Arbitrage opportunities created by wide disparities between peak and off-peak power prices can offer strong returns, but data transparency is the key to capitalizing on those opportunities, said speakers at New York Energy Week’s Energy Data Jam, hosted by Google.
Genscape has made a business of amassing and analyzing energy data, and “where that data is not publicly available, we find ways to either monitor or model it”, said Hudson Gilmer, the company’s Vice-President of Commercial Markets. “The overriding mission of Genscape is really to bring transparency to energy markets.”
There are some healthy returns to be made if you have access to that data. Gilmer looked at the differential between average peak and off-peak wholesale electricity prices from January 1, 2011 to June of this year. He found that off-peak prices averaged $33 per megawatt hour, compared to peak prices of $118/MWh.
“If you have the ability to store power during those off-peak periods and then sell it back during the peak period, you’d have a 250% return on average every day for over 2.5 years. I don’t know of any other legal industry where you can buy a commodity and then sell it for 250% of what you bought it for,” Gilmer said.
For consumers with the capacity to curtail load during peak periods, use onsite cogeneration facilities, or even store power and sell it back to the grid, using that capacity during peak demand periods can have a large impact on electricity bills. “Anyone who’s paying those substantial electric bills knows that a big chunk of your bill comes from the demand charge,” Gilmer said.
Gilmer noted that regulations complicate the ability to earn a return off these differentials, “but one of the things we’d love to participate in is how do we harness that arbitrage opportunity to essentially flatten that demand curve, make load more responsive, and that has two benefits: it benefits the person who implements that solution, but it also benefits the system, because it reduces those peak periods for everyone”
“There’s probably no other market where you have richer data on which to inform investment decisions, so whether it’s location-specific data…or even time data, down to 5-minute increments, you have such a wealth of data that can be used to inform decisions,” Gilmer said.
Land of Confusion
But many electricity consumers, especially at the residential and small-to-medium enterprise level, do not have the in-house expertise to take advantage of that data, even when it is made publicly available, said Mike Gordon, Chief Executive of Joule Assets.
Gordon said that wider availability of energy consumption data has the potential to create opportunities in what he called the “reliability market” – essentially a market that allows energy consumers to either reduce their energy costs or even earn returns through management of their electricity use.
And as intermittent power sources, such as solar and wind, continue to gain market share, reliability will become an even more pressing concern, Gordon said. “The need for our reliability markets is going to expand considerably over the next number of years. A major driver of that expansion is the intermittent resources that we’re introducing…we need that reliability offset resource in our system”.
Gordon drew attention to both the opportunities and the challenges of managing energy use to maximize reliability, and potentially earn a return. He noted that there is a virtual maze of disparate systems that have a role in the US electricity grid, listing the country’s 2,700+ utilities, 1,500+ municipal utilities, community choice aggregators, and various control areas with their own energy efficiency and demand response programs.
“It’s a fantastic opportunity, but it’s a web of confusion. In our view, that’s precisely why, when you look at the small-to-medium enterprises engagement with dynamic electricity markets, it’s practically nil.”
Meanwhile, Gordon noted that the cost of energy efficiency, storage and generation are all coming down, “so it’s a fantastic opportunity with respect to Big Data”.
“It’s a fantastic opportunity for data and clear information to drive the introduction of what I call reliability markets,” Gordon said.
Not only will these opportunities, if seized, generate capital to fund jobs, projects, and community engagement, they will “create reliability products and economic development opportunities that are unparalleled,” Gordon said. “It will ultimately benefit reliability.”