As we build markets between intelligent buildings and the intelligent grid, there are two paths we can take to demand-response. One imposes central control, and is essentially the voluntary acceptance of a specific brown out with some local control of timing. This mode is traditional, as when the power company turns off the home hot water heater. The other path creates market mechanism to encourage local energy arbitrage between time-dependent markets. I’m betting that the second offers considerably more potential.
In today’s public concept and in the political world, the simple load shedding model is the only one. When you get a price signal, you should turn off your A/C. No hot showers in the afternoon. We will be happy to sweat in the dark because we will be saving the planet. Belief in the sustainability of this model right up there with the sustainability of the economic model posed by the red-suited man at the local grocery store this last weekend. It is a desire for how one wishes things worked trumping how things actually do. Very few people not already in monasteries will commit to long term privation, however slight.
Arbitrage is a little harder to think about but easier to sustain. Arbitrage between time markets lets buildings not only respond to times of congestion and shortage, but to also take advantage of times of abundance, to use resources that currently go to waste.
In simplest terms, arbitrage between time markets is the decision by the building operator to buy power when it is cheap, and to refrain from buying power when it is expensive. It no longer matters how inefficient local storage of energy is, just whether that inefficiency is less than the price differential. If I can make 50% return on investment by buying at night rather than during the day, then a 40% loss due to storage inefficiency is inconsequential.
Early adopters will pay a premium for this ability, but will also earn a premium as one of the few able to shed the load. As the market develops, both premiums will come down, as storage becomes more efficient ad as the market broadens, driving prices at both times toward the mean.
The largest barrier to large-scale adoption is the systematic under-pricing of power during peak use. This failure of pricing is yet another symptom of a market that has always foisted it costs off on others. Dirty coal plants push the costs of generation off on those downwind. Storm recovery costs push poor capital allocation and sub-market labor contracts into cost recovery allowed by the utilities commission. Brownouts push the costs of poor pricing strategies onto the general public; except during system failure, every brown-out is a failure of pricing. These systematic failures are predictable symptoms of an industry that has been a regulated monopoly managed for cost recovery for the last 80 years.
Proper pricing will validate and reward the energy storage market. Owners will embrace energy storage when they can see clean numbers from the market. Energy storage will flood the market when the owners want it.
Energy storage is coming. I ask you, my readers, what energy storage strategies do you think will be the early winners? I have some ideas that I will share this weekend.