Tech out to disrupt power industry
Firms look to use big data to make grid more efficient
Transforming the flow of energy would greatly impact Houston.
WASHINGTON — First, it was the music industry and travel agents, then shopping and taxicabs. Now, as Silicon Valley pushes to digitize the globe, its next target for disruption is the power industry.
From newly minted startup firms to Silicon Valley giants like Oracle and industrial powerhouses like General Electric and ABB, hundreds of millions of dollars are flowing into so-called big data technologies designed to remake the power grid.
Out are centralized, fossil-fuel-fired plants sending electricity in one direction. In are rooftop solar systems, smart thermostats, home battery systems and wind farms. All are controlled by computer algorithms and updated hardware that pull in and analyze thousands of data points on weather, pricing and electricity consumption to create a power grid that can shift demand when supplies run thin and rely more on renewable energy.
“In a few years, maybe a couple decades, when we look back we will be surprised we used to burn all this fossil fuel,” said Amit Narayan, founder and CEO of AutoGrid, a startup outside San Francisco. “There’s fundamentally no reason to do that anymore.”
If that prediction proves accurate, it would have profound implications for the U.S. power industry, which relies on coal and natural gas for more than 60 percent of the electricity on the grid. Perhaps nowhere would the impact be felt more than in Houston — home to Calpine, Dynegy and NRG, three of the nation’s largest power generators — and the surrounding Gulf Coast, where the drilling and transportation of natural gas through pipelines and a growing fleet of LNG terminals are cornerstones of the regional economy.
As a single example, a 16 percent increase in wind generation — which an engineering professor at the University of Iowa said was likely if wind farms used the latest big data tools — would potentially mean a 4 percent decrease in the amount of electricity generated from natural gas.
For now, analysts and executives aren’t ringing alarm bells for the power industry. The sort of technological advances imagined by Silicon Valley would require not just the buy-in of utilities and consumers but also state and federal regulators. Whether they will go along remains to be seen.
“The utility industry is dipping its toe into the idea of big data,” said Travis Miller, an equity strategist at the research firm Morningstar. “This is all very early days.”
But the potential threat is significant enough that some of the nation’s and world’s largest utilities, including Southern Co. of Atlanta and Xcel Energy of Minneapolis, are backing companies like AutoGrid, which they believe could play a critical role in managing the flow of power across the grid.
Through Energy Impact Partners, a venture capital firm run by a former GE executive, those utilities’ money is flowing to companies engaged in what CEO Hans Kobler described as “the energy future” — helping the grid adjust to increasing amounts of renewable energy coming online, often from home and community solar systems as opposed to centralized power plants.
“We tend to take our marching orders from our (utility) partners, and they look for areas that bring them closer to the customer and harden their system for the challenges that lie ahead as we shift to a decentralized system,” he said. “Today, the wires are very important, but I think the whole industry will change in a way it has not since its inception.”
Colliding worlds
What AutoGrid and its competitors offer are software platforms that create virtual power plants without ever laying a brick. Customers producing excess power with rooftop solar systems and those willing to curtail electricity use at times of high demand through smart devices such as Google’s Nest thermostats are managed through these software platforms.
Instead of cranking up expensive, gas-fired plants when demand spikes and electricity prices climb, companies like AutoGrid can provide the needed power by aggregating rooftop solar with savings from lowering a couple thousand thermostats a degree or two.
But just how fast and how far utilities will go in adopting these technologies remains an open question. Oracle paid more than $530 million last year for Opower, the Virginiabased software provider that counts 60 million customers on its platform. And AutoGrid is trumpeting $20 million in funding from Energy Impact Partners. But those are small figures considering the U.S. utility sector is worth $2.3 trillion, according to some estimates.
“You almost have two worlds colliding,” said Andrew Mulherkar, a senior analyst with GTM Research, an electricity market analysis group. “Silicon Valley, which moves very quickly, and the utility industry, which until recently moved very slowly.”
While much can be accomplished with software, the modern grid envisioned by futurists in Silicon Valley will require a variety of hardware, from advanced batteries that store electricity to smart transformers, relays and other equipment that can record and transmit data back to control rooms — costly investments that would likely require rate increases and the approval of state regulators.
“The grid needs to become a hell of a lot more robust and smarter in the next 5, 10, 20 years,” Kobler said. “The stress on the system is going to increase exponentially with the emergence of clean energies that are more volatile and the growth of electric vehicle infrastructure, which will put even more strain.”
So far, state regulators who control the country’s power markets are largely watching and waiting. But the running question is which other states will follow as states like California and New York press utilities to modernize their grids and increase the presence of renewables. Last month the Federal Energy Regulatory Commission convened a two-day meeting in Washington for utilities, power companies and their consultants to hash out whether market rules need to be updated to reflect new priorities.
Tsunami of data
But many utilities are not waiting. Smart electric meters, which report power consumption to utilities in 15 minute intervals, were installed across Texas almost a decade ago and have opened a data tsunami, with which utilities are just starting to come to grips.
At CenterPoint Energy in Houston, engineers used that data with software for pinpointing downed power lines to improve response times of repair crews by an average of 30 minutes, said Chief Information Officer Gary Hayes.
The next phase is using those tools to integrate power supplied by rooftop solar systems, which deliver an ever shifting electricity supply to the grid. Houston has relatively few rooftop systems, but executives at CenterPoint expect that to increase exponentially in the decades ahead.
“The more uncertainty people put in our environment, the more tools we need to control the supply,” Hayes said.
At CPS Energy in San Antonio, AutoGrid’s platform is used to speed demand management programs that call on businesses and homes to cut power use at times of high demand. Executives estimate that will save customers $8.5 million in transmission costs this year - a 3 percent savings.
Keeping pace with technological advancements might very well become a question of survival for traditional power companies and utilities. Silicon Valley is already showing its willingness not to just provide technology but also to get into the power business itself.
Earlier this year, a California startup named Griddy launched a membership-based retail power business in Texas. For a fee of $9.99 a month, customers buy all their power at wholesale rates, which, according to the company, works out to about a 30 percent savings from the average retail plan.
Such a strategy would be anathema to most power executives, who say doing so carries the risk of astronomical bills for customers if prices spike. But Gregory L. Craig, Griddy’s founder and CEO, said those risks are overblown to justify the large staffs and power trading systems employed by his competitors. Griddy, rather, uses a computer platform to detect power usage through smart meters and buy exactly how much electricity customers need in that moment, allowing them to take advantage when wholesale prices fall.
Retailers “have scared the bejesus out of the consumer about those hot summer price spikes,” Craig said, but for every one price spike, wholesale prices “went under zero cents 37 times.”
“Our intent is to be disruptive in the say ways Uber and Lyft disrupted the taxi industry,” he said.
800-pound gorillas
With technology companies such as Google and Amazon expanding into self-driving cars and drones, and accruing everexpanding stores of data, many wonder if their entry into the power sector is inevitable.
Last summer, DeepMind, a British company acquired by Google in 2014, announced it used its artificial intelligence platform to reduce cooling bills at Google’s data centers — a major expense for any facility with row-upon-row of servers — by 40 percent.
“The utilities have had trouble. They collect a lot of data, but they haven’t had much luck making it useful for themselves or their customers,” said Brett Feldman, an analyst at the research firm Navigant. “This is what Silicon Valley is about, using all kinds of data to get more efficiency.”