Written by Chris Martin. This article first appeared in Bloomberg Markets.
It will be the world’s smallest electricity market.
In mid-December, National Grid Plc will flip the switch on an automated trading system that pays hospitals and research facilities at the Buffalo Niagara Medical Campus to sell electricity from their onsite solar panels, batteries or other generators to doctors’ offices and businesses — the first power market ever designed within a single utility service area.
The micro-market is an example of the Uber-effect, applying big data to better monetize small assets. The same technology could be used to help homeowners sell electricity from rooftop solar panels to their neighbors, and it may be a key part of New York Governor Andrew Cuomo’s plan to get half the state’s power from renewable sources by 2030.
“This will force changes on the utilities, in their planning and their operations,” said John Rhodes, chairman of the New York Public Service Commission.
The market will take its cue from the New York Independent System Operator’s day-ahead power price, crunching data like weather forecasts, historic usage and current output to set a price on an hour of electricity from the various generating assets within the 120-acre campus. Unlike wholesale markets that deliver gigawatts of energy across states, this one will trade about 5 megawatts to 10 megawatts on the campus in downtown Buffalo.
Letting different systems compete to supply energy will lead to a more cost-effective mix, said Keyvan Cohanim, chief commercial officer at Opus One Solutions Inc., the smart-grid technology company that developed the micro-market.
“It’s all about helping utilities get more distributed energy on the grid,” he said. “This market will provide a natural incentive to create a decentralized, more resilient grid.”
After the devastation wrought on Puerto Rico’s electric grid and parts of the U.S. southeast following an unusually active hurricane season, microgrids are increasingly seen as a way forward to help keep the lights on.
Adding a market to the microgrid will also make it more efficient for utilities to operate the grid, and eliminate or delay investment in large new fossil fuel plants, substations and wires, Rhodes said.
National Grid, the local utility, stands to lose some revenue after the micromarket opens because the campus may use more power from its own assets and less from the grid. The company will instead get fees to participate in the market, according to Fouad Dagher, director of solution development at the utility.
“This is an opportunity for our customers to participate in the market,” Dagher said at an industry conference. “Anyone with an energy asset — or a willingness to cut their demand when needed — can participate. Any form of energy or load is welcome.”
The goal is to provide a value for clean energy using a market mechanism, at a very local level. That type of information will help developers find other communities where they can profitably install new power systems, especially small ones that are easy to build quickly in small pockets of the state that have unique power needs.
Opus One is one of dozens of start-ups providing technology for utilities, developers and building owners. The Richmond Hill, Ontario-based company was drawn to New York by Pat Sapinsley, managing director of Urban Future Lab, a non-profit incubator in Brooklyn.
Sapinsley is ushering software and financial technologies through pilot projects for New York’s massive effort to shake up the moribund utility sector and redefine how electricity is produced, delivered and consumed. The Reforming the Energy Vision initiative began in 2014 and is now starting to gain traction.
“It takes a decade to make these kinds of changes,” Sapinsley said.
Other pilot projects that are starting to show results in New York’s effort include:
- Sealed, which has retrofitted hundreds of homes using a financing model that verifies reductions in energy consumption and divides the savings between homeowners and their utility.
- Smarter Grid Solutions, a Scotland-based company that uses software and distributed controls to balance energy supplies with local demand. The controls maximize use of renewable energy from distributed resources, potentially tripling the amount sent reliably to the grid.
- GI Energy, which encourages owners of industrial yards and parking lots to lease space for 1-megawatt battery storage systems contained in trailers. Local utilities use the systems to reduce strain on the grid, and when not in use by the utility, the developer can sell services to the state’s wholesale market.
For participants like Opus One, the work to transform the energy industry in New York is just about to get interesting. And a lot bigger if it works out.
“Utilities across America are looking at this new type of market,” Cohanim said. “It’s very similar to what happened with the disruption in IT and telecom. This is innovation, focused on energy.”