An Investigation Into the Effects of a Smart Grid Based Real-Time Pricing Retail Electric Market on the Financial Outlook of Distributed Generation Solar Power Systems in New York State

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Recent research has suggested that increases in the development and implementation of “smart grid” technologies could allow for a transition from load-profile pricing to real time spot pricing in retail electric supply markets. The following report attempts to investigate the potential effects such a market design could have on the solar value of consumer owned distributed generation (DG) on-site solar power systems in New York State. The study was conducted utilizing data from January, 1, 2014 – December, 31, 2014 to provide a full year analysis. The results of analysis appear promising as they support the initial hypothesis, that spot pricing based electric markets financially favor DG solar panel system owners. Over the stated period, the analysis suggests that a shift from load profile to spot pricing could result in an overall improved solar value of 16.35% depending on the market design criteria used. More specifically, results also appear to indicate a multifaceted correlation with both daily peak prices and seasonal effects.

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9/15/15 Update on Smart Grid Solar Research

An exciting insight today! I’ve been having difficulty in handling the data recently which has delayed some analysis. The program I have been utilizing which provides the performance output for an average solar power system in NYS, outputs data based on statistical averages for the type of system and geographical location for every hour of every day of the year. The Location Based Marginal Pricing (LBMP) data provided by NYISO however, provides data with a time stamp mostly every 5 minutes throughout the year. When you consider the fact that means it provides you with 105,120 data points, manual translation into hourly data points is not exactly a trivial task. Whilst I work to do that in a more efficient software based fashion, my eagerness to get a glimpse of results prompted me to manually translate the data for the first effective week in July of 2014 (7/1-7/7).


The results a tremendously enticing. The hypothesis in layman’s terms more or less states from a visual standpoint that the peaks and valleys should align. While this is not immediately obvious from the graph, further analysis of the data proves this to be the case, at least for this small section of data.

Utilizing the following formula, one can infer the effective “Solar Value”. Solar value in this context would mean the value of the electricity being produced by the solar panel system.


Where SV(t) refers to solar value, P(t) refers to price, and EG(t) refers to the energy generated. Load Profile pricing was taken from the US EIA data averages. Spot Pricing is generated using Location Base Marginal Pricing (LBMP), which is in essence today’s spot price for wholesale electric markets. To convert to projected retail prices, LBMP was multiplied by (AVG(Load Profile) / AVG(LBMP), thus making up for the retail price margins.

The results are that the solar value for the State of New York over this time period under load profile pricing equaled  $613,542,392.38 . Likewise under spot pricing, solar value increased to  $731,326,131.29. Why is this an intriguing find you may ask?? Because what this suggests is that with zero change in gross margin to electric prices, no additional solar incentives or tariffs put in place, if a smart grid utility system were realized and our market design shifted from load profile pricing to spot pricing, this would results in a 19% better return for solar panel system owners!

Stay tuned as I continue to build on these findings by analyzing the remaining data from 2014, and look to see how this price change could affect adoption rates.

Can Smart Grid Energy Infrastructure Increase Demand for Distributed Generation Solar?

As an entrepreneur int he solar industry, I’m very happy to report the frankly surprising growth figures.

2015 Solar Industry Fact Sheet courtesy of the Solar Energy Industries Association (SEIA)

2015 Solar Industry Fact Sheet courtesy of the Solar Energy Industries Association (SEIA)

It’s quite astonishing. In fact when an adviser of mine just recently retired from the solar installation firm he founded, he mentioned how the last installation project he was part of was larger than the capacity of the entire industry when he started the company in 1998.

All said and done however, solar still accounts for just over 2% of all energy capacity in the US, the World’s second largest CO2 equivalent emitting nation. While the battle on Capital Hill still mindbogglingly rages about the existence of Climate Change, many policy makers and research are still pushing for the best legislative options be it Carbon Taxes, a tradable performance standard, or investment tax credits.

My current research takes an additional perspective focusing on the potential benefits of a fully integrated Smart-Grid system. Unfortunately the economics of the energy and utility industry are nonetheless complicated than the technology behind it, but the highlights are not terribly difficult to comprehend. Electricity, much like many other commodities such as gold, oil, rare earths, etc. is subject to major market fluctuations when traded at the whole sale level. End consumers (i.e. rate payers) are never really made privy to these because we pay our electric bills based on something known as “load profiling”. This is what allows utility companies to display the electric supply rate as a constants $/kWh figure on your bill each month. In the whole sale market, spot pricing takes place where you have “real time” price fluctuations based on supply, demand, congestion, and a variety of other cost figures.

Under a Smart-Grid system, where all generation, transmission, and demand points (often referred to as nodes), have the ability to communicate with one another at the speed of light, the economic concept is that those spot prices will be able to translate into the retail prices that everyone would be then subject to as rate payers. The average person may be wondering “why would I want to change from a constant price model to one which fluctuates?” There are a number of efficiency reasons for this, but mostly because it allows consumers the ability to lower their overall energy costs as electric prices will more accurately reflect the real time costs of generating and transmitting it.

In my current research however, I am exploring the effects of a what a potential Smart-Grid could have on the solar market. The hypothesis being that all else being equal (i.e. maintaining a control of variables such as solar incentives), depending on what the spot price trends tend to look like during solar panel production hours, customers may actually reap a greater benefit out of a solar panel system than they would under a load profile system. Why is that? Well imagine if the typical spot price trends were that electric prices are low at night but high during the day.  Under load profiling, a customer would not notice this and pays the same rate regardless of what time of day, and so when their solar panel system is putting energy onto the grid, or saving you from drawing electricity off the grid, the effective savings are based on the load profiling electric rate. Under spot pricing, if electric costs where high during the day when your solar production is highest, you may in effect save more money since the energy you’re producing at that time is “worth more” i.e. has a higher price.

Thanks to multiple advisers and NYISO, I’m well on my way to researching this point and will be sure to make a post when more info is available.

Natural Gas, What Exactly is a Bridge Fuel?

Many people, including our President, as evident in this year’s State of the Union Address, like to use this terms when discussing natural gas “Bridge Fuel”. What does that really mean though? Seemingly to an outsider of the Clean Tech Industry in particular, this is clearly implied and often inferred in a positive light. A lower green house gas emitting fuel to help sustain energy needs whilst we continue to develop sustainable alternative energy sources. Allowing us to satisfy oil and gas companies by buying their relatively inexpensive fuel while satisfying environmental advocates because the emissions pollute less than oil or coal alternatives. Sounds good right, well there’s often a saying in the world of start-ups, if you try to be everything to everyone, you end up meaning nothing to anyone.

Let’s just say from the onset, this isn’t intended to be some rhetorical and partisan rant with a liberal or conservative agenda. The entire purpose of this blog in fact is to view topics with an open, objective, critically minded, logical and empirically based perspective and analysis. The best place to start then is with knowledge and education, what is natural gas, what happens in the combustion process, and how do the exhausted gases effect the atmosphere and environment?

Well luckily in 2014 we have this brilliant hub of information called the Internet and within it are a variety of reliable, unreliable, biased or objective sources. In this instance the EPA actually provides a very nice piece about natrual gas from their website linked here:

Natural gas, much like oil, can vary in its make up slightly from extraction point to extraction point. Natural gas is primarily composed of methane gas, up to 99% in some cases. Most gas extracted from the hydrofracking process is essentially sourcing gas leftover from the bio-digestion of multimillion year over life forms, trapped between the fossilized rock layers. Methane is called a “hydrocarbon”, a combination of carbon and hydrogen atoms formed together into a CH4 pattern. A single carbon atom bonded with four hydrogen atoms. During combustion the CH4 methane combines with air (roughly equivalent to 80% Nitrogen and 20% Oxygen). The chemical reaction that takes place provides heat which is used to generate usable electricity and sometime heat. If you’re truly interested, the formula for this reaction is CH4+2O2>>CO2+2H2O+891KJ/mole. Chemistry aside however, in essence the products of methane (natural gas) combustion include: Water, Carbon dioxide, carbon monoxide, non-combusted hydrocarbons, and NOx (a.k.a. a mixture of two compounds: Nitrogen monoxide (NO) and Nitrogen dioxide (NO2)). NOx is highly pollutant and is usually controlled with the use of catalytic converters, similar to the internal combustion motor in automobiles. While the main emitting byproduct, CO2, carries about 1/21 the greenhouse gas potential as methane (CH4) itself, NOx carries about 300 times the greenhouse gas potential as CO2.

So what does all this science imply? Well first it implies that burning methane derived from natural digestion of food products, animal wastes, etc. has the potential to contribute a smaller greenhouse gas effect, than the methane released in biodigestion which would have otherwise been released into the atmosphere in landfills and the like. That said however, natural gas trapped in shale and released through hydraulic-fracturing (a.k.a. hydrofracking) does not pose this same environmental benefit as the gas would not have otherwise been released into the atmosphere. Although our federal and most state governments refuse to released study results on the environmental effects of hydrofracking, such as it potential for drinking water contamination, there are substantial claims out there that the process of hydrofracking itself also has an extremely detrimental effect on our environment. During hydrofracking, undisclosed chemical solutions, currently protected from publication disclosure by intellectual property laws, are pumped at extremely high pressures in a mixture with water as a carrying agent. This process then breaks and fractures the shale to release the methane for capture. Hydrofracking debate set aside however, CO2 emission very much still a greenhouse gas and ipsofacto a climate change risk to our planet.

In fact much of the stronger evidence behind climate change consequences is derived from our knowledge of these fossilized layers of rock. About 350million years ago the bacteria and other microorganisms which feast on dead life forms (biodegrading or bio-digestion) had not yet evolved. This meant that all of the dead trees and plants remained on the surface of the earth creating a thick layer of carbon deposits (a.k.a. coal) as the mud which washed over it was compressed and turned into rock over time. During a time of great geological activity, shifting of plates, volcanic eruptions and the like, these coal deposits became exposed and were ignited by the flowing lava. Once combined with the already massive CO2, methane, and sulfur rich gas dumps from the volcanic eruptions, the soot and smoke emissions created a thick layer in the atmosphere blocking sunlight overtime. The levels of CO2 and other greenhouse gases emitted during this process reached levels never before experienced in earth atmosphere and relatively close to the levels of emissions we’ve begun to emit today in our pursuit for energy. This generated massive swings in the Earth’s climate alternating between frigid ice ages and massive global temperatures over the millennia, leaving little to no opportunity for Earth’s life forms to evolve, adapt, and survive. This event, often referred to as the Permian-Triassic Extinction, is the closest Earth has ever come to extincting all life forms in its entire 5 billion year life. It was so drastic, it took more than 30 Million years for life on land to recover.

In other words, climate change is a factual, geologically proven realistic possibility. Still hung up on its significance despite causing the largest mass extinction of life in Earth’s history? Why should we care? We’ll all be dead by the time these sorts of effects take place right? Well that point is very much debatable as a huge increase in the extremity and frequency of climate destabilizing symptoms such as tsunamis, massive hurricanes, extreme winter and summer weather patterns, drought, floods, etc. have provided fairly clear warning signs. All that aside, say you do believe in climate change but are still unconcerned with the effects to take place in your lifetime. Say that you’re willing to bare the dwindling food supply, the submersion of islands like the Maldives, and the large weather swings. In that case the next conscionable question is, do you have or do you plan to ever have children? If your do, are you not then aware of the incredible and possibly insurmountable problems we are causing them to inherent through no fault of their own? Are we really willing to callously and selfishly contribute to an incredibly slow, painful, violent, death and mass extinction of our species simply because we’re too lazy to face this challenge?

Well lets take a step back here and better examine how natural gas has affected current efforts to develop fully sustainable energy technologies. Thankfully the more environmentally conscious among us have turned their efforts towards the production of more sustainable energy solutions. In this case sustainable defined as both coming from a renewable resource and limiting any harmful effects to the environment to minimum. Current options often revolve around the use of solar, wind, various forms of hydro (though they’ve actually proven to have their own negative impacts on wildlife as well), bio-fuels, and finally the still yet to be invented cold fusion. Nuclear fission, our current form of nuclear technology, is not included here because of the limited uranium supply and nuclear waste byproducts. Just to reiterate we are assuming here that the implication of “bridge fuel” is to provide a less harmful and cheap energy alternative to coal and oil whilst we develop cheaper and more sustainable alternatives. Well given our current economic structure, the financial elements is certainly dominant despite the potential for a misdefinition of economic value, need, short-term value outlook perspectives, and quite the misappropriation of priorities from the get go, that is the world we live in right now and the debate to that effect is for another time. Given this current economic system thought the historic way new “disruptive” technologies advance into the market place is the begin and are often introduced hosting a worse overall value proposition in terms of performance and cost than the current alternative. That said, the reason these disruptive technologies eventually win out overtime is they hold the potential to eventually overcome that deficit in value proposition with additional development to hold enormous advantages often creating a system where the older technology is more or less eradicated from the market place. Thinks about vinyl records to 8-tracks, 8-tracks to cassettes, cassettes, to CDs, and CDs to MP3s etc. In each case, investments in and the sales of the disruptive technology to early adopters often fuels additional investment until the disruptive technology overcomes the status-quo.

As is long been known and often discovered by new entrants in the energy market, energy is unlike any other industry. Apples to Oranges is the largest understatement that can be made comparing it to almost any other marketplace. This is not like selling sneakers and is a major causality for the general public’s skewed views on the subject. To the majority of the people, their conscious awareness on energy stops at the plug, at the electrical outlet. It’s a continous flood of electrons that’s just always been there and never really been questioned. People don’t see the backdrop of what goes on to get it there. It is an industry where cost and influence from the big players rules all. An industry which often contributes 5+ members on the list of the top 10 world’s largest companies. The relevance of all that is that the low cost of natural gas, while generally thought of as a positive way to “bridge” us to more sustainable options has actually had detrimental effects on the sale of those aforementioned sustainable options to early adopters persuaded away due to price. Not only has natural gas has incredibly negative effects on the sale of renewables, most notably bio-fuels which are in essence now on the brink of extinction in the US, but also other technologies poised to help reduce the total amount of energy consumption in the first place through efficiency improvements. In a recent seminar I attended for Variable Refrigerant Flow heat pumps, these systems were able to provide a 40%+ improvement on energy consumption for many customers, a number unheard of in the energy efficiency industry today. Not even windows of LED’s can compete with those kinds of numbers. Look at the financials however and compared to gas to steam heating as many parts of the country have particularly int he north, the numbers are close but simply don’t add up. It creates a scenario where only those with a selfless interest in going green will be intrigued and as much as sustainability advocates would love to believe, in the penny pinching world we now live in this does nor sway the majority of the public. In other words, natural gas may be helping us switch to less polluting fuels, but its also undermining our ability to deploy and develop zero emission sustainable options at the pace we need in order to combat the rapid progression of climate change.

So is Natural Gas really a “bridge fuel” as we’ve been led to believe? Well if your harvesting methane from a biowaste digester then yes, it is, but hydrofracking has yet to provide solid empirical evidence to counter the claims of environmental harm. The combustion cycle has a net negative effect on our attempts to cool the climate, and the economic upheaval it has caused many developing sustainable option has all but wiped many out or at least significantly slowed their progression. Perhaps this is something to think about while you’re in the future voting booth, or the next time you make a decision regarding your energy use.