Via Forbes, an interesting article offering one potential view on the future of power retailing:
“…When Jan Adams got a NZ $300 (US $247) power bill back in April 2009 she could not believe it. A tiny one-bedroom flat could not possibly consume that much electricity. New Zealand has a competitive electricity market but shifting to competing offerings looked complicated to her. She took energy-efficiency measures such as double-glazing the apartment windows, taking shorter showers, and setting the clothes washer to use cold water and expected her bil to go down. However, the following month she got another NZ $300 (US $247) bill and this time she had had enough. It didn’t matter how complicated it looked: she switched to an online electricity service provider that promised savings of 20%. “My power
bills have gone down by at least 50%”, says Ms. Adams, who is a Customer Services Representative in Christchurch, “I’m not a techie but now I go online two or three times every week to track my power usage, to check on new discounts and savings opportunities, and to top-up my power supply. Sometimes I can even get a coupon to a local restaurant with my purchases!”
Top-up power? Electricity discounts? Online Coupons? Welcome to the future of energy: electricity 2.0.
Ms. Adams’s electricity provider isPowershop, a startup company owned by Meridian Energy, the largest electricity generator and retailer in New Zealand. “The vision of Powershop is to be like eBay for electricity,” says CEO Ari Sargent. “Any electricity generator in New Zealand, including Meridian’s competitors, can offer their own brands of electricity at different prices and different seasons.”
Two years ago, when I was writing “Solar Trillions” I went to Wellington, New Zealand to learn about this new architecture of energy at work. Powershop had just launched and I got a close look. I recently talked to Mr. Sargent to check up on the company’s progress.
Powershop offers ‘sponsored’ and ‘branded’ electricity. Are you a sports fan? You can buy ‘Crusaders Rugby’-brand electricity. Concerned about Climate Change? You can buy ‘Airshed Energy’ which has ‘Certified Carbon Offset’. Just want to lock in the cheapest price for next spring? ‘Spring Power’ is on sale now.
I can’t wait for ‘Boston Red Sox Power’- or ‘SF Giants Power’-brand electricity.
Meridian Energy is currently the only generator selling power (under different brands) on this website. Powershop, however, is built with an open, plug-and-play architecture – more like the Internet than the traditional top-down energy architecture. “Powershop’s infrastructure was developed in anticipation of a distributed energy model,” says Mr Sargent. “As the market builds a larger number of smaller power plants like wind and solar we expect them to sell directly to consumers on our website.”
But will a distributed energy architecture emerge any time soon?Distributed Power Architechure
The current centralized architecture of energy is one that Edison, Westinghouse, and Tesla would feel comfortable with: large power plants ‘out there’ that generate electricity and millions of smaller ratepayers consuming it. We get a monthly, sometimes undecipherable, bill, and that’s the extent of our communications with the power provider or even our understanding of our own power usage. What is emerging is a more distributed architecture where independent power producers are generating electricity from thousands or millions of smaller power plants.
Germany added a quarter of a million solar photovoltaic power plants in 2010 alone, of which just about 100,000 were in the residential scale (under 10 kW) and 135,000 were in the commercial (including farms) scale (10 kW to 100 kW)[1]. Despite its superior solar resources, the United States is far behind Germany – but growing fast. At the end of 2010 the US had 152,516 grid-connected solar PV systems – of which about 52,5620 were installed in 2010, according to the Solar Energy Industries Association (SEIA)[2].
California is planning to bring 12,000 MW of distributed solar capacity online by 2020. This will involve a combination of residential, commercial, and industrial-scale power plants. Southern California Edison (SCE), which serves the Los Angeles metro area, recently announced 250 MW of solar photovoltaic power. The contracts were awarded to 20 plants ranging from about 5 MW to 20 MW[3]. A single project, called Prologis’s Project AMP, calls for 733 MW of solar PV on 750 industrial roofs in 28 states and DC[4]. Each one of these power plants will be on average just under 1 MW.
Today these power plants have to sell to the local utility or consume the power onsite. What if they wanted to sell that power directly to someone down the street or across town? What if you wanted to sell at market prices? Today’s electricity architecture is not built for that.
So the distributed scenario that Powershop is built to take advantage of is taking shape – in countries like Germany and the United States.
Powershop’s revenue model is more like an Internet company than today’s energy industry: to take a percent of each transaction. They don’t charge “connection fees” like many utilities (cable and telephone companies included) or transaction fees. Transactions are simple as can be.
Entrepreneurship and Electricity 2.0
The ‘Smart Grid’ requires users with the right tools to make smart decisions about their energy usage. But a closed, top-down architecture does not really allow for that.
Part of the promise of an open architecture like the Internet, Apple’s iOS (which runs the iPhone, iPad, and AppleTV) or Facebook is that entrepreneurs can develop products and services and create markets and investment opportunities that the original designers of those architectures could never have even conceived. There are more than 500,000 applications for the iPhone/iPad that have probably generated billions of dollars for their creators[5]. Without the open Internet and Web architecture, entrepreneurs could not have created companies like Google, Facebook, and eBay from their garages or dorm rooms. What if the architecture of energy were as open as the architecture of Internet?
Bruce Hoult is a software engineer in Wellington, New Zealand. Mr. Hoult signed up for Powershop last April 2009 – mainly to save money, but as soon as he discovered that Powershop offered an open API (Application Programming Interface) he started tinkering with it. Since nighttime power is 25% cheaper than daytime power he set out to shift some of his power usage from the day to evening. He works from his home office and he did what a good enterprising tinkerer does: he ran experiments with his own power usage putting together available technologies in new ways.
“I built a computerized device based on Arduino [a website that offers an open source hardware and software platform for rapid prototyping] that I programmed to turn my heater and dehumidifier on and off at different times of the day”, said Mr. Hoult. “After tracking power, temperature, and cost for a while, I determined that it was optimal to crank up the heater an hour or two before 7am when power cost goes up. It turns out that the walls and the house itself retain a lot of the heat and slowly release it during the day. The result is that I use much less power during the day while maintaining the same temperatures as before.” Over the last twelve months Mr Hoult has saved NZ$500 or nearly 24% compared to the previous year.
I asked him if he was thinking about commercializing this device. “The payback is less than a year so there could be a market for it. However, I’m a technical guy. Marketing is definitely not my thing.”
A friend of Mr. Hoult’s has already made some cash. He took advantage of the Powershop API to develop an iPhone application that replicates some of the Powershop website functionality so he could purchase power and track usage anywhere he went. The iPhone app was so compelling that Powershop acquired it and made it available for free to all its customers in both iPhone and Android versions.
Show me the money: how is Powershop doing?
Powershop had NZ $49.5 (US $40.7) million in revenues over the fiscal year than ended June 2011, according to Mr Sargent. This was more than triple the NZ $14.2 (US $11.7) million during the previous fiscal year. The number of customers has doubled from 16,553 a year ago to 33,628 today. Mr Sargent expects the company to again double revenues and number of customers as well as start generating positive cash flow over the next year. The annualized customer retention rate is 94-95% and the customer satisfaction (good or very good) rate is 96%, according to Consumer NZ, an independent consumer organization[6].
“I don’t ever see myself going back to the old power provider”, Jan Adams told me at the end of our interview. “I wish the telephone company worked like this.”
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