Reflecting on 4 years in the NZ electricity industry
For the past 3-4 years I have been working for a New Zealand based software company, focused on trying improve energy efficiency of the grid in order to reduce greenhouse gases. A very short and partial recap of areas I worked in are:
- started working on internal dashboards for electricity retail
- retail company that allowed for peer to peer sharing of electricity, aimed at those with solar panels. Sharing of excess power between customers.
- structure of NZ electricity - generator, lines, retail, etc...
- can we change behavior/habits of residential consumers?
- observing weather patterns for insights into electricity pricing
- hydrology of NZ
- FTR and futures market of electricity
- is there opportunity for a flexibility market, flattening demand curve
- bureaucracy and slowness of the industry
- importance of policy makers
- Can we get consumers to care about energy?
When something is a given in life, you end up rarely thinking about it, and take it for granted. Electricity is definitely one of those things if you live in a developed world. You expect that flipping the light switch will turn on the lights, that pressing the kettle switch will boil water, the list goes on.
This is the problem we attempted to tackle by building a mobile app to interact with consumers, and gameify their actions. Grid infrastructure is nonflexible and expensive, usually planned for in terms of 10 year investments. In the present COVID19 situation around the world, one of the man calls is to flatten the curve. This also applies to electricity usage. One of the most costly parts of supporting grid demand are the spikes in electricity usage in the mornings and the evenings. This is the most common electricity consumption profile.
But if we can flatten out some of the peaks, even locally in certain parts of the grid, then this results in significant savings. Instead of building an extra transformer for X millions, the problem can be solved by getting enough people to not turn on their dishwasher at the same time.
We learned that behavior change is very very difficult, and often takes many attempts, or in the case of COVID19, a very serious fear. Do people care enough about climate change to change their behavior?
- Cost reflective pricing, sending efficient price signals
When companies have things that have been making them money consistently for years, it takes a lot to garner attention for innovation. Small monopolies exist in every corner, most retailers use the same billing and invoicing software, spreadsheets reign supreme, and there is no reason to seek out improvements. This is similar to banking, where banks make money, and it would cost a lot of time and money in order to switch, or even try, something different. Currently the most common pricing schemes usually involve a constant daily rate, and then either a time of use, or a variable tariff.
One of these things is cost reflective pricing for the consumer. When you go to the farmers market to buy an apple, you can usually directly see that the cost of the apple is related to how much it cost to grow it. But when you pay your electricity bill, do you know how that number is made up? When apples are in season, they are abundant and cheaper, and in the offseason, they are harder to find and cost more. This is a simple of supply and demand economics. Similarly, should retailers, and lines companies also develop pricing schemes that more accurately reflect the cost?
If a consumer knows that electricity is going to be expensive between certain hours, this might be a strong enough signal that they will reduce their usage. I'll probably write more on this later, but the topic is complex because inefficiencies exist all along the supply chain, and in order for cost reflective pricing to reach the consumer, it would mean that the lines companies would also need cost reflective pricing. And this is the problem, it's hard to change multiple things within a big clunky machine.
- What is the business model?
With more traditional tech companies, the path is usually either to get bought, or become big. But you're probably not going to be able to do that with an energy tech company, unless you're already at a decent size and making measureable progress. This meant that we pivoted a number of times, both with the MVP (minimum viable product) and also with the business model. I didn't have any input into these business decisions, but the path we went down was to build relationships with companies who were aligned with our vision, and then start doing trials and would lead to prototyping. Because of how unwilling most electricity companies are to try new things, this meant that progress was really slow. More often than not, it became unrealistic to wait several months, or even years.
We started off building a mobile app targetted towards changing behavior of retail consumers. Then when it proved very difficult and not large scale enough, we pivoted to building "microgrids" that would be more self sufficient, and with enough microgrids they could work together to reduce peak demand. The microgrids would have solar panels and battery systems, and would be the starting point of a "flexibility marketplace"
- A marketplace for flexibility
With the uptake of renewable resources, and storage capabilities increasing, this meant that there would need to be more efficient and valueable ways to manage energy. Electricity grids have physical limitations, like with trying to serve peak demands, a grid connected with solar and wind can experience times when there is too much energy from solar/wind and lead to overload. This is already happening with grids either paying for companies to buy the electricity, or "unplugging" the panels/turbines.
Is a market where buyers and sellers of electricity the most efficient means to signal and price this new economy? The buyers would be grid operators, and the sellers would be smaller entities that own solar panels and batteries, with excess energy.
In closing #
That chapter has currently come to an end for me, and it was a great experience. In the end my personal opinion is that the policymakers hold the most power to induce change, innovation and scale are hard to achieve when policy is not aligned to it. I definitely am still keen to be working within that space, but also looking forward to new opportunities.