Why is decentralization changing the energy industry?

Photo by Tom Arnold, courtesy TerraPass

Customers are looking for more than just project payback. They want control.

Author’s note: I was invited to give a talk to industry leaders at the 2014 Cleantech Forum about how decentralization was affecting our industry. My remarks are below.

When most people think about decentralization and cleantech, they immediately think of solar panels on the roof, or maybe a Bloom Box generating electricity in the basement. Some go further and include the “sharing economy,” such as people offering up their homes as vacation rentals on Airbnb.

I’d like to convince you the decentralized revolution isn’t about technology at all. It’s about people; and that’s a more powerful force than any technology we have.

Among many factors that are changing utility economics, decentralization stands out for its visible disruption to the rate base.
Most casual observers observe solar panels going up in their neighborhoods and parking lots and assume the economics are clear and the future certain. Of course, if you’ve ever explored these projects for your facility, you know the economics are less than spectacular and fraught with risk.

I first noticed this over a decade ago working on small-scale “cow power” projects on dairy farms. These projects are simple: lagoons of manure produce methane, which gets turned into electricity and hot water. Sort of a civilized version of Mad Max. Sounds great, right?

The only problem is, the projects don’t make much economic sense. The capital outlay is large, the red tape daunting, and the return anemic. Most of these farmers don’t even believe in climate change. So why were they doing these projects?

The farmers I worked with used words like “community,” “independence,” and “right.” When asked for their opinions on the local utility, they looked to make sure no children were present. They were in essence fighting a system that they didn’t believe served them.

This wasn’t about economic return; it was about “I want out.”

For me it was a glimpse of the future.

Fast forward a decade. At Gridium, we notice the same feelings and attitudes rippling through commercial energy customers.

Commercial energy customers are the disenfranchised majority. They represent 10% of customers, but about 60% of sales. Due to regulation they get the same level of service whether they spend a hundred dollars or a hundred million dollars a year. They pay the most complex charges, have the most complex needs, and are underserved by both the utility and industry.

In short, they’re like the dairy farmers who invest in cow power. Many of them feel the system is not working for them.

And yet, commercial customers hold the key to incredible savings opportunities. McKinsey estimates energy savings in buildings alone could reduce the nation’s energy consumption 23 percent by 2020, saving $1.2 trillion and reducing greenhouse gas emissions by 1.1 billion metric tons.

And these are just the efficiency benefits. If we want the grid to be resilient, to adapt to changes in renewables and extreme weather, then we also need smart buildings that can react to conditions in real-time. Today, most buildings are dumb; the system is connected to neither the technology in the building nor to the operator of the building.

So, why isn’t that happening?

Well one hypothesis we have at Gridium is that the system is making energy efficiency too hard. If we can’t do the easy stuff, why do we think the hard stuff will actually happen?

Like all decentralized businesses, we started with an opening in the existing system. For us that opening was smart meter data, currently available for about 40% of businesses nationwide.

Utility efficiency programs are notoriously complex, so we ignored them, and just started a simple email service for buildings, translating their own energy data into simple actionable tips, all for the less than the price of a daily coffee.

The results? In a typical building that email saves 5%. That might not sound like a lot, but consider but a typical office tower emits as much carbon as 800 cars. Five percent energy savings in an office tower is the same as taking 40 cars of the road. In just one building.

Gridium is a small company, but we’ve been able to run a very successful large-scale energy efficiency program, with no involvement from the utility system — no RFPs, no forms for end-users, no program overhead, no installations. We just focus on and empower the customer. In short we decentralize energy efficiency.

Some utilities are wise to these trends. PG&E, for example, is a utility that very clearly understands the potential benefits of customer engagement. We’re honored to be helping PG&E take the Gridium method to over 100,000 small businesses in California. Like good innovators in this space, they looked at what was working in the market and chose to nudge it along to scale.

Although we’re very proud of our technology, the lesson of our initial success is really about people.

In essence, we went looking for the cow power pioneers of the commercial energy space, the passionate folks that wanted to do the right thing but whose needs weren’t met by the existing utility system. And all we did was give them a few tools to spur them to action. Our results are their results.

So whether you’re an entrepreneur, investor, corporate, or utility trying to understand decentralization, don’t get fixated on technology and economics. Understand the user and what they want out of the system. Instead of battling them, try engaging them. You might be surprised at the results.

About Tom Arnold

Tom Arnold is co-founder and CEO of Gridium. Prior to Gridium, Tom Arnold was the Vice President of Energy Efficiency at EnerNOC, and cofounder at TerraPass. Tom has an MBA from the Wharton School of Business at the University of Pennsylvania and a BA in Economics from Dartmouth College. When he isn't thinking about the future of buildings, he enjoys riding his bike and chasing after his two daughters.

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