The following is a contributed article by By Michael Lee, CEO of Octopus Energy US and Michael Murray, President of Mission:data Coalition.
The clean energy revolution is accelerating: President Biden's proposed infrastructure plan calls for a $100 billion investment to update the country's electric grid, while the Federal Energy Regulatory Commission's Order 2222, which requires grid operators to integrate aggregated distributed energy resources (DER) into wholesale markets, is set to be implemented later this year.
That's the good news. The bad news: in order to realize the true benefits of a green and resilient energy grid, we must first break down the energy industry's walled gardens. Several walled gardens are emerging in the power industry that diminish customer choice. For example, some consumers may be disappointed to discover that their smart thermostat is "locked" with a certain energy provider, preventing them from shopping for lower electricity rates. Or, months or years after buying certain products — like smart thermostats, electric vehicles (EVs) or home automation devices — they discover that subsequent choices of how those devices operate have been artificially limited.
The financial benefits to certain companies of exclusive arrangements are obvious: "tying" arrangements help ensure investment returns on partnerships involving technology development or co-marketing. Consider Apple's exclusive relationship with AT&T when the iPhone was released in 2007. However, tying can have a dark side: exclusive partnerships can lock customers into an arrangement for the useful life of the thermostat or EV. In other words, a very long time.
The structure of electricity markets today is not an inevitable result of technological Darwinism. Rather the choices available to consumers are the product of policy decisions made by legislators and regulators. We can decide to put consumers first — a decision which also benefits decarbonization, as explained below — or we can do nothing, which has the effect of elevating the financial interests of hardware companies over the freedom of energy consumers.
To be successful, pro-consumer and pro-decarbonization policies must address two key areas: energy data portability and the right to control energy-consuming devices in homes and buildings.
Energy data portability refers to consumers' ability to seamlessly transfer, or "port," their data to different services. Regulated electric utilities, who own and manage the electric meter on your house, for years have fought regulations that would require them to provide simple methods for transferring usage data to innovative "third parties." Some states, like California and Texas, have made progress in this area, but the majority of Americans today lack the ability to easily move their household energy information from their incumbent provider. If you've ever wondered why there aren't smartphone apps for analyzing your household energy usage data, the lack of data portability is the culprit.
Data portability is both technologically achievable and environmentally beneficial. Leveraging well-established internet standards used by banks and technology companies means that transfering your energy data can be done securely without putting your privacy at risk. It also leads to improved energy management, particularly in homes: analysis and real-time insights on energy usage has been shown to achieve utility bill reductions of 6% to 18%. Seamless portability of data is an essential foundation for the power grid to become bidirectional.
The best example of energy data portability today is Texas. The Lone Star State passed a law declaring that electric meters' usage data belongs to the consumer, not the utility. A state-wide website — Smart Meter Texas — aggregates energy usage data from four large utilities into a single place so that over 7 million households and businesses can enable their data to be seamlessly and instantly permissioned to entrepreneurs and innovators through "one stop shopping."
Furthermore, unlike many other states, Texas's wholesale grid operator, ERCOT, settles financial transactions using actual meter data rather than averages, giving customers the benefit of shifting their usage to off-peak times with DERs. These simple steps mean that DER aggregators' interests are more aligned with consumer outcomes. As power flows become increasingly two-way, Texans will be the first to benefit.
The right to control energy-consuming devices is data portability's counterpart. Once a consumer has purchased a smart device, it should be in their power to decide who is able to access the device's control features. Many consumers do not realize before purchasing a DER that their new device may be locked for only the hardware vendor to control it.
The right to control devices is a subset of the "right to repair." Battery manufacturers have claimed that the right to repair endangers safety and product warranties, but the right to control does not put any of those at risk. Policymakers can require products with internet-based control capability to permit any customer-selected company to operate those controls, while the manufacturer retains control over the hardware and assembly.
This policy innovation would enable a competitive market in which thermostat manufacturers, for example, would compete alongside "virtual power plants" for the best consumer experience and the greatest compensation to customers from wholesale power markets. Suppose the value of your thermostat to the power grid is $100/year. Without open access, the device manufacturer can monopolize the value for itself. With open access standards, nearly all of the $100 benefit will be given to the end user. This is similar to Apple's current litigation with Epic Games, where Apple has been accused of limiting competition based on forced in-app purchases and hefty commission fees, which decreases shared value and consumer choice.
Open, non-discriminatory access to internet-based device controls at the discretion of the consumer is critical to facilitate the digitization of energy. The incumbents — regulated utilities and certain hardware manufacturers — may find this vision intimidating. But, as devices grow more sophisticated and the costs of device interoperability keep dropping with the Internet-of-Things, the justification for walled gardens in the power sector is becoming increasingly strained.
Better aligning market outcomes with consumers will enable many firms to flourish while simultaneously making the grid more efficient. It's time for policymakers to help consumers, and the grid, reach new heights.