by: Joel Makower
First, a little context. I’ve long maintained that the same constellation of forces that are requiring us to re-examine our energy generation and use — worldwide growing energy demand, depleting oil stocks, constrained and fragile electric grid, climate change, and all the rest — is fueling a wave of non-energy companies into the energy business. I’m not referring to the hundreds of solar, wind, biofuels, and other clean-tech start-ups you’ve been reading about. I’m talking about some of the world’s biggest companies that are finding themselves, largely for the first time, in the energy business. These new energy companies aren’t traditional oil, coal, nuclear, or natural gas companies, or energy utilities in the traditional sense. Rather, they represent companies as diverse as the electronics firm Toshiba (making fuel cells for laptops) to livestock processor Tyson (partnering with ConocoPhillips to convert beef, pork, and poultry fat into biodiesel).
To a large degree, the trajectory of energy technology mirrors that of information technology. Consider: the first computer systems consisted of a central computer hardwired to a lot of "dumb" terminals — so called because their principal purpose was to draw information from a big, smart mainframe. Then PCs came along and were able to do useful things themselves, as well as to talk to mainframes and to other PCs. Now, of course, everything talks to everything else — our computers with a billion other computers, as well as with our televisions, phones, and, soon, our cars, refrigerators, and wristwatches — and can do so wirelessly.
Energy systems are developing along similar lines. Most of us still live in systems where a central "mainframe" power plant feeds energy to "dumb" terminals — our homes and businesses. Increasingly, some homes and businesses are becoming smarter, as we install solar and other renewable systems to generate power, selling excess energy back to the grid. In the not-too-distant future, major appliances like refrigerators and heating and air conditioning systems will be "talking" to the electric grid, making adjustments or perhaps powering up or down during the course of the day in response to shifting energy demands and rates. Our plug-in electric vehicles and hybrids will store electricity in their increasingly more powerful batteries, and will sell extra power back to the grid when needed. We’ll be able to make energy transactions from our vehicles, PCs, PDAs, and cell phones. And much of this will take place wirelessly.
All of these activities require switches, routers, microprocessors, and software — the essential ingredients of computing networks and the Internet — meaning that companies like IBM, Intel, Cisco, and Microsoft will be increasingly in the energy business. (Mahvash Yazdi, the Chief Information Officer at Southern California Edison, one of California’s large electric utilities, told me last year that when her company’s service territory is fully retrofitted with "smart" meters that can be read wirelessly, SCE will be able to collect data from 5.3 million electric meters every fifteen seconds. That’s a phenomenal amount of data and computing power.)
So, where do buildings come in? Consider that electric utilities maintain "peaker plants" — power plants that are turned on during times of high "peak" demand for electricity. In many cases, peaker plants are older, dirties plants that have been replaced by cleaner, more efficient ones, but kept around "just in case" electricity demands require that they be turned on; some peaker plants are used for only a few hours a year. Suffice to say, peaker plants are subobtimal — imagine keeping an old gas-guzzler in your garage and keeping insurance paid up for a vehicle to be used just a few days a year when relatives are in town — and are often the subject of citizen opposition — whether to build new ones or keep old ones operating.
But suppose there was another way? That’s where commercial buildings come in.
Imagine the scenario: it’s 4 pm on a hot summer day. Air conditioners are blasting, both in offices and in homes. The local utility has maxed out its available power and needs to add more to meet demand, which is expected to rise further before the day is out, as people go home and turn up their AC, among other things.
But rather than firing up a standby power plant, the local utility, by prearrangement, selectively and briefly turns off the large air conditioning or refrigeration units in large office buildings, warehouses, big-box stores, and other large facilities in its service area. It does this for staggered five minute intervals per hour — imperceptibly to the occupants — thereby reducing overall demand sufficient to avoid adding new generation capacity.
In this scenario, these dynamic, demand-responsive buildings serve as virtual power plants — buildings as peaker plants.
The building owners, for their part, get a special rate or credit for allowing the utility to do this — and may even be able to override the utility’s control in special conditions — so it’s pretty risk-free. Perhaps they’d get free energy upgrades — for lighting, hot water, heating and air conditioning systems, and other energy-intensive equipment — for being willing to participate. For the utility, such investments will likely be far cheaper than the $40 to $50 million price tag for at least one recent peaker plant — which doesn’t include the plant’s onoing operating costs. And that’s assuming the utility can get the community to let them even build one.
There’s a business opportunity here for enterprising souls able to aggregate several million square feet of commercial space in a given service area, then "sell" those relationships to the local utility as a virtual peaker. Based on local utility tarrifs and state laws, the entrepreneur might even be able to get tax credits or other incentives available to build new power plants. More than likely, however, such arrangements will need a spate of new regulations and laws that provide incentives — to building owners, utilities, and third-party entrepreneurs — to allow buildings to serve as peaker plants.
I’m sure there are 1,001 other barriers — reluctant building owners, technical challenges, and so on — but none of them seem insurmountable. What will it take for such sensible efficiency measures to trump the construction of new, fuel-sucking, emissions-generating power plants?
Something to ponder this summer as you crank up the AC.