It’s Time to Talk about Virtual Net Demand
Originally published on North American Clean Energy on March 15, 2017
Over the past 10 years, many states implemented regulatory changes to energy policy to establish net metering as a way to integrate solar into the energy mix. Net metering worked well to standardize the value of solar energy, providing clarity around the rates that solar developers can expect for the energy they produce.
Utilities have often been less than enthusiastic about net metering, though, because they are required to take inventory (electrons) at retail rates, with implied low margin on this excess inventory. As solar scales on a grid, physical and economic imbalances become more problematic for utilities as they are increasingly challenged to absorb the excess generation. Many know the consequence of this dynamic as the famed Duck Curve, which visually demonstrates the dramatic impact of scale solar generation relative to peak demand.
As solar’s capacity on the grid grows and the Duck Curve takes form, net metering will be increasingly challenged. Utilities will employ various strategies to counteract it. Those strategies often include new demand charges, fixed charges and time of day energy pricing, to name a few.
On balance, fixed charges are a poor solution. They add a new cost to the rate base of users, while simply entrenching existing market dynamics. Demand charges and time-of-day energy pricing are more powerful, creating new pricing dynamics that emerging providers and technologies (like energy storage) can leverage to create business opportunity around balancing the network.
Alarmists will tell you that these measures stand to create uncertainty and wild swings in rates for end consumers. If done blindly, maybe, but that’s not a balanced assessment. Smart rate design can mute and manage the potential problems, while exposing market dynamics to propel deployment of a modern, flexible grid. On that front, New York has been a leader, and is already headed in this direction with its Reforming Energy Vision (REV) framework.
As markets evolve this way, there’s will be new considerations and issues that emerge. There is one topic in particular that currently bears examination by industry and regulators.
Virtual net demand.
Today, we’re largely tied to the notion that energy relationships are executed through single meters, each linked to a specific property. States like New York have started removing that dependency by enabling community solar as well as providing remote net metering allowances, albeit on a restricted basis. That’s a start, but is ultimately just a coarse, monthly energy true-up, not a dynamic power balancing.
We need dynamic power balancing across properties. Virtual net demand is crucial to establish the flexibility necessary to address the Duck Curve and fully modernize the grid at speed.
In a future of community solar, energy storage, EV cars, autonomous fleets and new public-private partnerships, the marketplace needs more flexible, time-dependent relationships that span locations, measuring and optimizing demand across meters.
Imagine a future scenario with a business that:
- Has a property with separate energy meters for the building and the parking lot
- Subscribes to community solar for energy generation needs
- Supports charging for owned and operated EVs (that charge both on property and off property)
- Enables, without underwriting, charging of 3rd party EVs on property
- Employs offsite storage to act in concert with all the above, balancing and optimizing energy usage
This is a real scenario in the near future with an energy footprint that spans locations and meters. Here’s a picture that depicts such distributed grid relationships:
Note: An equally likely and similarly consequential scenario could use a single-family home, a school, a mall/retail facility, a commercial real estate owner, an industrial complex, or a mutual-tenant residential facility as the examples.
Understanding the distributed energy profile starts with technology to measure and align the generation and load sources at a data center in real-time. Then, technology can help implement decision-making around that information. Energy storage and controllable load sources (EV charging) can be deployed to optimize and balance out the network, based on real-time status.
It’s all about dynamic energy accounting, a true-up of all energy resources tied to an entity, even those across properties. That’s what Virtual Net Demand is: an information layer that lives atop the physical grid.
Here’s the simple formula for Virtual Net Demand to sum up a series of power readings at a moment in time:
A series of Virtual Net Demand calculations can be taken over time to calculate the energy impact, which is effectively a Remote Net Metering calculation.
Getting to the point, the smartest route is a regulatory examination of, push for and ultimately allowances around Virtual Net Demand, within certain grid and distance confines. Here are three reasons why.
- Optimal integration of renewable generation ultimately is a function of minimizing net virtual demand across time for specific energy properties and the grid as a whole. If renewable generation, demand/load management and storage are dimensioned perfectly, virtual net demand should trend to zero over time, addressing the Duck Curve.
- Freeing energy relationships to live across meters offers massive new network flexibility to meet looming network challenges.
- Exposure of virtual net demand creates exciting, new large-scale business opportunities for utilities and new business. That manifests in the form of new products and brands, new technology such as community storage, new capabilities such as EV “roaming charges” reflected on unified utility bills, and new public/private partnership possibilities.
Each of these opportunities is worth a separate post, but at this point, transmission and delivery utilities should be jumping for joy. The market dynamic smells of unprecedented new upside over the next 30 years. To get a sense of that, think about how Verizon’s and Comcast’s business evolved and strengthened since the advent of the internet.
Sure, the knee-jerk reaction of most utilities will be to lament the impact to demand charges. When considered more strategically, though, the utilities stand to co-opt demand charges to underwrite asset deployments using other entities’ dollars while maintaining the value of the demand charges in the system.
That’s the ticket. Not to mention a few teeny-tiny side benefits; we end up with a grid and cities that are far more clean and resilient, we deploy with foundational infrastructure that propels the development of smart cities, and we create a slew of new jobs and economic growth. All are compelling reasons why regulators and politicians should care. The safest bet is that, as they start to really understand it, they will.