Market view: Exploiting the Uber-grid

The smart grid of the future will be renewable, data-driven and Uberised, says Robert McFarlane – which incumbent utilities can treat as a challenge or an opportunity.

It is easy to think it’s all doom and gloom in the energy market. Electricity blackouts in the next decade, ongoing pricing and competition concerns, and fears that the election of a certain US president may have trumped the campaign for renewable energy – there are plenty of things that could go wrong in the coming years.

Yet there is also much to be optimistic about. Technological developments give us the opportunity, if we make the most of it, to transform the electricity market into something better for everyone. And it has already started to happen.

By 2020 every home in the UK should have a smart meter. It will be the first step towards reinventing our electricity grid in the consumer’s mind, bringing the magic of data and the internet to one of our most essential utilities.

Smart meters are only the beginning. Given time, our ability to capture and process data from a whole range of Internet of Things (IoT) devices will make our electricity infrastructure truly smart and reactive.

Let us imagine that smart home appliances become commonplace, IoT-connected sensors are consistently implemented throughout the national grid and local distribution networks, and that all these devices are able to share data with each other (without major security vulnerabilities). The entire infrastructure could work in perfect harmony.

Your kettle could tell the network when it is usually switched on, helping it to predict usage. Your lights could automatically run at a lower power setting when electricity demand is high. And faults could be rapidly identified using sensors embedded in every cable, which regularly share diagnostic data.

With data and connectivity available throughout the grid, it will be much easier to manage energy supply and ensure that it is handled as efficiently as possible.

However, it will take more than data to sustain the energy market into the next century. We need to change the way we produce energy. The phrase “renewable energy” is far too often accompanied with a sigh and a sense of hopelessness. For a long time, the limitations on renewable energy have been too great for us to be particularly optimistic.

Wind and solar power can only supply electricity at certain times of the day and are often too inefficient to be viable without subsidy. They are often bound up in legal and regulatory hurdles in places like Louisiana, where the local rates structure makes using a solar panel in August and September worse for your electricity bill than not owning one at all. And in the UK, a 65 per cent cut in green energy subsidies hasn’t helped.

Yet its future does not have to be bleak. Major energy companies are investing heavily in batteries and power storage systems that can keep electricity flowing when wind and solar output drops. Solar panels are becoming more efficient than ever before, hitting a 34.5 per cent sunlight-to-electricity conversion rate earlier this year. In the UK, despite subsidy cuts, we have started producing more energy from solar than coal.

An Uber-style sharing economy

Even in isolation, each of these trends will be hugely transformative for the electricity market. Big data and the IoT will make the system smarter, while cheaper and more efficient solar panels will make renewable energy more accessible to both energy suppliers and individuals. Bring these two together and you get an Uber-style, sharing economy revolution.

The sharing economy is a radical rethinking of the way we conduct transactions, allowing people to monetise assets that they are not using by using technology to reach out to potential consumers directly.

The electricity market is perfectly placed for this model. Our roofs sit unused, ready to be monetised with solar panels; at the same time, the IoT gives us the data we need to handle more complex buying and selling on the market.

Better, cheaper and more efficient renewable energy will allow consumers to become energy independent and make a side income selling their surplus to the grid. Over time, energy generation will be decentralised and much less wasteful, allowing people greater choice over how and where they buy and sell electricity.

For energy suppliers today, this is a great opportunity. Much like how the telecoms industry has profited hugely from adapting to broadband, the utilities sector has a lot to gain from embracing this new reality.

Don’t fight consumers generating their own electricity, but support and provide value to them. Suppliers should be sharing their expertise, supplying infrastructure and using their sophisticated modelling, software and data. Whether it is predicting the energy output of solar panels or helping households to use as little electricity as possible, there is plenty of room to offer a service to these new electricity generators while continuing to supply to industry and major electricity users.

We are on the verge of a transformation in the way we manage and supply electricity. And while it is prudent to be concerned about the challenges ahead, we should also be thinking about the opportunities.