Over the grid trading
With over the grid trading a participant takes price and volume risk management in his own hands and therefore is able to save on the premium that an Energy Retailer would charge.
Volume risk management refers to managing the uncertainty in the amount of energy that will be consumed or produced. This may seem complex at first, but the combination of smart metering technologies and AI algorithms makes the development of required analytics capabilities relatively easily accessible. Price risk management refers to managing the uncertainty of the price at which electricity can be bought or sold since prices vary throughout the day, throughout the week and throughout the seasons. Again this may seem a complex problem, however with intelligent automation the implementation of a hedging and purchasing strategy can make the management of price risk a manageable process.
Besides financial gains, developing the capabilities to manage price and volume risk opens up a series of other non-financial benefits. A consumer that is aware of what their consumption pattern looks like, may decide to implement changes in behavior that result in peak shaving and purchasing when energy is cheaper. Secondly, a consumer may be able to procure 100% locally produced renewable energy.
For organizations, corporations and industrial clusters that are interested in this set-up Deloitte’s AI and data practice can help analyze the financial value and environmental impact of over the grid trading and help develop the analytics capabilities that enable the management or price and volume risk.
Partly independent microgrid
In addition to the savings resulting from over the grid trading, when consumers decide to establish a micro-gird to partially manage their energy requirements, they can tap into savings related to the taxes paid to maintain the central grid. As quoted earlier a ballpark figure for the taxes paid are around 65%. Nowadays if a party produces renewable energy and decides to sell electricity to a neighboring party, both the selling and purchasing party will be charged approximately a 65% tax. By investing in a micro-grid, the collective saving of 65% adds up significantly as more participants joins, as well as reducing investment cost for the DSO and government.
Self-organized clusters setting up fully or partly independent microgrids could be the solution to alleviate congestion problems, accelerate the energy transition and free up financial resources. Recent examples of microgrids have shown cost reductions for energy consumers of 5 – 15%. The business case of a P2P microgrid is strengthened by having access to energy storage. This enables a microgrid to reap the benefits from peak shaving, increasing the potential for cost saving by +/- 50%. For industrial clusters, the additional savings potential can be even greater because of the ability to close longer term contracts at lower prices. In the case of the microgrid of the Port of San Diego this resulted in a direct energy cost reduction of 50%, lowering the per unit costs from 20 cents/kWh to 10 cents/kWh.
It is important to remind ourselves that for a partly independent microgrid these savings will only apply to the portion of the energy that is managed by the microgrid itself. And this makes the design of the micro-grid very important. The right sizing needs to be designed based on the collective consumption profile and local generation technologies.
The emergence of partly-independent micro-grids may inspire a new mechanism to issue government subsidies. Market-based mechanisms, with the appropriate oversight from regulators to protect consumers, have proven to be successful at creating value throughout history. And this is the reason why micro-grids may prove to be an effective incentive for participants to create the right consumption and investment behavior that minimizes stress on the central grid. It may be argued that future government subsidies could subsidize the creation of partly independent micro-grids. And the government would want to subsidize more partly-dependent micro-grids that have a residual load that is as negatively correlated as possible with the profile of the overall system.
Fully independent microgrid
In the case of a fully independent microgrid, a collective is fully self-sustainable and does not connect to a central grid. The financial gains are the highest for participants but so are the investment costs. Based on the current state of technological progress and maturity this set-up is the most complex. The emergence of partly-independent grids is a likely stepping stone towards a future where it is more likely that fully independent microgrids will contribute substantially to the energy system.
