Before the U.S. electric grid became centralized under utilities and independent system operators, it consisted of unorganized and unconnected generators. As distributed energy resources (DERs) – such as rooftop solar, energy storage, and other generation sources beyond large power plants – find their way into (and onto) more homes and businesses, it’s clear the grid’s future has a lot in common with its roots. This time, however, an array of new technologies will help us take advantage of a more decentralized approach.
But are utilities ready to handle this change? Although some are eager to try, the answer under most current utility business models is a resounding “no.” This is because current business models promise utilities profit for putting more steel into the ground and selling as much energy as possible – the exact things DERs help avoid.
Despite all this, can we find ways for utilities and DERs to be friends? We think so. Meet the “Bring Your Own Battery” (BYOB) model. Developed by San Diego Gas & Electric (SDG&E) and collaborators at Rocky Mountain Institute’s eLab Accelerator, it capitalizes on the emerging movement of customers bringing their own batteries to the grid. What’s more, it creates a role for the utility to facilitate rather than fight the expansion of DERs.
How BYOB works
At its core, the BYOB model finds locational hotspots – places where the electric grid needs upgrades or maintenance to meet changing conditions. It then uses customer-owned batteries like electric vehicles, Tesla’s new Powerwall home battery, or industrial-scale batteries instead of new grid investments, to meet that need. This works because utilities can aggregate individual batteries, first in these locational hotspots and, once expanded, throughout their service territory to provide technical services to the grid. The utility will coordinate these services through some degree of direct control, but it will also include something more innovative: it will employ storage-incentivizing electricity rates. These rates will send price signals to communicate when customers should charge or consume from their batteries, and helps them save money in the process by giving them the information they need to most cheaply use energy, both for themselves and for the electrical system as a whole. Thus, the customer, the grid, and the utility all win.
While the BYOB model is still in its formative phase, SDG&E has gone on to submit it to the California Public Utilities Commission (CPUC) in its Distribution Resources Plan (DRP). Once the CPUC approves this pilot, SDG&E can start implementing this innovative approach to distributed energy resources.
BYOB paves the way for new utility business models
This exciting new model, along with the evolving grid, opens the door to a broader discussion on the changing role of utilities. As we move toward an increasing amount of distributed renewables like rooftop and community solar, the utilities’ traditional role as the owner, provider, and distributor of energy is challenged. The title of SDG&E’s DRP pilot says it all: “New Business Utility Model for DER Integration.”
In this new energy paradigm, the model looks more like Uber or Airbnb, where a company’s success is not based on owning all of its assets. No longer do utilities need to own power plants to remain profitable or relevant – instead they can act as facilitators or air traffic controllers of energy generated by their customers. BYOB is a step toward a model that creates new revenue streams outside of the status quo – a status quo that encourages utilities to invest in (and earn profits from) new infrastructure while shouldering the costs on customers through higher electricity rates.
It’s exciting to see SDG&E initiating a more equitable and inclusive way of doing business. The BYOB program may be new, but its concept is not. Other programs to promote renewables in homes and businesses, like the California Solar Initiative and Self-Generation Incentive Program, have paved the way for this participatory service model. The California Solar Initiative is a solar rebate program which offers solar customers different incentives based off of how much their system produces. Similarly, the Self-Generation Incentive Program provides incentives for California residents and businesses to install qualifying distributed energy systems. Although the CPUC may have a sense of being in new terrain, there is significant policy precedence and experience to build upon.
Still, some questions remain. What are we trying to maximize when it comes to BYOB? Is it environmental goals, economic efficiency, grid reliability? These questions apply not only to the BYOB model, but how we wish to govern the electric grid as a whole. While the ideas of customer fairness and increasing the value of energy storage for both customers and utilities have grabbed the spotlight, BYOB presents other opportunities as well, like greenhouse gas reductions and a more dependable distribution system. The bottom line: BYOB is a critical step in moving California toward a more sustainable and reliable energy system, one that uses lessons from the past to innovate for the future.
This post originally appeared on our California Dream 2.0 blog.