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New Tech, Regulations Help Rein in Formerly ‘Wild West’ Home Energy Market

The status of home energy keeps changing, as new means of generation, new users, and new methods of storage change the game for both electrical utilities and their customers.

First, some background. Most electrical power is generated through electromagnetism: a generator rotates in a magnetic field, converting the rotational power into electrical power that is fed to a distribution grid. 

The source of the rotational power is what distinguishes the energy sources. Most generators are powered by steam, which drives the rotor blades. That steam can be produced by burning coal, oil, or gas, nuclear fission, or from solar energy. Other generators are powered directly by water, using hydroelectric turbines, or by wind.

Finally, there are photovoltaic generators, which produce power directly from sunlight. 

Electromagnetic generators share some specific properties: they have a very large rotational mass to provide stability, they are capable of constant 24/7 operation, they are difficult to shut down and start up, and they generate a constant amount of power as long as they are spinning.

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Photovoltaic power, by contrast, only generates power during daylight hours, and the power output varies with the amount of available sunlight.

One thing they all have in common is that they are extremely expensive to build, update, and maintain.

For the electrical utilities, the highest expense is the creation of additional power capacity, and the difficulty of obtaining locations, acquiring permits, and dealing with the political opposition that invariably accompanies any attempt to build additional power plants.

Since the power generation from most sources is constant, it is most efficient if the utilities can provide a constant supply of electricity to the grid and their customers. There is still no efficient way to store large amounts of electricity and deliver it at another time, or to efficiently transport it over long distances.

Customers, however, have their own schedules, and those don’t necessarily provide a constant demand. Most people wake up and go to work in the morning, shifting their power consumption from their homes to their workplaces. Then they all go home in the evening, adjust their home temperature for comfort, turn on lights and appliances, and then go to sleep. Home power demand is greater during the day, peaks between 4 and 9 p.m., and then decreases again at night. 

That peak power demand is what makes life difficult for the utilities — once they have reached the limit of their generation capacity, they cannot produce more electricity, even if customers would be happy to purchase it. 

On the other hand, during the night, they can usually produce more power than customers can use and might even have to shut down some generators since there is no place to store the electricity. For most utilities, solar power does little to compensate, since the solar-generated power is decreasing at the same time as the demand is peaking.

Utility Customers Desire Reliable, Inexpensive Power on Demand 

The business model for electrical utilities is to generate and sell electrical power, at a profit, without encountering the huge expenses of upgrading their capacity. At certain times of day, they can provide more power than customers need, while at other times, the demand threatens to be greater than the supply. The critical difference is time! 

Utilities have few good options when that happens. They can reduce power output by lowering the voltage, but such “brownouts” create huge problems for customers, since most electronic devices do not tolerate low voltage well and can be damaged. The Utilities might pre-emptively shut off power to some customers, but “rolling blackouts” are equally disliked by the affected customers. Or the third alternative is to raise the cost of power during peak periods to discourage customers from using it during those times.

That last option was not available until recently — traditional electrical meters were located at each property, and needed to be manually read, generally once a month. This meant that the utility knew how much electricity each consumer used since the last reading but had no knowledge of when it was used or how much was used at any time. 

“Smart Meters” solved that problem by sending data directly to the utility every few seconds and allowing them to see usage patterns in real time. The new meters are also more accurate and reliable — unfortunately this generally works to the benefit of the utility, so some customers may see slightly higher bills with the new meters. 

Some utilities have opted to share the real-time data directly with their customers, both to ease the “shock” of an unexpected high bill, and to let the customers see where they might lower their usage, especially during those peak times.

While the utilities want to avoid the problems associated with peak capacity, they don’t want to lose revenue from customers the rest of the time. For that reason, the goals of utilities and their customers align at certain times–to reduce usage during peak periods–and do not align at others, when utilities want to maximize income and customers want to minimize expense.

Recent Technologies Changing the Home Energy Game 

For utilities, the deployment of Smart Meters has given them more control of and more insight into usage demand. They also provide a Zigbee gateway to each customer’s home, so that customers can opt-in to allow the utility to cut off power to AC compressors when demand exceeds peak capacity.

For customers, there are a lot of new options. Allowing AC shutoff can provide some savings, but possibly at considerable discomfort. Local solar generation gives customers the ability to reduce dependence on the utility grid and lower bills but doesn’t always provide enough power during peak demand times, and critically, does not provide power during a grid power outage, unless the customer can be isolated from the grid.

“Time-of-Use” billing is another option. If a customer has one or more electric vehicles (EVs), charging may be a significant portion of the monthly bill, and it’s usually easy and painless to set the cars or the chargers to only charge during the most favorable rate periods. That may be enough to offset some HVAC usage during peak periods when needed for comfort.

EVs are growing in popularity as customers seek to reduce fossil fuel reliance and save cost, but this significantly increases demands on the grid.

The most significant developments have been in battery technology, driven by EV development, that have increased the capacity, reliability, and safety of battery storage while reducing the cost. Battery storage allows customers to time-shift their power usage- charging the batteries during off-peak periods at lower rates and using that power to reduce or eliminate grid demand during peak times. It also provides backup power in the event of a grid power outage or brownout.

Batteries are expensive, and at this time they do not scale to the point where they can be economically deployed by the utilities directly, although Tesla has been experimenting successfully with such deployments in some locations. They are finally scaling to the point that they are often cost-effective at the local customer level, especially where reliability is critical, and budgets allow.

Traditional generators rely on various forms of fossil fuels for operation: a combination of gasoline, natural gas, and propane; sometimes all three. These can provide long-term operation during an outage but require storage of flammable fuels or reliance on gas utilities (which may also be affected by an outage event). They are designed to only operate during an outage, as they are far more expensive to run than the grid and cannot store electricity for later use.

While batteries have traditionally been used for backup during outages, newer home energy management options allow full two-way integration of the home, the grid, batteries, solar, EVs, and other energy sources and consuming devices to maximize reliability and minimize ongoing cost.

In addition to charging both home batteries and EVs during off-peak rate periods, the batteries and EVs can also be used to provide power to the home to offset grid demand during peak periods, while ensuring that a full charge remains at the times a vehicle will be needed, or an outage possibility is anticipated. 

Weather forecasts, utility notifications, and personal calendar events can all be part of the equation. For homes with multiple EV’s charging can be managed so all vehicles are fully charged when needed without creating excessive demand or using peak-rate power.

Unlike generators, the cost of battery power is the same as the off-peak grid power cost, so it makes sense to use battery power whenever it is less expensive than current grid pricing. Battery systems appear to satisfy the mutual needs of both utilities and consumers. But they are still very expensive to install. 

New Regulations Impact the Value Equations 

In California and increasingly in other states, the pricing structure for net metering has recently been changed in favor of the utilities. As of April 2023, the Net Energy Metering tariffs were changed to NEM 3.0, which significantly changes the rates at which new customers are compensated for excess home power production that is returned to the grid. 

Previously, the home electric meter essentially ran forward when the utility was sending power and backwards when the customer was generating more electricity than they were using, so utilities were compensating customers at the same rate as they were being charged. Now, the utilities are paying wholesale rates for power received, but charging retail for power consumed. Additionally, customers are required to subscribe to Time-of-Use rates for both billing and buyback. 

For customers without the ability to store power, this meant a drastic reduction in the savings that solar would typically provide, which has severely shaken the entire solar industry. But the real impact has been that battery storage, which was previously often seen as an unnecessary and expensive frill, now has a significant role in saving money, in addition to protection from blackouts and shutdowns. A new generation of batteries has also lowered costs and improved battery reliability and lifetimes.

Instead of returning excess power to the utility grid, it now makes much more sense to store it in local batteries during the day when solar production is high, and then using the batteries to power the home during the Peak TOU period, usually 4:00 PM – 9:00 PM, rather than purchasing premium-priced power during that period. If there are EV’s in the home, it is less expensive to charge them from solar energy, rather than charging from the grid, or alternatively to charge the EV’s during periods with the lowest rates. 

So solar is still very viable for customers but needs a bit more “smarts” to keep it cost-effective, which is handy for Integrators!

So, Who Is the Customer? 

Should the batteries be purchased by the consumer as a hedge against outages and high pricing? Or should the brunt of the cost be absorbed by the utility since it is being protected from excess peak demands for power that it cannot meet? 

The answer is usually a negotiated compromise between both parties: the customer generally owns the batteries and ancillary equipment, and the utility offers favorable rate discounts and rebates. Often the government also offers rebates to offset some of the capital costs. 

It’s a delicate balance, and each customer must use due diligence to ascertain whether the overall advantages will offset the considerable investment over a reasonable period of time. With many unknown factors in the equation, it’s sometimes down to a gut feeling rather than strict math in the end.

More Pertinent to Our Industry: Who Is the Provider? 

Will the custom integrator channel step up and be the leading source for this market? Or will the business go to traditional electrical contractors and solar installers? 

Home energy management and power control systems straddle several business models. The technology can be very complex and requires the types of home control systems traditionally installed by custom electronic designers and installers. However, power management has usually been outsourced to existing electrical contractors. And solar power has been in a silo of its own — sometimes incorporating generators and backup systems, but rarely integrated with anything inside the home. 

The business model for solar providers has typically been to send in a salesperson to qualify the customer, fill out paperwork for permits, and sign a sales agreement. Then a team of installers show up and install the solar panels, inverters, charge controllers, and possibly battery backup outside the house. The systems are very similar, and variations are kept to a minimum.

This is a very different type of business than the typical CEDIA model, which requires close communication with the customer, close attention to details, and lots of follow-up.

As a result, many solar installers have far lower labor costs than custom integrators or regular electrical contractors. 

This fact has not been lost on the manufacturers of home energy management and power control systems. They are actively looking at sales numbers and trying to determine what channels best suit their marketing goals. 

And there is more at stake than just the energy management portion of the installation. Just as home control systems will play a growing role in energy management, upcoming energy management systems are starting to integrate home control as part of their platforms. 

Running macros and installing keypads and touchscreens to control lights and appliances and other devices in a home has always been a part of our industry, right? Will it continue to be?

Integrators should become familiar with this new technology. Some of the manufacturers are already in our industry and exhibiting at CEDIA; others are certainly looking and attending, but not yet participating. 

ORRIN CHARM ([email protected]) has been in the smart home industry since 1989 as a system designer and engineer. His consulting company, Charm & Imagination, is based in Simi Valley, Calif.

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