By Richard Stubbe, Bloomberg New Energy Finance editorial team. This article first appeared on the Bloomberg Terminal.
Consumers want smarter homes, utilities want improved network control, and that combination is going to change the electrical grid in a big way for the next few years, Mike Bates, general manager of energy at Intel Corp., said in a phone interview.
“Intel sees this market as distributed energy loads that continue to grow, potentially exponentially over the next few years,” Bates said. “As the loads move to the edge, there’s a requirement for more compute to follow. That’s where Intel comes in.”
Bates answered more questions from Bloomberg New Energy Finance on the future of the grid and Intel’s place in it on March 27, during the Energy Thought Summit in Austin, Texas.
BNEF: Smart homes are coming, smart grids are coming. What’s Intel’s business angle here?
Bates: In the early 2000s, loads started moving to the edge of the grid — rooftop solar, energy management systems. At the same time, the Texas electricity market deregulated, and this role of utilities serving customers and customer loads started to take off. Companies like Reliant and TXU started to look and act like retail companies. That was the launching pad for some of the things we’re doing now with Intel.
Q: How did utilities change?
A: Utilities were starting to look and act more like consumer-products companies. And the rest of the market was paying close attention to Texas. The first problem those retailers were trying to solve was customer acquisition and retention, to create a really compelling product to get you to switch and then to make that product a little sticky to keep you from switching again. That was the first pillar changing the market.
Q: What else prompted the market change?
A: The next pillar is the rapid rise of consumer-owned load at the edge of the grid — solar panels, batteries, smart devices, smart thermostats, EV chargers. They’re owned by the customer, they’re controlled by the customer, they were installed by somebody else, and they will continue to grow. As the loads move to the edge, there’s a requirement for more compute to follow. That’s where Intel comes in.
Q: Doing what?
A: Intel sees this market as distributed energy loads that continue to grow, potentially exponentially over the next few years. The problem is that these loads are opaque to the market and utilities need transparency to see how the loads are affecting their grid. They need to be able to do more research planning. But because they’re not part of that new set of customer choices, they can’t see them.
Q: This is just tracking the electrons as they move around the grid?
A: It’s also to help them plan resources better. We work with E.On in Germany, one of the largest utilities in the world. The solar load in Germany has increased substantially, spurred by government subsidies and government investments. Now they have a new mix of generation that they haven’t seen before. And they want to be able to take full advantage and optimize those loads at the edge of the grid and retire the carbon-based generation. But they can’t do that until they know what that load represents and they can control that load.
So what Intel is doing is to embed compute at the very edge of the grid that can forecast loads and control those loads in a way that makes them look and act like the baseload they’re trying to retire. That’s really Intel’s play.
Q: Who are your potential customers — utilities?
A: The large investor-owned utilities that are vertically integrated would be our top target segment. But we’re also working with energy traders. For example, we’re working with one of the largest energy traders in the U.S. to deliver capacity down to a contract to a utility. This is a utility that would have had its own generation at one point, they retired a nuclear plant and they needed to backfill that lost capacity and they couldn’t build a new plant. So what they did was issue an RFP for contracts for companies to go out and aggregate capacity within their service territory that they could turn on and off at any time so the utility could manage the generation that was lost when the nuclear plant was retired.
Q: Some is demand response and some is peak payments?
A: We like the term “demand flexibility” as opposed to “demand response.” If we put the right level of technology at the edge, we can meter loads in a way that the consumer doesn’t even see. Demand response to me is: I’m going to turn something off in your home, you’re going to feel the effects of that, and we’re going to incentivize you to participate in that program. Demand flexibility is we’re going to extract microloads all day every day in a way that you as a consumer would never experience.
Q: Where are you doing this now?
A: In Ireland, we’re delivering frequency-regulation services by connecting and aggregating water heaters and manipulating the load in such a way — these are small adjustments, but if you get enough homes and buildings connected to it — that it becomes a valuable product that you can sell into the market.
Q: How is it changing the utility business?
A: In the 2000s, U.S. economic growth decoupled from electricity use. Now these utilities are facing load defections and declining revenue, and they will continue to face that over the long haul. They have to find ways to supplement that lost revenue.
Q: How does Intel help with that?
A: Our technology allows utilities to get access to data on how people use energy, and they can create new products and services using that data and other data. For instance, they can tell you how well your HVAC system is operating based on weather conditions and similar units in their service territory. Customers have been willing to pay for this HVAC monitoring service. If they stack a bunch of services like that together, then they start to become a services provider.
Q: What about the regulatory level? How well are the states and the federal government managing this?
A: I think the pace of change on the consumer side is outpacing the change at the regulatory and policy level. We’re trying to help get everybody caught up. I don’t think we need enabling regulation for change, but we need to make sure regulation doesn’t stop it from happening.
Q: What are the negatives to utilities becoming retail providers?
A: The only unintended consequence is the churn rate — the number of customers who change providers on a regular basis. This limits investments that a utility would make in any particular customer relationship. If you can’t keep that customer long enough to cover your sunk costs, it’s difficult to get your money back.
Q: Is that a regulatory issue or a problem the utilities haven’t solved?
A: It’s the latter. They haven’t figured out how to put these sticky, compelling solutions together. Most of it is a price decision on the consumers’ part.
Q: What’s the attraction for consumers?
A: It’s comfort, convenience, safety, and then saving energy and money. With an energy-management solution, I’ll have the ability if I’m producing energy to trade that energy into the market. But the real selling point is comfort and convenience. For us that means you lead with a very rich customer-value proposition that if you looked at it, it would be hard to find the energy-management play in it. We’re talking about home automation that’s voice-enabled that allows you to turn the thermostat off before going to bed by just talking to a device. You can bundle that with smart locks. There are all kinds of solutions in the package, but included is an energy-management component that you then aggregate and deliver to the utilities.
Q: So the consumer could establish settings for the home energy-management system based on real-time pricing.
A: Exactly. There are periods of time in Texas where wind is in oversupply. You could set up your system so the dishwasher and the washing machine come on at times of negative pricing, or lower your thermostat when the pricing goes below zero.
Q: In the old model, you’d get a bill once a month from the only provider available.
A: That worked really well in the old monopoly, when the utilities didn’t really want you to know, they wanted you to spend as much as possible. If they needed more energy, they’d just go build another plant. They cannot build new plants anymore. It’s not an option.