Recently we brought together experts from energy procurement, commercial real estate operations, and ESG domains to explore new ways to capitalise on the once-in-a-generation transformation taking place in electricity markets.
The insights apply to every location and market where electricity generation from variable renewable energy (VRE) is growing relative to fossil (e.g. coal) generation sources.
The story is familiar to any commodity market: when supply exceeds demand, prices drop; and when demand exceeds supply, prices rise. Electricity from VRE, like other commodities that rely on the weather, tends to arrive in abundance. Smart buyers understand this: they buy as much as they can when prices are low, and offload their excess and avoid purchasing when prices are high. This is the essence of the opportunity for commercial and institutional property.
How large is the opportunity?
In theory, savings of up to 90% are possible. Achievement of this requires the ability to manage loads to match wholesale price patterns, plus sophisticated forecasting and automation technology. It is increasingly common to find Australian residential consumers achieving this outcome, and with on-site generation many now eliminate their building’s electricity bill entirely.
The reason, and pace of change, is illustrated in this plot.
Source: Bruce Mountain, Victoria Energy Policy Centre
VRE is here to stay, but the opportunity for big wins may be short-lived
The shape of the orange line in the above plot is often referred to as a ‘duck curve’, due to its resemblance to a duck. Originally coined in California to describe the changing pattern of ‘net demand’ on electricity networks, because of the commodity market dynamics it also applies to price.
The widening spread between low daytime and high morning / evening electricity prices is encouraging battery investment, particularly at the grid-scale where operators are by default exposed to wholesale prices.
Source: World Kinect
The growth in batteries is beginning to exert influence on the wholesale market, introducing additional demand at times of abundance (e.g. daytime troughs) and limiting demand growth at the morning and evening peaks. World Kinect forecasts that this will have a leveling out effect by the end of the decade – taking away some of the price spread, but not all, and ushering in a roughly stable intraday range of approximately 300%.
Source: World Kinect
Optimisation requires a ‘smart’ toolkit
Budget stability and reliability is an overarching concern for commercial and institutional property owners / operators. This is one of the main reasons why the sector has been so reluctant to embrace innovation in energy procurement and building operations.
A variety of contracting approaches have recently emerged that can both minimise price volatility and uncertainty while also passing through most of the opportunity to harness savings.
When coupled with forecasting technology and hardware solutions, a tailored package can be created that drives down total energy costs while cancelling out risk.
Source: World Kinect
As discussed in an earlier post, How to make money from batteries, the key to unlocking savings and income-generating opportunities, and slashing emissions, is the combination of hardware, software and procurement.
The three components work together. Procurement determines the risk and reward settings. Hardware (e.g. HVAC equipment, thermal and battery storage technologies) provides the means to manage and shift load. And software such as Buildings Alive’s energy modelling, forecasting and analysis tools provides the necessary information and control signals to deliver the outcomes.