Markets and Innovation
Lynne Kiesling has written an excellent summary of the economic and social issues in California's odd statist proposal for central control of thermostats over at Knowledge Problem. As always, her disection of bad economics is better than mine.
I wrote about the proposal, and how it would undermine the development new markets, including small scale energy arbitrage in my musing on Energy Shorts.
Read what Lynne writes in Big Brother or Control Freaks.
The California Energy Commission, using technology to steal a march to the past, has proposed that all new buildings have thermostats under mandatory control by the power companies. It is hinted that there will be some exceptions, perhaps for health reasons. Look for the exemptions to be applied as a new source of patronage, with the occasional widow and orphanage puff piece in the press to cover up a highly politicized allocation process. In the 1930’s, central societal control of models were all the rage among the cognoscenti, and the only models that technology could support. Today, such ill considered efforts that the liberating power of modern technologies make me ashamed of my native state.
As bad as it is to train the populace to surrender autonomy to their technocrat overlords, it is worse that such regulations will hamper the development of new solutions that could save much more energy. Zero net energy buildings (the 2030 challenge) require active participation and involvement . New markets in energy will drive new savings and efficiencies. California is about to misuse technology to shed load badly, just as they misused regulation to create bad energy markets (Enron).
Buildings and Businesses will participate in active energy management when the transactions look like business, not like control. Markets preserve human autonomy while providing incentives to develop new solutions. Technology, when properly applied, enables energy use to be driven by markets.
Last spring, I wrote about Peter Kelly-Detwiler’s Option Calls on Customers as an improved way to sell demand response to owners and tenants. This approach is far superior to control operations for 3 reasons. (1) It makes energy management into a benefit rather than a burden, moving it out from the Maintenance Back Yard (behind the Back Room), and into the C-level suite. (2) It focuses energy control on the times of scarcity, rather than all the time, when its affect will be greatest. (3) It leaves the customer with the greatest range of behaviors to respond to a shortage.
Business options will always be larger than mere control options. Assume that I get a day ahead forecast. Tomorrow will be a scorcher and electricity will be scarce. Under a control model, all I can do is move up the thermostat. Under the business model, if the price is right, I can cancel all meetings and declare a telecommuting day and shut off the building.
One potential problem with the Options model is that the failure to execute an option, the lack of follow through on an accepted deal, can push a system into a crisis of or cause the utility to incur great expense to buy on the spot market. Real business markets will require real penalties for non-execution. Which leads me to my thought for the day; what to do if I short my energy needs for tomorrow?
Without execution penalties, not much. Without execution penalties, the utility company will have to somehow swallow the problem, perhaps by turning down all thermostats. With penalties, financial penalties, the problem becomes that of the owner who made the commitment.
Perhaps I can meet 85 percent of my commitment at an agreed upon price. I might be willing to buy, on the spot market, the remaining 15% at an double that price to preserve the overall deal. This price, far higher than the utility is offering, might make market participation attractive for the smaller business across the street. At that price, that company might have its own strategies that it is willing to use.
Energy Arbitrage is just one of the markets that might develop when we have an intelligent grid negotiating with intelligent agents in each building. It is also another market that won’t develop in California…
Earlier this week, I suggested that one outcome of the Software as a Service (SaaS) approach will be that complex operations such as BIM servers would migrate into cloud computing, where there data can be shared and updated by Designers, Architects, Engineers, and used by Owner/Operators.
This week, Sun (the computer company that long used the motto “the network is the computer”) announced that by 2015 Sun will have *no* data centers. All internal IT for this technology company will be acquired under the SaaS...
In the middle ages, people were scared. They had good reason to be scared. Wolves in the forest. Plague in the village. Roving bands of soldiers, and ex-soldiers, living off the land, and farm, and village. Pilgrimages became popular. Get out of town for a while. Get out of the oppressive oversight of your neighbors. It was all to show your devotion and faith.
Virtue is a good cover for economic uncertainty. Worried about the value of your house or the stability of your job? Shocked by $100 a barrel oil and its effects on all energy prices? You cut back. But no one wants to acknowledge they are cutting back. So you can go green, instead. Turn down the thermostat because you want to reduce your carbon footprint. That’s the ticket. I’m not worried. I’m virtuous.
Those who feel guilty about how well off they are can play, too. They can buy indulgences, errrr, carbon credits. Virtue by proxy. Western society is more committed to indulgences than any time since Martin Luther stirred things up in Wittenberg.
This sustainability is as shallow and short-lived as the arguments on a late night sports BLOG. The problem is, when times are good, when the uncertainties are gone, this kind of virtue evaporates. That thermostat will creep back up. That cold shower after the power company turned off the water heater in the afternoon becomes unacceptable.
We have seen this before, following the energy shocks of the 70s. We have worn cardigans to demonstrate virtue. We have seen home-made solar thermal collection installed in house after house. Some house and factories even installed the more expensive photovoltaics. You can see them now in some neighborhoods, rusting on the roof, taken off the window and stacked at the edge of the yard, unmaintained and unused.
The last wave of sustainability faded away because it made economy tolerable, but failed to make life better. Faced with that cusp, we will always go back to a better life, when we can. The challenge, then, is not to make buildings more efficient – we know how to do that.
The challenge is to make buildings that tenants like better, that happen to be more efficient. This keeps the homeowner committed. This lets the commercial owner recapture his investment on resale. We do this by making the building more responsive to the owner. We do this by talking about tenant benefits and not about cost avoidance and efficiency.
A responsive building saves money by responding to the tenant, with enough intelligence to know when to buy on the energy markets. An intelligent building will reward the tenant with rebates and cold cash, not with imagined cost avoidance. A responsible building will provide greater reliability to the tenant by implementing Galvin’s Perfect Power principles. A responsible building will request maintenance when it needs it, reducing the thing the owner and tenant have to worry about.
And if all of these benefits just happen to be more sustainable, then the owners and tenants will keep on using them when the crisis is over.
Today’s concerns and fears are an opportunity. They give us an opening to discuss what we know how to do. If use this opportunity to re-create the un-responsive siloed applications of the 70’s, well shame on all of us who know we can do better.