Digital energy is the free flow of real-time information exchanged between energy suppliers and consumers. It will transform everyone it touches in the fuel, electricity, and gas business. The process of energy digitization has already started with the spread of always-on Internet connections, deregulation, the rise of merchant generators, and wholesale power trading. The future of digital energy can be forecast by looking at how banking and equities have been changed by digital money and digital investment.
Digital energy will not just serve the big guys. We can see that by looking at how easy digital money is to use and how deeply and quickly it has spread into our every-day family life. Our teenagers have credit cards and retirement accounts. They use ATM’s in the Mall. My daughter goes on-line to manage the float in her bank account. She does this while instant messaging with a dozen friends in the upper corner of her homework screen. We can expect that digital energy will have similar results. Digital energy will not just advise consumers of conservation options, it will conserve for them. Digital energy will automatically shift their low-priority consumption off-peak, and, in the background, invisible to the user, digital energy systems will be trading energy internationally on their behalf. The rank order of the big energy players will change. Commercial and residential users will reward those who “go digital” and add practical consumer services. The laggards will spiral down into low margin commodity suppliers with no value added and beaten at every turn by companies who can slice and dice digital data for their commercial and residential consumers.
Who will bring digital energy? Let’s look at who transformed banking and equities. Our ubiquitous credit card society didn’t start at banks. Digital money started with Diners Club in the restaurant industry. Real-time stock trading didn’t come from the big New York brokerage houses. Digital investment was driven by a Boston maverick, Fidelity Investments, in the face of skepticism and foot dragging by the majors. Fidelity was once a sleepy mutual fund before it got digital and got creative. Digital money and digital investment propelled these mavericks into industry leaders with lower costs, higher margins, and intimate access to customers not to mention the sweet smell of success.
Don’t expect to see digital energy come from the big investor owned utilities. They have agonized over Automatic Meter Reading for thirty years. Within their narrow horizon, they can’t see the Return-on-Investment. Don’t expect to see demand-side load balancing come from them either. Supply side load balancing has worked for 100 years. Why complicate things? Crank up the generators. Send a bill to the rate payers every 30 days. Collect a check. End of relationship.
Digital energy is well advanced in the wholesale market. When the mavericks perfect digital energy, it will jump from the supply side to the demand side and make our homes, offices, stores, and industry more comfortable, more responsive to individual preferences, and cheaper. Like credit cards and ATMs, the technology of digital energy will be based in huge server farms, but the customer will find digital energy largely invisible and easy to use.
Digital energy will resolve a huge paradox in the electric utility industry. Electrons flow at the speed of light in vast networks, but our accounting for electrons is 30 days or more out of date. Likewise, if we want to manage some electrons, let’s say we want to buy them cheaper, buy them at different times of day, make them ourselves, or buy them green, we can’t. These electrons were long gone by the time we wanted to control them. Another paradox is illustrated by the difference between your car and your house. Your car has miles of wiring, scores of embedded microprocessors, and operates with the turn of a key. Your car is optimized for comfort, performance, and economy. Your house, on the other hand, has a primitive set of stove-pipe control systems. It is full of stand-alone electro-mechanical switches which were high technology in the 1930’s. Your house and business gobble energy with no concept of what power costs, or when it is cheaper. Not all big energy companies are laggards. In the Potomac region, PEPCO has begun installing smart meters as they want customers to know what power costs and when. Just now it is US$.19 kWh on peak and US$ .02 off peak. A nine to one ratio. Would you use more energy off peak if you could pay one - ninth the rate? Now suppose your digital energy system did all this for you. You say how economical you want to be and the digital energy system maximizes your comfort for the price. You can also say how green you want to be or how much power quality you want to pay for.
The transition to digital energy is getting closer. Like digital money, digital energy depends on communications. The communications channel of choice will be the Internet. Many utilities can show you old data, such as your bill, on-line, but don’t have an answer for showing customers real-time data. The digital transformation will come when the Internet is used for UPLOADING real-time meter and control data into servers as well as downloading control messages managing switches and relays. You can measure the approach of digital energy by calculating the average distance from a meter or control to a practical Internet gateway. Dial-up phones are not a practical solution. The communications required are always-on DSL, Ethernet, and cable gateways. We can expect that large commercial meters and energy management systems will have an IP address and CAT 5 wiring directly to the web. Small commercial and residential buildings will have short wireless links the last few miles or last few hundred yards needed for devices to make two-way connections with the web.
What most of the large, lethargic utilities have not recognized are the very big returns inherent in real-time energy management. The returns may be visualized as a pyramid. At the bottom is Automatic Meter Reading which has a very small return to large numbers of people. AMR is generally worth a US dollar a month. This is the value realized by replacing a walk-around meter reader in a suburban setting. AMR is where most utilities begin and end their analysis and return on investment. This is the wrong place to stop. AMR -in real-time- is the foundation on which to build a whole structure of valuable services worth tens, hundreds, and in some cases, thousands of dollars per month divided between the user and the energy provider. Real-time AMR is the enabling technology for digital energy.
Take electronic bill presentation and payment, the first step up the pyramid. It is of great interest to the bill sender because it reduces billing costs from $3.00 to 30 cents. It is of little interest to bill receivers because they have little incentive to use it. Digital energy allows the mixing of AMR and EBPB with other digital energy services such as time of day pricing. Offered as a package whipped up by remote servers, a consumer gets cheap off-peak pricing while the utility gets credit card payment. Once its digital, servers and data warehouses can mix and match energy products and services any way that sells.
Next up the pyramid is demand side load control. Early returns from this summer’s load control experiments at Puget Sound Energy show residential customers follow time-of-day rates very closely and easily shift, using only the hand operated switches they use every day, a few percent of their use off-peak. Residential savings are a few dollars per month. Commercial customers, who typically number twenty percent of utility accounts and use eighty percent of the power, can economize much more. Whereas a kWh may cost 12 cents, a kW of demand typically costs 12 dollars. Shaving one or two kW off the month's peak could pay the cost of real-time AMR and communications for an entire month. The value of digital energy in the commercial sector is hundreds or thousands of dollars per account each month. As one municipal electric engineer stated, “Any company can cut ten percent off the demand charge with the first simple demand strategies”.
Further up the pyramid, digital energy hops from the demand side to power sales and aggregation on the supply side. Richards Energy runs a small user group in Lancaster PA. The 112 firms in the group have seen power prices rise and fall, but the collective has saved 3% to 30% depending on their size with smaller firms saving the largest amounts. Enron, one of the early leaders in digital energy, used to say “Our customers are our peaking plant”. Enron was on the right track, managing a national portfolio in real time and making internal “trades” to keep everyone in balance. Enron’s early success led to an excess of arrogance which brought the company down, but the energy services they pioneered are already being offered by “fast followers” in the industry.
The highest point of the pyramid is risk management. This is the financial wizardry of trading in digital energy derivatives by energy traders, utilities, and large customers who value certainty over risk and their counterparts who value risk over certainty. A trader with better information than his peers can make $30,000 in less than an hour trading a single strip of energy. Traders don’t need data from every meter. A valid statistical sample for a metro area can be a few hundred meters. Aiding traders will be powerful analytic tools watching real-time load data, weather, and even degree days and humidity at customer sites.
In congested metro areas, trading may not be enough to manage an energy portfolio. On hot days, reasonable priced power may simply not be available. In this case, digital energy will swing into non-invasive load curtailment. This is not your grandfather’s interruptible load where a few large users must cut off 100 kW to 500 kW when they receive a phone call. Non-invasive load curtailment nips a few kilowatts off hundreds or thousands of users when the energy markets are favorable making a true marriage of supply side and demand side load balancing.
Users will not notice the curtailment, but their peak trading proceeds will pay a very noticeable chunk of their monthly bill.
How soon will we see digital energy and who will pay for it? The key to digital energy is to complete the Internet connection to the business or home. There is an inevitable march to complete this connection. It will happen in some places sooner than others. Following the connection, or promoting it, will be dozens of firms making local communications, digital devices, embedded processors, and software which will allow the speedy off-site servers to plug customers into the fruits of digital energy.
The easiest question is who will pay for it. North America is a storehouse of wasted energy. According to the New York Times (Norbert Walter, NYT 6/13/01), “For every dollar worth of goods and services the United States produces, it consumes 40 percent more energy than other industrialized nations”. Even normalized for the vast distances in North America, we could reduce energy consumption 30% if we reached the current efficiency of Europe or Japan. So digital energy is coming, and it will be paid for by eliminating the wasted energy tax every one of our buildings and homes now pays. n
The author, Gerald Mimno, is a business development manager specializing in energy applications for the Internet. He has worked at AES-IntelliNet for five years developing wireless Internet applications for energy management and submetering. Mr. Mimno has a BA and MCP from Harvard University concentrating in economic development and business development. He has twenty years of practical experience in building systems. He is a Licensed Construction Supervisor in the Commonwealth of MA. He is responsible for developing new markets and relationships based on wireless and Internet energy technology.
Digital energy will not just serve the big guys. We can see that by looking at how easy digital money is to use and how deeply and quickly it has spread into our every-day family life. Our teenagers have credit cards and retirement accounts. They use ATM’s in the Mall. My daughter goes on-line to manage the float in her bank account. She does this while instant messaging with a dozen friends in the upper corner of her homework screen. We can expect that digital energy will have similar results. Digital energy will not just advise consumers of conservation options, it will conserve for them. Digital energy will automatically shift their low-priority consumption off-peak, and, in the background, invisible to the user, digital energy systems will be trading energy internationally on their behalf. The rank order of the big energy players will change. Commercial and residential users will reward those who “go digital” and add practical consumer services. The laggards will spiral down into low margin commodity suppliers with no value added and beaten at every turn by companies who can slice and dice digital data for their commercial and residential consumers.
Who will bring digital energy? Let’s look at who transformed banking and equities. Our ubiquitous credit card society didn’t start at banks. Digital money started with Diners Club in the restaurant industry. Real-time stock trading didn’t come from the big New York brokerage houses. Digital investment was driven by a Boston maverick, Fidelity Investments, in the face of skepticism and foot dragging by the majors. Fidelity was once a sleepy mutual fund before it got digital and got creative. Digital money and digital investment propelled these mavericks into industry leaders with lower costs, higher margins, and intimate access to customers not to mention the sweet smell of success.
Don’t expect to see digital energy come from the big investor owned utilities. They have agonized over Automatic Meter Reading for thirty years. Within their narrow horizon, they can’t see the Return-on-Investment. Don’t expect to see demand-side load balancing come from them either. Supply side load balancing has worked for 100 years. Why complicate things? Crank up the generators. Send a bill to the rate payers every 30 days. Collect a check. End of relationship.
Digital energy is well advanced in the wholesale market. When the mavericks perfect digital energy, it will jump from the supply side to the demand side and make our homes, offices, stores, and industry more comfortable, more responsive to individual preferences, and cheaper. Like credit cards and ATMs, the technology of digital energy will be based in huge server farms, but the customer will find digital energy largely invisible and easy to use.
Digital energy will resolve a huge paradox in the electric utility industry. Electrons flow at the speed of light in vast networks, but our accounting for electrons is 30 days or more out of date. Likewise, if we want to manage some electrons, let’s say we want to buy them cheaper, buy them at different times of day, make them ourselves, or buy them green, we can’t. These electrons were long gone by the time we wanted to control them. Another paradox is illustrated by the difference between your car and your house. Your car has miles of wiring, scores of embedded microprocessors, and operates with the turn of a key. Your car is optimized for comfort, performance, and economy. Your house, on the other hand, has a primitive set of stove-pipe control systems. It is full of stand-alone electro-mechanical switches which were high technology in the 1930’s. Your house and business gobble energy with no concept of what power costs, or when it is cheaper. Not all big energy companies are laggards. In the Potomac region, PEPCO has begun installing smart meters as they want customers to know what power costs and when. Just now it is US$.19 kWh on peak and US$ .02 off peak. A nine to one ratio. Would you use more energy off peak if you could pay one - ninth the rate? Now suppose your digital energy system did all this for you. You say how economical you want to be and the digital energy system maximizes your comfort for the price. You can also say how green you want to be or how much power quality you want to pay for.
The transition to digital energy is getting closer. Like digital money, digital energy depends on communications. The communications channel of choice will be the Internet. Many utilities can show you old data, such as your bill, on-line, but don’t have an answer for showing customers real-time data. The digital transformation will come when the Internet is used for UPLOADING real-time meter and control data into servers as well as downloading control messages managing switches and relays. You can measure the approach of digital energy by calculating the average distance from a meter or control to a practical Internet gateway. Dial-up phones are not a practical solution. The communications required are always-on DSL, Ethernet, and cable gateways. We can expect that large commercial meters and energy management systems will have an IP address and CAT 5 wiring directly to the web. Small commercial and residential buildings will have short wireless links the last few miles or last few hundred yards needed for devices to make two-way connections with the web.
What most of the large, lethargic utilities have not recognized are the very big returns inherent in real-time energy management. The returns may be visualized as a pyramid. At the bottom is Automatic Meter Reading which has a very small return to large numbers of people. AMR is generally worth a US dollar a month. This is the value realized by replacing a walk-around meter reader in a suburban setting. AMR is where most utilities begin and end their analysis and return on investment. This is the wrong place to stop. AMR -in real-time- is the foundation on which to build a whole structure of valuable services worth tens, hundreds, and in some cases, thousands of dollars per month divided between the user and the energy provider. Real-time AMR is the enabling technology for digital energy.
Take electronic bill presentation and payment, the first step up the pyramid. It is of great interest to the bill sender because it reduces billing costs from $3.00 to 30 cents. It is of little interest to bill receivers because they have little incentive to use it. Digital energy allows the mixing of AMR and EBPB with other digital energy services such as time of day pricing. Offered as a package whipped up by remote servers, a consumer gets cheap off-peak pricing while the utility gets credit card payment. Once its digital, servers and data warehouses can mix and match energy products and services any way that sells.
Next up the pyramid is demand side load control. Early returns from this summer’s load control experiments at Puget Sound Energy show residential customers follow time-of-day rates very closely and easily shift, using only the hand operated switches they use every day, a few percent of their use off-peak. Residential savings are a few dollars per month. Commercial customers, who typically number twenty percent of utility accounts and use eighty percent of the power, can economize much more. Whereas a kWh may cost 12 cents, a kW of demand typically costs 12 dollars. Shaving one or two kW off the month's peak could pay the cost of real-time AMR and communications for an entire month. The value of digital energy in the commercial sector is hundreds or thousands of dollars per account each month. As one municipal electric engineer stated, “Any company can cut ten percent off the demand charge with the first simple demand strategies”.
Further up the pyramid, digital energy hops from the demand side to power sales and aggregation on the supply side. Richards Energy runs a small user group in Lancaster PA. The 112 firms in the group have seen power prices rise and fall, but the collective has saved 3% to 30% depending on their size with smaller firms saving the largest amounts. Enron, one of the early leaders in digital energy, used to say “Our customers are our peaking plant”. Enron was on the right track, managing a national portfolio in real time and making internal “trades” to keep everyone in balance. Enron’s early success led to an excess of arrogance which brought the company down, but the energy services they pioneered are already being offered by “fast followers” in the industry.
The highest point of the pyramid is risk management. This is the financial wizardry of trading in digital energy derivatives by energy traders, utilities, and large customers who value certainty over risk and their counterparts who value risk over certainty. A trader with better information than his peers can make $30,000 in less than an hour trading a single strip of energy. Traders don’t need data from every meter. A valid statistical sample for a metro area can be a few hundred meters. Aiding traders will be powerful analytic tools watching real-time load data, weather, and even degree days and humidity at customer sites.
In congested metro areas, trading may not be enough to manage an energy portfolio. On hot days, reasonable priced power may simply not be available. In this case, digital energy will swing into non-invasive load curtailment. This is not your grandfather’s interruptible load where a few large users must cut off 100 kW to 500 kW when they receive a phone call. Non-invasive load curtailment nips a few kilowatts off hundreds or thousands of users when the energy markets are favorable making a true marriage of supply side and demand side load balancing.
Users will not notice the curtailment, but their peak trading proceeds will pay a very noticeable chunk of their monthly bill.
How soon will we see digital energy and who will pay for it? The key to digital energy is to complete the Internet connection to the business or home. There is an inevitable march to complete this connection. It will happen in some places sooner than others. Following the connection, or promoting it, will be dozens of firms making local communications, digital devices, embedded processors, and software which will allow the speedy off-site servers to plug customers into the fruits of digital energy.
The easiest question is who will pay for it. North America is a storehouse of wasted energy. According to the New York Times (Norbert Walter, NYT 6/13/01), “For every dollar worth of goods and services the United States produces, it consumes 40 percent more energy than other industrialized nations”. Even normalized for the vast distances in North America, we could reduce energy consumption 30% if we reached the current efficiency of Europe or Japan. So digital energy is coming, and it will be paid for by eliminating the wasted energy tax every one of our buildings and homes now pays. n
The author, Gerald Mimno, is a business development manager specializing in energy applications for the Internet. He has worked at AES-IntelliNet for five years developing wireless Internet applications for energy management and submetering. Mr. Mimno has a BA and MCP from Harvard University concentrating in economic development and business development. He has twenty years of practical experience in building systems. He is a Licensed Construction Supervisor in the Commonwealth of MA. He is responsible for developing new markets and relationships based on wireless and Internet energy technology.
