How to plug your product into the grid

Estimated reading time: 10 minutes

Last edited: 10/18/2022

Overview

What you’ll get from reading this post:

⚡️ A simple overview of grid participation, better enabling you to convert your clean energy idea into a product that helps customers save money and eliminate their carbon emissions from electricity.

When talking to clean energy entrepreneurs that are new to the industry, a common story resonates. In the early stages of working on a clean energy idea, entrepreneurs will:

1. Perform discovery

2. Collect prospective customers who resonate with their problem statement

3. Validate their product directly with these discovery partners

In addition to the typical challenges of building a company from nothing, there is the added layer of figuring out how to plug a product idea into the grid to serve these prospective customers. The grid is intimidating, even understanding the fundamentals can be challenging. Best case, they can easily find people to answer their questions and help make their product idea a reality. Worst case, they spend countless hours, often on nights and weekends, reading through lengthy utility and wholesale market documents trying to determine out how to build their product. Some will persevere and eventually succeed, most will delay their company progress or potentially move onto another idea.

The barriers to building a clean energy company are significantly higher than they should be, especially if we expect to deliver abundant clean energy and #electrifyeverything on a timeline that climate science demands.

Hitting a roadblock with our first clean energy idea.

At Bayou Energy, we encountered this same problem with our first clean energy idea, “Microsoft office for clean energy”, a service for enterprises to subscribe to 100% clean energy in a few clicks. Unlike Google who has a 40 person energy team, most enterprises with public climate goals have small teams tasked with buying clean energy across their corporate footprint. Existing solutions were great building blocks, not solutions that the mainstream market would readily adopt in their current form.

After speaking to ~30 enterprises, we were excited by validating the problem and as people new to the electricity industry, we were equally intimidated by the challenge of delivering the product. In this article we’ll use one of our discovery partners as an example, let’s call them Boxbox drive for discretion, whose core business is providing a cloud storage service to enterprise and consumer customers. They fit the description above and a significant portion of their carbon footprint comes from their six data centers, spread across at least four states: California, Texas, Virginia and New York. We were having difficulty figuring out how to source clean energy as a startup in one of those states, much less all four. Eventually we figured how to deliver the product, but not before at least one year of learning and pivoting to another idea.

Grid Participation Framework

There are 1000’s of clean energy companies that need to be built and here we’ll give you a framework to help you build yours.

👇 A few notes:
-If you disagree with or would like to add content to this framework, please do speak up, the whole point is to help each other!

-The actions in this table are framed in terms of how they can financially benefit customers.

-This is an overview, we can dive deeper on parts of the framework in future posts.

Overview

• In regulated markets, customers can only buy and sell electricity with their utility so our goal is to save customers money on their utility bill.

• In deregulated markets, customers may also have the option to choose who to buy their electricity supply from and sell electricity into a wholesale marketplace.

We’ll cover both market types in more detail below.

Actions

• Buy clean electricity: Regardless of where customers live there’s a way to purchase clean energy. While it may be more work, it will usually be cheaper than existing carbon intensive electricity.

• Sell clean electricity: From rooftop solar to large electricity generation, there are ways to generate clean electricity and receive compensation for selling it.

• Save money by changing usage: Reduce customer electricity cost by:

  • Not using large amounts of electricity all at once

  • Shifting electricity usage to times of day when it’s cheaper

• Get paid to change usage: When electricity demand is the highest customers can get paid to use less than they normally would.

• Use less energy: Government and utility programs can enable customers to use less electricity by helping fund the purchase of energy efficient products.

Markets

There are two types of markets:

1. Customers can only buy and sell electricity with their utility in a regulated market

2. Customers may have the option to choose who to buy their electricity from and sell electricity into a marketplace in a deregulated market

Regulated Markets

⚡️ Because customers can only buy and sell electricity with their utility in a regulated market, in these markets the goal is to save customers money on their utility bill.

There are two main components of an electricity bill are:

1. Electricity delivery: getting electricity from where it’s produced to where it’s used

2. Electricity supply: The cost of generating electricity

On average, delivery is 46% of the cost and supply is 54%.

In this sample utility bill, examples of customer usage (273 kWh), tariff (EL1 Residential or Religious) and charges (Your Supply Charges, Your Delivery Charges and Your electricity total) are shown.

Utilities use meters to measure customer electricity usage and translate that usage into bill charges according to their tariffs. In addition to tariffs, utilities offer programs for compensating different actions like demand response. One important lesson that we’ll keep coming back to is that the utility acts as the source of truth for a customer’s electricity usage, cost and how those costs are determined. As an example, regardless of what any non-utility electricity meter shows, the customer’s true usage will be what’s reflected in their utility meter data shown on their utility bill.

Understanding a customer’s utility bill is the first step to saving them money. This can be done by asking a customer to share copies of their recent utility bills or by using a utility data sharing service like Bayou Energy. The bill will contain the customer’s electricity usage, the name of their utility tariff, a breakdown of their electricity charges and information about any programs they may be enrolled in. The tariff and any utility programs will likely be mentioned on their bill. Detailed information on the tariff or program should be available on the utility’s website. Click here and scroll to page 587 to view the tariff details for Con Edison’s EL1 Residential or Religious tariff.

To better understand this concept, you can use the below tool to view your utility information.

⚡ In summary, to save a customer money on their utility bill:
1. Understand their electricity usage, cost, current tariff and programs they currently participate in
2. Based on step one, figure out what actions you’ll be taking to save them money
3. Execute and measure the results monthly

Deregulated Markets

In addition to buying and selling electricity with their utility, in deregulated markets customers may also have the ability to:

1. Choose who to buy their electricity supply from

2. Sell electricity into a wholesale marketplace

Overview of the differences between regulated and deregulated electricity markets in America. The above deregulated electricity market example shows a market in which customers have the option to both choose who to buy their electricity from and sell electricity into a wholesale marketplace.

Choose who to buy their electricity from

In deregulated markets where customers can choose who to buy their electricity supply from, called retail electricity choice, their default electricity supply retailer will be the same utility selling them electricity delivery. The difference in these markets is that customers can choose to buy their electricity supply from a non-utility company, often called a retail electricity provider or REP for short.

Customer retail choice is determined at the state level. For a breakdown of customer retail choice in all 50 states, click here.

Regardless of their chosen electricity supplier, the customer will always receive a utility bill for electricity delivery. If the customer is buying their electricity supply from their utility, the supply charges will also be on that bill, resulting in their bill looking identical to the utility bill of a customer in a regulated market.

Note that this bill example looks the same as our regulated market utility bill, but tells the customer that they have the right to buy their supply from a retail electricity provider. In this case retail electricity providers are referred to as energy services companies (ESCO’s).

Customers choosing to purchase electricity supply from a retail electricity provider will either:

• Receive two bills:

  1. One bill from their utility for delivery

  2. A separate bill for supply directly from their retail electricity provider

• Receive one bill: Retail electricity providers may choose to bundle their supply charges with the utility delivery charges on the customer’s utility bill. In this case customers will receive one consolidated bill from their utility for delivery that also has the supply charges from the retail electricity provider

Sell electricity into a wholesale marketplace

Customers can sell electricity into wholesale electricity markets where they exist. Market territories are the combination of all utility territories within them. If an entire state is not in a wholesale market, its likely because one of their electric utilities voluntarily joined and is multi-state entity. Learn more here.

In deregulated markets where customers can sell electricity into a marketplace, there are two main ways they can get paid to sell electricity:

1. Energy Markets:

   • In these deregulated markets, both utilities and non-utility companies generate and sell electricity into the wholesale market. Customers could become one of these generators or work with a 3rd party to sell electricity into energy markets.

   • The electricity generated and sold into the wholesale market is purchased by retailers. These retailers include retail electricity providers and utilities.

   • In Energy Markets 95% of electricity is sold one day ahead of time and the final 5% is sold in real-time.

2. Capacity Markets:

   1. Retailers must buy the quantity of electricity needed by their customers plus a wholesale market required safety factor of additional electricity in case of an extreme grid event (think hot summer days or extreme winter storms).

   2. Customers can commit to selling their electricity or to reducing their usage in order to provide this safety factor electricity. These commitments are usually binding and customers who commit but don’t deliver that electricity will be punished or fined by the market. Traditionally these were dirty coal or natural gas “peaker plants” but are increasingly being served by flexible electricity usage via demand response.

   3. Capacity markets are run ahead of time at a frequency determined by the market operator

All direct wholesale market participants must register with the market and comply with their other requirements. In many cases it doesn’t make for customers to participate directly in wholesale markets, which presents an opportunity for companies to participate in energy or capacity markets on their behalf.

Not all deregulated markets are the same. Examples include:

• Texas not having a capacity market. This means that customers instead can sell their electricity in the Texas wholesale energy market. During extreme grid events in Texas, electricity prices in the energy market are extremely high, so customers could sell their electricity or reduce their usage at these peak times and be well compensated.

• California has a wholesale market which allows non-utility generators to sell their electricity but customers are not allowed to choose who to buy their electricity supply from. Instead customers must purchase both their electricity delivery and supply from their utility. The main exception to this rule is called community choice aggregation. Communities that have aggregated have elected a non-utility company to provide them with their electricity supply instead of the utility.

⚡ In summary, in deregulated markets customers may have the option to:

1. Sell clean energy generated into a wholesale market

2. Sell their commitment to change their electricity usage a certain amount (example: 10 kilowatts for 4 hours or 40 kWh’s total)

3. Choose who to buy their electricity from

Delivering our first idea to Boxbox drive

Applying this framework, we can figure out how to provide Boxbox drive with a 100% clean energy subscription. Our steps are:

1. Know how much energy to buy

2. Buy clean energy

3. Based on clean energy purchased, determine what subscription amount or model you can offer a customer

Know how much energy to buy

We now know that the electric utility meter is the source of truth for how much electricity a customer uses and that usage is shown on their utility bill. Typically clean energy providers will use ~12 months of a customer’s historical energy usage as an input to their service.

Buying clean energy

Starting from easiest to most difficult:

1. New York: Boxbox drive’s needs can be met with a combination of community solar and buying electricity from a retail electricity supplier (or if we want to get wild, sign up to be an electricity retailer and buy electricity from the wholesale energy market in NY state.)

2. Texas and Virginia: Like New York, Texas and Virginia also let customers choose who to buy their electricity from so we can find a retail electricity provider willing to sell us 100% clean energy.

3. California: While community solar is coming to California, today there is no option that isn’t either more expensive, more work or has a questionable net positive climate impact.

   • (Likely) More expensive:

     • Community Choice Aggregators: The energy provided from community choice aggregators can be 100% clean in some cases. If the data center is located within one of these areas, that may solve the need.

     • Purchase clean energy from the utility: Utilities normally have clean energy plans which are more expensive than their base electricity rates.

   • More work

     • Onsite solar: On their own or with the help of another company, Boxbox drive could install solar at their data centers. Similar to rooftop solar, an onsite solar farm could match the data center’s electricity needs.

     • Power Purchase Agreement: a company (or Boxbox drive) could enter into a Power Purchase Agreement to buy electricity directly from a solar or wind farm. This can be done directly with the electricity producer or using 3rd party power purchase agreement tools.

   • Questionable Climate Impact: Unbundled renewable energy certificates (REC’s) on paper result in net clean energy, but are widely considered to have a questionable impact.

Determine subscription amount:

Now that we know how much and how to purchase the clean energy a customer needs, a company can determine a subscription model and price. While this is still work, it is well understood and common to any industry.

Let’s Connect 👋

Subscribe, schedule time to talk, email us at hello@bayou.energy or comment on this post if you:

• Would like to talk more about your existing clean energy product or idea

• Are curious about a specific item that is or isn’t mentioned here

• Have feedback on how to improve these posts or would like to correct anything in this post