditionally been walled out. And so, at this point in the game, try to put up walls to people to have an opportunity to invest in themselves, I think would be a real strike against equity and the opportunity for energy democracy.

All of that is happening unfortunately, and it’s one of the things that we pay very close attention to and trying to ensure that people retain the right to invest in clean energy and the way that makes most sense for them.

I think that when you’re talking about those large centralized utilities, you think of a lot of different coal power plants, nuclear power plants, so it makes sense. They were large in the past but now that we have this change in business model, we have this change in technology and individual households, individual, those little power plants that you were talking about before, it was challenging that monopoly that the folks in those board rooms maybe some captured regulators or something like that are really kind of saying, no, we don’t want to change. We don’t want to do anything. We don’t want to return any of this wonderful money that’s lining my pocket to the people who could benefit from it.

And so, I’m kind of wondering, because it comes up a lot in some of the things we’re talking about, whether it’s Amazon or it’s a number of other large monopolistic behemoths, like what can a monopoly electric utility do and change in the way they’re doing things to actually return the money to these folks that deserve it from these battery storage arrays and solar energy arrays. Because a lot of folks would just say, break them up, they don’t need to exist, get them out of here. What’s the way that we can actually do something to transition this to a more equitable system? I know we have some recommendations in the report but I’m kind of wondering what that looks like from your perspective.

And so, what they’re doing, for example, is there helping people pay for a battery storage system for their home with a small monthly charge on the utility bill over 10 or 15 years or helping people finance the solar array or increasing compensation for solar relative to how much that solar energy helps them reduce the energy electricity system demand at times of peak energy use. So there are ways that utility companies can I think make investments that are still good for their shareholders. And in fact, Green Mountain Power is outperforming the index of other investor owned utilities over the past four or five years as a benefit corporation. So I think that’s a really key lesson there. Not every utility is like Green Mountain Power or has the same customer base. There’s a lot of caveats to that. But I think that’s a very powerful example.

The second one really does get down to what you talked about in terms of the recommendations we have in the report and the rules. And I won’t go through all of them other than to say the key to this whole question right now, the key to solving and to addressing this transition is customers already have access to these things that they can choose to do themselves, whether that’s solar or batteries or electric vehicles. And right now that’s biased toward people who have more wealth and access to capital, but it is increasingly going to become more democratic in terms of who has access.

And so the question is how can the utility system, how can the utility market structure account for and reward the value that those bring to the grid no matter who owns it. Because right now, basically we reward that value in full only when the utility builds and owns it. But for example, if my battery can help maintain the grid’s consistent voltage and frequency, a very valuable service and I don’t live on the east coast, I have no way of getting paid for that. Or if my battery could be partially controlled by the utility at a time of high stress on the system to avoid a blackout, and I could get a payment for that in the same way that I could with my air conditioner, that would be an important element of these market rules.

So, what we really need to talk about is how do we align the technological and economic choices people can already make with the way that we would reward those systems in the electricity market so that people can essentially get paid for the value they can create. The problem is that under the monopoly model, we really only recognize the full value of what one entity can produce, the monopoly, and we don’t recognize it for everybody else. And that monopoly is very resistant to recognizing the value that other people produce because it threatens their monopoly. And so, I think Green Mountain Power provides a powerful example of how you can exist in both spaces. And the question is, can we create rules that allow Green Mountain Power to still make money by helping customers do something but also reward their customers for doing those same things so that it’s fair, it’s a level playing field.

I think it strikes me, and I hope this is a fair characterization, and you’ll correct me if it’s not, so we’ll see. Only valuing the economic contributions of these monopoly utilities to the grid is kind of like only valuing the value that big box stores have to economies. Like how much money they make every year. And you’re not even looking at the ways that local economies have the spillover benefits. And those like small businesses and those types of things when they’re actually participating in the local economy. And so only looking at the three or four biggest names that you could possibly pick out of a list rather than like Joe’s rooftop from his solar array and his battery storage I think is a really useful way to kind of think about the types of things that are actually valued in what we’re talking about here.

So the first thing to do would be see, you know, what can you do yourself to be part of this new energy economy? And then what you learn from doing that is kind of how the rules are set up and what needs to change and who it is that makes the decisions around things. So for example, in a couple of states now, state regulators are issuing moratorium on natural gas power plants. Legislators can play a role in that. Legislators oversee those public regulators and they can help to establish better rules to allow a fair playing field between the behemoth utility that is investing in gigantic new power plants that may or may not be needed and the little individual producers who for example have to follow state set interconnection rules about how you can connect and plug into the grid.

So, there’s so many different ways that people can get involved. I think looking into it in terms of how it can benefit yourself is a great way to start because then you get something out of it that also helps other folks.

And so it will have a long financial and environmental implications for that community as a result of this monopoly being able to take money from its captive customers to influence public elected officials to favor building another power plant. And it’s, as you said, not the only example. I would definitely recommend as far as a good reading item an article called Power Failure by Tony Bartelme from the Post and Courier in Charleston, South Carolina that details a lot of high jinks like this in the southeast over the past decades.

Finally, help us out with a gift that helps us produce this podcast, get us great guests like John Farrell and produce original research on the way monopolies are impacting our economy. Once again, you can help us out by rating this podcast and sharing with your friends on iTunes or wherever you find your podcast. This show is produced by Lisa Gonzales and me, Nick Stumo-Langer. Our theme music is Funk Interlude by Dysfunction AL. For the Institute for Local Self Reliance, I’m Nick Stumo-Langer and I hope you’ll join us again in two weeks for the next episode of Building Local Power.