Reminders

The Consumerization of Energy (Revisited)

By January 4, 2013
OfflineRick Nicholson

Last year I wrote an article on the consumerization of energy in which I predicted that “Distributed energy technologies… will soon be able to provide electricity at costs and reliability levels that are competitive with grid power. For the first time in 100 years these technologies will enable consumers to bypass their local electric utility company.” This article examines what has and hasn’t changed in the intervening year.

Let's start with one of the biggest factors driving this trend, one that hasn't changed, which is the availability of abundant cheap natural gas in the U.S.  Natural gas spot prices generally stayed below $3.50/mmBtu in 2012, reaching a low of $1.95/mmBtu in April, and prices are expected to remain low for the foreseeable future according to EIA forecasts.  Shale gas continues to revolutionize the U.S. energy industry, driving the shift from coal to natural gas in traditional power generation, spurring interest in LNG exports, reviving plans for natural gas vehicles and making it more difficult for renewable energy to compete with fossil fuels without subsidies.  Distributed generation technologies like fuel cells and turbines that use natural gas as a fuel will continue to benefit from low fuel prices, making these resources increasingly attractive from an energy cost perspective.

The first and most important actual change in 2012 was the impact of severe weather events on grid reliability - specifically the impact from Hurricane Sandy which devastated large portions of New York and New Jersey.  It's fair to say that Sandy was the watershed event that is forcing utilities, governments and energy consumers to rethink the concept of reliability in an era of increasingly destructive and more frequent severe weather events.  Many articles and studies have pointed out that the grid is not adequately designed, built and operated to withstand these types of storms.  However, measures to harden the grid by burying or relocating transmission and distribution infrastructure are very costly and may not resolve the issue.  Indeed, a recent New York Times article pointed out that ConEdison "expects to spend as much as $450 million to repair damages to its electric grid in and around New York City."  Typical residential bills "would have to rise by almost 3 percent for three years to cover those expenses alone.  Putting all of its electric lines underground would cost around $40 billion, the company estimates.  To recover those costs, electric rates would probably have to triple for a decade or more."  However, a much greater use of distributed energy resources integrated as part of smart buildings and community micro-grids could be a much better solution to reliability in the face of severe weather events.  For example, New York University's recently commissioned combined heat and power (CHP) plant remained operational during Hurricane Sandy while the surrounding areas of lower Manhattan lost power.  NYU's CHP plant uses natural gas and steam turbines to provide electricity to 22 buildings and heat to 37.

Another change worth noting has been the increasing popularity of fuel cells.  Like NYU's CHP plant, at least two major fuel cell installations remained operational during Hurricane Sandy.  Delmarva Power had one such installation and stated that its "Bloom Energy Servers in New Castle, Delaware rode through Hurricane Sandy without incident and continued to feed power to the regional power grid despite all the challenges the storm presented."  The other installation was a UTC Power PureCell system installed at 1211 Avenue of the Americas that powers part of News Corp. headquarters.  It is notable that UTC Power is being acquired by another fuel cell company, ClearEdge Power, creating a fuel cell solution provider capable of serving a range of residential, small business and large enterprise customers.  Also notable is the traction that Bloom Energy has been gaining, particularly with mission critical facilities like data centers.  In 2012 Bloom Energy signed a landmark deal with eBay wherein the fuels cells will be the primary energy source for its new data center in Utah.  Bloom also announced aditional deals with AT&T, making it Bloom's largest non-utility customer.

My (unofficial) prediction is that the combination of low natural gas prices, severe weather events and advances in fuel cell and CHP technologies will be the primary drivers going forward for the consumerization of energy.

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