A Utility's Dream

Let's take a little break to discuss what Utilities think about, which is of course money. Their dream is to make as much money as they can (they are businesses after all). How does a business make more money? At the simplest level there are just two ways -- either charge more for your product or charge the same but spend less money to make your product in the first place. In general, utilities make money by selling electricity. The unit of sale is called the kilowatt-hour (kWh) which is 1000 watts of electricity for 1 hour (this is roughly equivalent to the electricity used by running a hairdryer for an hour straight). Utilities are in a funny position though. They can't really try to sell more electricity -- they don't control the demand for electricity on a given day. And we all know we're supposed to conserve electricity, right? So a utility trying to encourage more electricity use isn't going to fly. Next they could charge more for the electricity. But utilities don't just charge any old price they want -- they are heavily regulated by the states -- it takes months to years of meetings and hearings and reports to try to increase their price. Finally that leaves spending as little as they can to make the electricity in the first place. This post shows how the daily demand curve for electricity can really impact the utilities (and how they would like it as flat as possible).

First let's look at a completely flat demand curve.

Here we have a graph showing demand that is perfectly flat all day. Each box filled in with a grey dot represents one unit of energy (such as the kilowatt hour). This group of grey dots is 10 high and 24 across, for a total of 240 dots. Therefore the utility sold 240 dots of electricity on this day. You might be thinking... um ok so what? 

Next let's look at something more like a typical summer demand curve.

Here we have a curve more typical of summer demand. There are 26 red dots that fall below the 50% grey dashed line, and 26 dark blue dots that are above the dashed line. Therefore the utility still sold 240 units of electricity on this day. 

Now let's compare how much it would cost to make the electricity in the Perfectly Even versus Moderate Demand Swing scenarios. In the Perfectly flat example the utility has to have enough power plant capacity to make it up to the 50% level on our graph, but not to go any higher. In the Moderate Demand scenario notice that peak demand is now up at 70% -- therefore the utility is going to have to spend millions of dollars to build enough power plants to make it up to that 70%. But they still only sold 240 units of power! Spend more to make the same amount of money? That is not something any business is going to want to do.

Finally let's look at a summer curve with large changes in demand. 

Here we have a Large Demand Swing scenario, which is fairly similar to the curve we would expect on a hot summer day here in Ohio. This time we have 46 red dots below the dashed grey line and 46 dark blue dots above. Once again the total amount of electricity sold is 240 units. But instead of maxing out at 50% or 70%, we max out at 90%. This means that a utility would need to have almost twice as many power plants as in the Perfectly Even scenario. And still not make any more money!

In addition to the peak demand being higher, notice that the minimum demand is now lower too. The swing in demand from 25 up to 90% requires turning power plants off and then back on again, and forcing them to turn up really fast, which again costs money (and results in burning more fossil fuel per unit of electricity made).

By now it should be quite obvious why utilities would dislike large swings in demand -- it costs them millions of dollars without leading to any more profit. You can also see that anything that would even the demand out is something they would like. Unfortunately, as we have seen, solar electricity alone does not help the utilities even out demand much at all, whereas if you had a big enough battery, you could even out any demand curve. 

So why aren't utilities buying tons of batteries, or making tons of pumped storage facilities? (Pumped storage is when you pump water up a huge hill when you have excess electricity, and then let it flow back downhill to make electricity when you need it -- it is essentially the same as a battery.) The answer is, of course, money. Batteries are very expensive. Pumped storage is more affordable, but requires a nearby huge vacant hill (or mountainside). There are other storage technologies under development but nothing ready for utility scale. On the other hand, fossil fuels are cheap -- and proven. It turns out it is quite a lot cheaper to just go ahead and build another Natural Gas power plant than to invest in energy storage. I know that sounds crazy, but it's the hard economic truth for now. If there was a price on carbon emissions that would make electricity generated from fossil fuels more expensive, thereby making battery storage more appealing.

So for now no utility is going to start buying a bunch of batteries. But what if you had hundreds or thousands of batteries in homes just sitting around... or batteries in electric cars in peoples' garages just sitting around... and you were able to combine all of those batteries into one huge super battery? As it turns out people are working on exactly this right now (mostly in California). It is known as "Behind the Meter Aggregation." Using software and the internet, companies are creating systems that allow batteries to be aggregated and used as it they were one huge single battery. This has been spurred on by California's policies that support energy storage (yes, with money). As of right now, there are companies that are installing batteries in commercial buildings and selling the aggregate battery capacity for California's utilities to use. So instead of building another Natural Gas power plant, a utility could decide to contract with a battery aggregation company! Once there are enough home batteries around, companies will spring up to aggregate home batteries too. It's just a matter of time... and money... and of policies like California's which will give utilities an alternative to just building more and more Natural Gas power plants.