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An Uber-Style Solution To Cut Consumer Energy Costs

The previous article in this series dispelled the myth that flexible power generation isn’t yet profitable for utilities and investors, showing electricity markets from California to Texas that are already reaping the financial rewards of increased flexibility. But it’s not just the power utilities who are saving money. Consumers now, too, are seeing sharply lower electricity costs due to power producers shifting their profits from the market back to ratepayers. The clear win-win is becoming harder for utilities to ignore.

To understand how this profitable feedback loop works between energy providers and their customers, it helps to compare the logic of flexible power generation with the globally successful ride-hailing service Uber.

Imagine if you only needed to drive your car two days a month, and the other 28 days it sat in the garage collecting dust. Now, in the Uber economy, you’re able to make extra money taxiing people in your car on the days it would ordinarily sit idle.

However, not all cars are equal; if you drive an old or mediocre vehicle, Uber probably won’t qualify you for business. It therefore makes sense to invest a little more money in a better, newer, more fuel-efficient vehicle because you know you’ll be making money back—with profits growing over time—the more you employ your car in the hours when you don’t need it. There’s a reason why Toyota Prius, America’s most popular hybrid vehicle, has become synonymous with Uber drivers.

The math behind the car investment is just as easy, and the lesson is just as simple, for energy utilities that are weighing the investment costs and benefits of flexible power generation plants.

Like the car in the garage that’s not being used, energy utilities often invest in low capital cost peaking capacity, which ensures that even on the hottest or the coldest days of the year when utilities meet peak load, they still have a power buffer in case of an outage or other emergency. Since this capacity is rarely running, its performance, such as fuel consumption, isn’t a critical factor.

In Texas and the Midwest, for example, the Southwest Power Pool requires that utilities must have enough capacity to serve their peak load,  plus an additional 12%. If it didn’t have the buffer, an extremely hot week in August with peak electricity demands could overload the system and, in a worst case scenario, might result in black outs and potentially human deaths. The problem is: peak generation capacity, like the car in the garage, is only needed a handful of times a year—say, on 20 different days, for 100 total hours annually. The rest of the time, the excess capacity is doing nothing.


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   Matti Rautkivi

   Sales & Marketing Director,
   Wärtsilä Energy Solutions
   
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Now, the utility should think like an Uber driver. While the utility might need the generation capacity only a handful of times a year, somebody else in the market could use the same capacity to serve their own needs. If the capacity is valuable, like flexible capacity, there is more demand for it in the market, and the utility can make more money with the capacity by selling it to the market. And because regulations limit the utility from earning e.g. more than 10 percent profit on the power that it sells, those financial rewards get shifted directly on to the consumer in the form of lower electricity bills.

Some utilities may still be asking why they should invest in cleaner, more efficient and somewhat more expensive flexible power generation options, like Smart Power Generation’s gas reciprocating engine technology. But if it were up to consumers, the case would already be settled. Why? Because flexible capacity guarantees long-term savings to customers in a way that conventional power plants do not. Here’s how:

Now, the utility should think like an Uber driver. While the utility might need the generation capacity only a handful of times a year, somebody else in the market could use the same capacity to serve their own needs. If the capacity is valuable, like flexible capacity, there is more demand for it in the market, and the utility can make more money with the capacity by selling it to the market. And because regulations limit the utility from earning e.g. more than 10 percent profit on the power that it sells, those financial rewards get shifted directly on to the consumer in the form of lower electricity bills.

Some utilities may still be asking why they should invest in cleaner, more efficient and somewhat more expensive flexible power generation options, like Smart Power Generation’s gas reciprocating engine technology. But if it were up to consumers, the case would already be settled. Why? Because flexible capacity guarantees long-term savings to customers in a way that conventional power plants do not. Here’s how:

If a small utility serving a population of 100,000 households wants to build a 200MW power plant to serve its own load using Wartsila’s flexible power generating technology, it will cost around $140 million. That’s a 40% markup from the $100 million cost to build a traditional peaking power plant, and for utilities interested in the cheapest and quickest bottom line, 40% may sound like a lot. But they’re being fooled. The investment in flexible generation capacity pays for itself in just a couple of years. In fact, flexible capacity on a 200MW plant is calculated to save consumers $17.5 million annually on electricity costs, or some $350 million over 20 years—savings of $175 per customer per year. All of this after already taking into account the higher initial investment cost, which is why for utilities and customers alike, the numbers are hard to argue with.

Traditionally, power utilities invested at the lowest capital cost possible. As a result, they neither maximized profits for the utility nor provided consumers with the cheapest electricity available. Now, employing flexible capacity, power producers recognize they can spread the rewards more evenly—and the happier their consumers are with the low price of power in an unregulated market, the more likely those customers will choose their utility for service, creating a positive feedback loop.

Flexibility is a perfect example of market economics working well: rewarding efficiency, slashing waste, driving down costs, and benefiting companies and customers both with greater savings. Like Uber, flexible power generation is filling a key economic gap in the energy market structure. Good luck now turning back the clock. Armed with evidence of personal financial gain, consumers no longer want utilities that continue along the path of conventional, wasteful power generation with higher electricity costs. The question is: how soon can power providers make the switch to flexible capacity, and who among them is prepared to lead?

Now, the utility should think like an Uber driver. While the utility might need the generation capacity only a handful of times a year, somebody else in the market could use the same capacity to serve their own needs. If the capacity is valuable, like flexible capacity, there is more demand for it in the market, and the utility can make more money with the capacity by selling it to the market. And because regulations limit the utility from earning e.g. more than 10 percent profit on the power that it sells, those financial rewards get shifted directly on to the consumer in the form of lower electricity bills.

Some utilities may still be asking why they should invest in cleaner, more efficient and somewhat more expensive flexible power generation options, like Smart Power Generation’s gas reciprocating engine technology. But if it were up to consumers, the case would already be settled. Why? Because flexible capacity guarantees long-term savings to customers in a way that conventional power plants do not. Here’s how:

If a small utility serving a population of 100,000 households wants to build a 200MW power plant to serve its own load using Wartsila’s flexible power generating technology, it will cost around $140 million. That’s a 40% markup from the $100 million cost to build a traditional peaking power plant, and for utilities interested in the cheapest and quickest bottom line, 40% may sound like a lot. But they’re being fooled. The investment in flexible generation capacity pays for itself in just a couple of years. In fact, flexible capacity on a 200MW plant is calculated to save consumers $17.5 million annually on electricity costs, or some $350 million over 20 years—savings of $175 per customer per year. All of this after already taking into account the higher initial investment cost, which is why for utilities and customers alike, the numbers are hard to argue with.

Traditionally, power utilities invested at the lowest capital cost possible. As a result, they neither maximized profits for the utility nor provided consumers with the cheapest electricity available. Now, employing flexible capacity, power producers recognize they can spread the rewards more evenly—and the happier their consumers are with the low price of power in an unregulated market, the more likely those customers will choose their utility for service, creating a positive feedback loop.

Flexibility is a perfect example of market economics working well: rewarding efficiency, slashing waste, driving down costs, and benefiting companies and customers both with greater savings. Like Uber, flexible power generation is filling a key economic gap in the energy market structure. Good luck now turning back the clock. Armed with evidence of personal financial gain, consumers no longer want utilities that continue along the path of conventional, wasteful power generation with higher electricity costs. The question is: how soon can power providers make the switch to flexible capacity, and who among them is prepared to lead?

Now, the utility should think like an Uber driver. While the utility might need the generation capacity only a handful of times a year, somebody else in the market could use the same capacity to serve their own needs. If the capacity is valuable, like flexible capacity, there is more demand for it in the market, and the utility can make more money with the capacity by selling it to the market. And because regulations limit the utility from earning e.g. more than 10 percent profit on the power that it sells, those financial rewards get shifted directly on to the consumer in the form of lower electricity bills.

Some utilities may still be asking why they should invest in cleaner, more efficient and somewhat more expensive flexible power generation options, like Smart Power Generation’s gas reciprocating engine technology. But if it were up to consumers, the case would already be settled. Why? Because flexible capacity guarantees long-term savings to customers in a way that conventional power plants do not. Here’s how:

If a small utility serving a population of 100,000 households wants to build a 200MW power plant to serve its own load using Wartsila’s flexible power generating technology, it will cost around $140 million. That’s a 40% markup from the $100 million cost to build a traditional peaking power plant, and for utilities interested in the cheapest and quickest bottom line, 40% may sound like a lot. But they’re being fooled. The investment in flexible generation capacity pays for itself in just a couple of years. In fact, flexible capacity on a 200MW plant is calculated to save consumers $17.5 million annually on electricity costs, or some $350 million over 20 years—savings of $175 per customer per year. All of this after already taking into account the higher initial investment cost, which is why for utilities and customers alike, the numbers are hard to argue with.

Traditionally, power utilities invested at the lowest capital cost possible. As a result, they neither maximized profits for the utility nor provided consumers with the cheapest electricity available. Now, employing flexible capacity, power producers recognize they can spread the rewards more evenly—and the happier their consumers are with the low price of power in an unregulated market, the more likely those customers will choose their utility for service, creating a positive feedback loop.

Flexibility is a perfect example of market economics working well: rewarding efficiency, slashing waste, driving down costs, and benefiting companies and customers both with greater savings. Like Uber, flexible power generation is filling a key economic gap in the energy market structure. Good luck now turning back the clock. Armed with evidence of personal financial gain, consumers no longer want utilities that continue along the path of conventional, wasteful power generation with higher electricity costs. The question is: how soon can power providers make the switch to flexible capacity, and who among them is prepared to lead?
If a small utility serving a population of 100,000 households wants to build a 200MW power plant to serve its own load using Wartsila’s flexible power generating technology, it will cost around $140 million. That’s a 40% markup from the $100 million cost to build a traditional peaking power plant, and for utilities interested in the cheapest and quickest bottom line, 40% may sound like a lot. But they’re being fooled. The investment in flexible generation capacity pays for itself in just a couple of years. In fact, flexible capacity on a 200MW plant is calculated to save consumers $17.5 million annually on electricity costs, or some $350 million over 20 years—savings of $175 per customer per year. All of this after already taking into account the higher initial investment cost, which is why for utilities and customers alike, the numbers are hard to argue with.


Traditionally, power utilities invested at the lowest capital cost possible. As a result, they neither maximized profits for the utility nor provided consumers with the cheapest electricity available. Now, employing flexible capacity, power producers recognize they can spread the rewards more evenly—and the happier their consumers are with the low price of power in an unregulated market, the more likely those customers will choose their utility for service, creating a positive feedback loop.

Flexibility is a perfect example of market economics working well: rewarding efficiency, slashing waste, driving down costs, and benefiting companies and customers both with greater savings. Like Uber, flexible power generation is filling a key economic gap in the energy market structure. Good luck now turning back the clock. Armed with evidence of personal financial gain, consumers no longer want utilities that continue along the path of conventional, wasteful power generation with higher electricity costs. The question is: how soon can power providers make the switch to flexible capacity, and who among them is prepared to lead?  

Utility savings large

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