Innovations in Energy

BUSINESS MODEL INNOVATION: Utility-Friendly, Consumer Valued, Regulator Accepted Solutions for the Future of Energy

Business Models that can work for everyone – Not just for some

Confiden'al  and  Proprietary  Informa'on  -­‐  This  presenta,on  is  subject  to  proprietary  informa,on  rights  and  confiden,ality  provisions.    Do  not  copy  or  distribute  this  document  without  the  express  wri>en  permission  of  Innovari.

1

So where is your mind? The Deregulation of the Utility Industry will

not be unlike the process of making Oil.

OR

Neil Armstrong awarded the single biggest technology achievement for the last century to . . . ???

2

Common Issues  Data Overload  Lots to do, Little time to do it  Complexity Increasing  Significant Trust Issues  Legal Issues driving instead of common sense  Process to change getting longer not shorter,

technology changing faster not slower – Policy/Regulation cannot keep up

  Industry losing many experts for a variety of reasons

 Consultants are not incented to solve problems  Experts who are not experts  Vocal minority driving instead of silent majority  Misconception of Utilities/Regulators/Consumers

wants, needs and potential desires.  American Entitlement.

3

Looming crisis: Energy & Electricity Grid (Economic recession only delayed the inevitable) -  US Electric Grid Capacity

760 GW

-  New Generation Required 135 GW

-  New Generation “Planned” 57 GW

4

THE PROBLEM: Typical Daily Load Profile

6  a.m.   12  noon   6  p.m.  

5

Application to Energy Industry Load Duration Curve – Part I

6

Application to Energy Industry Load Duration Curve – Part II

1% HRS = 14,000 MW 10% HRS = 4,000 MW

10,000 MW @ $2000/kW $20 Billion for 100 hours

Site Efficiency Makes Grid “PEAKIER”

Need System Efficiency &

Peak Load Management

7

What is Shaping

the Power

Markets?

Rates / Returns

Ageing Infrastructure

Economic Conditions

Access to Capital

Conventional Emissions

Commodity Prices

Conservation/ Efficiency

Renewables / Alternatives

Smart Grid

8

What Model works for all 4? Rates / Returns

Ageing Infrastructure

Economic Conditions

Access to Capital

Conventional Emissions

Commodity Prices

Conservation/ Efficiency

Renewables / Alternatives

Smart Grid

9

Utilities

Consumers

Regulators

Vendors

Energy Economics Foundation The laws of supply and demand state that the equilibrium market price and quantity of a commodity is at the intersection of consumer demand and producer supply. However, when demand exceeds supply, significant shifts in price will occur.

Unfortunately, with electricity, blackout occurs versus just an escalation or high prices.

10

Regulatory Economics & Utility Business Principles

 Rate of Return Regulation -  Revenue Rqmnt = [Rate Base*ROR%] + Expenses

  IOU’s and their investors only make money on things in Rate Base

 MOU/COOP – Muni Bonds and RUS Financing - CapEx more efficient than OpEx

 Fight the model or Use it? -  Chasing regulatory change is dangerous/costly

11

THE SOLUTION: Change the Shape!

6  a.m.   12  noon   6  p.m.  

12

What if . . .  The load duration curve could be flattened,

eliminating the last 3-8% of the unmanageable shape? -  Is there a need for TOU? Therefore AMI? -  Is there a need for billions of upgrades to T&D

if we can increase utilization from 53% to 75%? -  Is there a need for billions of central station

generation and peakers and their emissions? -  Is there a business model that works for utilities

AND consumers and keeps regulators happy?

13

Evolution of Load Management

Most Existing “dispatchable load” driven by manual measures or one-way communications

Two-way, verifiable load management with dynamic attributes that allow the grid to be served and consumer not to be uncomfortable

Looks, acts and is trusted as a utility resource if owned by utility

Previously known as curtailment and resurfaced in residential as Comverge

Fully automated, five second response intelligently taps embedded responsive load in most buildings

Utility Equivalent & Trusted Resource/Product

Va

lue

Looks, acts and is trusted as a utility resource if owned by utility

Fully automated, five-second response intelligently taps embedded responsive load in most buildings

14

Open ADR

Evolution of Load Management

Most Existing “dispatchable load” driven by manual measures or one-way communications

Two-way, verifiable load management with dynamic attributes that allow the grid to be served and consumer not to be uncomfortable

Site & Grid automoted negotiation based on local rules & conditions manages load to create a “portfolio”

Previously known as curtailment and resurfaced in residential as Comverge

Utility Equivalent & Trusted Resource/Product

Va

lue

Looks, acts and is trusted as a utility resource if owned by utility

Fully automated, five-second response intelligently taps embedded responsive load in most buildings

15

Open ADR

Why hasn’t it been done?   Cost effective technology unavailable until

10-15 years ago -  Pervasive Comm and low cost hardware exist now

  Business model does not work -  Business model has to provide value to utilities -  Utilities pay lip service to Demand Response, but

the business model does NOT work for them since they pay customer to erode their own revenue.

-  DR must evolve

  Lack of understanding of the energy business -  Need Intelligent Power Products not DR

  Chasm between Utility and their Consumer

16

17

The Utility/ Customer Interaction

Business Approach: The utility AND customer must win.

Crossing  the  Chasm  between  u'lity  and  consumer  requires  a  model  that  allows  the  u'lity  AND  the  consumer  to  win!  

 U,li,es  have  the  money,  the  volume  and  the  need  for  this  solu,on  

 Less  than  5%  of  end  use  consumers  care  today   If  the  U,li,es  can  solve  the  problem  in  the  next  5-­‐10  years,  consumers  will  care  even  less.      

18

How to Innovate the Model? Create a New Starting Point   Recognize the gravity of our situation -  Electricity is not a political football, it’s our way of life

  Allow common sense a seat at the table   Establish Trust & Accountability   Make a conscious decision to make it better -  Bury the hatchet, it’s time to move forward

  Focus on how to actually accomplish something versus how to kill everything

  Give the microphone to the vocal minority to speak, but don’t let them keep it

  Recognize the silent majority – 10% adoption rates mean 90% weren’t interested

  Beware the “Experts”

FACT

Technology does NOT solve

problems People DO!