Free markets are Live Markets

The Wall Street Journal looked at Texas Energy price increases this year and got nearly everything wrong.

The big changes in electrical prices in Texas this year mirror the price changes in all energy markets. It is unclear to me how people think that *any* industry, no matter how regulated, can repeal supply and demand for its primary supplies. Some are arguing that these price changes argue for extended market regulation. The regulated energy market is not the natural order; we have a regulated market structure only because nothing else made sense in 1908 when the current model was created in Chicago..

Renewable energy will not work until we break the dependency on the perfect grid. The current grid requires spun up power plants, always ready, to achieve reliability. This spin reserve is an effective tax on every renewable energy source because unfortunately renewable ==> unreliable

You can gain reliability by combining a number of unreliable sources, as long as the reliability profiles for the different sources are different. This requires scheduling and wide area service choreography, and perhaps even architectures with full ontologies, as some laughed about yesterday on another thread. Those interested should just google Kombikraftwerk.

There is an interesting combined power generation scheme currently underway in the inland empire area of California, that combines remote web control of household systems, including homeowner intervention (Don’t regulate anything today – my wife’s parents are in town and I do not want to listen to my mother in law complain!). What is unique about the system is that it is only installed in house that also have solar panels, and the excess output is sold back to the grid at prices as if it was one large distributed solar PV generator, a virtual power plant. This business model, and many others, only works with the extra incentives of live time-of-day pricing.

Many observe that live pricing does not work very well with the home and office infrastructure we have. Well, the internet did not work very well with the phone infrastructure we had 20 years ago. Live prices will be what creates the infrastructure of tomorrow that will work differently.

One difference will be home storage of energy. Energy storage need not be limited to batteries or lakes in the mountains. A tank of icy slush in the basement is a fine energy store if your major energy use is daytime cooling; cool it at night and use it for Air Conditioning during the day. Your heat pump to make the slush is also working more efficiently when it is cooler outside. At a 20% price difference between 2AM and 2PM, that slush might start looking pretty good. At a 50% difference, everyone might have one. We do not know what folks will come up with, and without market information on value and scarcity, we won’t.

It is these new markets that make live pricing important. New business models will change technology decisions.

Local storage becomes an additional use for any locally generated power. This increases the benefits for both generation and storage. This continues to make folks less sensitive to grid fluctuations. This ecology of local energy requires live pricing to thrive.

B2B2B2B

Several precise correspondents disagreed with my characterization of the ideal interface on every energy widget as a single Business to Business B2B economic interface. Some argued for Business 2 Machine (B2M) and some argued for Machine to Machine (M2M). A few argued for P2B (Person to Business). I think they all make it too complex, and limit the opportunity for new business models. B2B is meant to liberate new markets, new market entrants, new trading models.

Starting with today’s Automated Demand-Response (ADR) interfaces, we get more benefits as we move them from M2M to B2B. People want to be in charge of their own property, so a Business inside the building puts the occupant in control. A business inside the building can only express their willingness to participate with an offer or bid. As not all bids are winning bids, the energy supplier outside the building must select a group of offers that clears the market and inform the winning and losing bids. To my eye, that is a B both inside and outside the building.

Remember, the biggest Demand Response on record is when ALCOA furloughed an entire plant for the summer to sell power at high prices to California. Business response always has more options than M2M.

The homeowner, or the homeowner’s agent needs the same opportunities to bid as does the business. The homeowner’s bid may be subsumed into a larger bid, say, a bid by the green neighborhood homeowner’s association. For the utility, a single home, a row of townhouses, or a neighborhood should all have the same external interface. Clearly the neighborhood and the business should have all the same options. This means that the homeowner’s agent, no matter how small, has a business interface on its outside.

Homes may sell power to other homes in the neighborhood. This may be generator power after the storm, or solar power in the afternoon. There may be competition between my neighbor and the big utility for my business. Homes need the same selling interfaces as the larger grid.

I may even have an economic competition inside my home. If I have told my washer not to run, or my car not to charge, until the price is less than a target, that might be a simpler market interface. One source of power for the car or washer may be in-home generation. Perhaps I can charge from that whenever I wish. Or perhaps I am able to sell my local generation back to the grid for higher than the target price, so the washer sits idle.

Perhaps my car batteries and my home batteries have their own rules. Each wants a little bit of storage, say for a 20 mile drive, or to run off-grid for 1 day. Each of them also could charge up for longer. Perhaps the car and the house will bid the price higher when they are below these minima. Perhaps the house will sell stored energy to the car, but only at a premium.

Variable pricing makes economic sense out of local storage. Local storage markets grow naturally. Local storage removes Grid reliability arbitrage tax on unreliable sources. This transfers larger portion of dollars (less fee for T&D) to the unreliable producer...Local storage will grow, but only when it is priced properly.

Eco was in economics before eco was in ecology. We can have a vibrant market ecology at every level of the grid, from the largest scale to the neighborhood microgrid, to inside the house.

Weekend Reading on Smart Homes

The Sunday New York Times has some nice introductory material on smart homes. They skate quickly by prices to devices and the smart grid. They write about putting the homeowner in control. They even show several home panels.

With only one screenshot, I cannot comment on the systems described. One looks more like a home theater console with a dishwasher added. Another allows scheduling of building systems, but gives no sign of interaction with and feedback from the power grid. Admitting that it might be based upon selection bias, the Echelon screen is the most interesting to me.

The Echelon product, shown above, is the only one that clearly indicates the economic aspect of each device. What it does not show is the effect of variable pricing on costs. What we need is Echelon (or someone else) sharing information like that in a standard format that consumer programmers can interact with. By consumer programmers, I mean that I want to see consumer oriented interfaces developed for the PC, for the Mac, for the iPhone, and for the Android.

Schedules, electrical use, and services are the important abstractions. Abstractions are the basis for standards, and interoperability. More importantly, abstract standards with prices are then at the level of business interactions. Such a standard is ready for third party management. Such a standard is ready for driving maintenance by value.

Check out the article, in the references below…

Service enabling Telecommunications – lessons for Buildings and Grid

Peter Carbone, Vice President of SOA for Nortel, gave a nice high level talk on the challenges facing a company that grew up with rigid account control and vertical integration in a regulated environment learning to dance in the world of SOA and mash-ups. As markets for building systems are still characterized by rigid account control and vertical integration, and the power grid is still vertically integrated, regulated, and almost complete account control, there are some useful lessons.

Infrastructure convergence was the enabling and driving change for telecommunications. Provisioning telecommunications was long the most difficult task. Over the last decade, the diverse communication infrastructure converged to a single packet-based infrastructure with resulting dramatic simplification of security and reliability. The questions move from “What low level communications do you need” to “What interactive services do you need?”

This evolution changed how Nortel had to think about and market their services. Before the change, Nortel sold vertically integrated applications that were inflexible. As the core technologies converged, Nortel was forced to decompose advanced services into core functions and then plug them back into the new architecture.

Fortunately, decomposing integrated services into core functions looks a lot like defining a service for service oriented architecture. Fundamental telecommunications functions can now be built into enterprise applications without requiring exotic skills are deep domain knowledge.

Skills-based routing and deployment was one example. Peter discussed a SAP integration with critical system causing expensive downtime, emergency part ordering, and synchronizing communication with an outside expert so that the repair personnel, the piece of equipment, and, via telecommunications and real-time identification of the expert on call, the expert’s telepresence were synchronized.

In a similar vein, he discussed abstracting the GPS function from the cell phone to block access in the security system when the phone was in a forbidden zone. Peter gave many more examples and you can find his slides on the OASIS conference site.

So what can building systems and the power grid learn from this?

Well, the owners expect the systems to just run, and are annoyed whenever someone says words like BACnet or LON (or any other control protocol) in their presence. We need to decompose advanced services to discover the core functions, from the owner’s and the tenant’s perspective, and present them as interfaces that can be plugged back into the enterprise.

As Peter summed up the C-Level response: “I just spent $100 Million fixing my processes, you had better be compatible.”

Building services that can present themselves as that can interact with SAP, or with PeopleSoft will have an advantage. The services that know how to display themselves on Google Earth will know how to request the nearest technician.

Likewise, Grid requests that present themselves to ERP services will find faster acceptance. Grid requests that describe grid pricing as shapes that can be pinned to Google Earth will enable the enterprise to come up with multi-site responses that may be different from any single site.

No one cares about the old vertical applications. Enterprise interactions are everything.