I just spent the last two days at E-World, the leading utility trade show in Europe. I spent a lot of time speaking about new business models with utility executives, startups and industry experts. One of the topics on my mind was the “flat rate”, the idea that in the future we would pay a fixed amount per month for as much electricity as we want to use.
The general consensus was not only that this will come but in the words of the CEO of one of the leading Germany utilities that it will come this year. Of course we all know flat rates because of their use in the Telecoms industry but how, you may ask, can you put in place a flat rate in a heavily regulated market like power where the end customer does not just pay for his or her power but also for a range of other changes such as grid fees, taxes and renewable energy charges?
The immediate answer is to put in renewables such as solar in our homes together with energy storage devices such as batteries and intelligent heating systems to ensure that as much of that solar is used in the home as possible with the balance coming from the grid. If you then have an energy services provider who runs a range of distributed renewable assets in the form of what is called a Virtual Power Plant (VPP), then you have a provider who can hedge his risk of power prices rising. That provider could also then feed power to the households when there is an energy shortfall. This is exactly what the Munich based company BEEGY is planning to do. And the economics of it our very interesting. In Germany, I pay $0.35 per kWh for electricity. Solar generation on my roof has a levelized cost of about $0.12. Add into that storage costs, some intelligence and a good financing package and I beat the $0.35 number, and I have a flat rate.
The key to the flat rate is renewables. It would not work with fossil fuels as nobody has an idea what the costs of generating power with fossil fuels would be in 10 or 15 years but with say solar it is much easier. We know the lifetime of the solar modules and surrounding equipment; we know the upfront costs and we also know that the ongoing costs (basically operations and maintenance) are very predictable. And if the provider can also put in place financing for the equipment suddenly he has the possibility to put in place a “flat rate”.
But this is only the start. Going forward grid charges are likely to become fixedbased charges rather than as they are now, in the most of the world, based on the amount of power consumed. This has to change because it is only way to break the negative spiral of falling grid contributions from homes that have solar on their roofs which pushes up grid charges for everyone else which in turn incentivizes more people to put in solar. If this happens then grid costs will become fixed, thus making it easier for energy companies to offer flat rates.
We also have the coming of the electric car. We are already seeing car companies like Tesla, Daimler and BMW moving into offering stationary storage solutions for homes and businesses. We are also seeing them putting in their own stationary storage solutions. They are doing this so they can learn about storage and how they can generate different incomes streams with those batteries. Going forward they will do the same with EVs. They will offer car users “flat rates” as part of service packages to their customers, and in return they will be able to use those battery when they want. This will allow the automobile manufacturers to generate revenues with those batteries by aggregating them into a “swarm” which can be used for trading purposes as well as providing other revenue generating opportunities such as ancillary services to the grid operator. Furthermore, it allows the automobile manufacturer to control the charging of the battery which is critical for managing warranties and battery lifetime.
What this all means is that fixed rate charges for power are coming faster than what anyone thinks and they will change the power markets forever.