Smart Grids – taking a micro economic viewpoint to utility demand response

Since I have spent some time on this blog on the supply i.e. generation side of the game I thought today I will look into the demand side of the game. Hence smart grids. First, lets define the demand. So, what is the demand?

In United states, this demand is causing rise of electric bills.

So, we need to increase the supply or respond to the demand to reach the equilibrium or maintain it.  But how do we respond to the rising demand? It cannot be the existing technology as that is causing this rise and is not able to balance the demand.

Hence we need a new technology – a smarter infrastructure that can think like us and feel like us and in some way act like us human beings. Thus, smart grid. But what is a smart grid?

Quoting from NEMA (The Association of Electrical and Medical Imaging Equipment Manufacturers) – “ Smart Grid refers to an improved electricity supply chain that runs from a major power plant all the way inside your home.”

In reality, it is an integration of electrical infrastructure and information infrastructure.

An electricity supply chain consists of three parts: generation (power plants); delivery (transmission and distribution networks); and customers (residential, commercial, industrial, military, etc.). Supply and demand have to remain tightly balanced at all times, since there is
no commercial solution for large-scale storage of electricity to absorb any excess power or shortfall.
It is a complex and expansive system consisting of numerous primary elements interacting continuously through electrical, magnetic, and mechanical forces—far more complex than what might be ascribed to transportation or communication systems.

And why cannot existing grids work when we put some solar and wind firms and replace fossil fuel? Quoting Alan Schriber, Chairman of Ohio PUC – “ You can build wind generators and solar
panels. All that’s nice, but at the end of the day, reducing consumption is the cheapest way to do it. By leveling demand, you forgo the need to continually build. That’s the beauty of Smart Grid”

Yes, it is about leveling the demand of our digital society.

So, how do we level it out? We improve (which will increase) the demand management. Going back, thinking about electrical infrastructure and information infrastructure, that is done using smart meters and AMI (automated meter infrastructure).

Through such a consolidated infrastructure, the customers respond better to price signals and price responds better to customer demands. It acts as a pipe through which electricity, information and money flows.

Caveat: Since our target is demand response, we need to be cognizant of the fact that as consumers we will only respond if we are stakeholders in this game i.e. our utility bill gets reduced if we install smart meter at our home and turn of that hallway light during day time. Thus, we need incentives which is the rate plan. Yes, that is the single most thing that can make or break the success of the demand response strategy.

Here is some data about how demand response using smart grid has worked.

In conclusion: it is more about economics of demand response that makes smart grids the most enticing of all clean tech investments. It leverages as much as possible existing infrastructure of electricity and internet.

China Cleantech VC Investments

In http://www.greenchipstocks.com/ website I found a very good informative article about why China is becoming a cleantech leader - both in terms of investments and innovations.
The major reasons that were cited are mostly known such as Government resolve (yup, no opposition and that works in both good and bad ways),  a mixture of home grown and foreign technology start-ups ( as we had all seen earlier, businesses are created by innovators and spirited individuals), hyper growth and rapid urbanization and lastly image building ( from manufacturer to innovator).

China's policy states that: non-fossil fuel sources of energy should account for 30% of the overall power supply by 2020. This would be a major shift given that 80% of China’s current supply comes from coal. This transformation represents a huge market opportunity for both RMBs and FDIs.

However, the singular clinching argument in favor of china is the price - price of everything from production to distribution to storage. Running a business in China is at least three times less costly than in Western Hemisphere. As a result, in 2009 cleantech venture capital investment in China was greater than that seen in some of the most active European countries such as Germany and Norway.

I would recommend reviewing the latest PwC Report that clearly depicts that China and US are racing towards CleanTech primacy in the world. The report can be found here.

CleanTech Equipment investments in China

 

Not sure how many of us saw this article in CNN, but it essentially echoes the transaction information from NVCA or WSJ to that effect.

In a nutshell, from investment attracting perspective, China has just become the top destination per an E&Y survey.

However, the investment is more for equipment production to cater to the need of EU and USA’s energy demands.

I would try to find out how much of these investments are converting into utilities for China itself.

Transactions in August 2010

Yup, I know the picture is not well focused, but then again thats the best I can get with a blackberry :). This is taken from VC Journal.

Solazyme raises USD 52 million in Series D funding

 

This round of funding is lead by Braemer Energy Ventures and Morgan Stanley, along with the previous round investors like Lightspeed Venture Partners, The Roda Group, Harris and Harris Group, VantagePoint Venture Partners, and Zygote Ventures. The company's strategic investors include Chevron (through its CTTV Investments company) and San-Ei Gen (Japanese food ingredients manufacturer).