If America did this, we'd all save on electricity

U.S. electricity rates are rising, the power grid is failing, and utilities are making more money than ever. We explained these issues in a recent article (and our last Plugged In episode). 

But how do we solve them?

Newsflash: We already have the answer. As Jigar Shah, former Director of the Loan Programs Office in the U.S. Department of Energy and current energy entrepreneur and podcaster, puts it, “We’ve been piloting the way in which we should do this for 30 years.”

Distributed generation, energy storage, and virtual power plants—these could save us all from sky-high bills. And don’t worry: These concepts may sound complicated, but you don’t need a PhD in energy to understand them because we’re explaining everything... with lemonade.

Right now, most of our electricity comes from giant power plants and travels long distances  before reaching your house. It’s not efficient: About 6% of power is lost along the way.

Much of our power grid was also built in the 1960s and 1970s, and it’s not holding up well. America’s power infrastructure just got a D+ on its report card—safe to say its parents wouldn’t be pleased. Because it’s old, the grid needs constant maintenance to meet our modern energy needs. Jigar Shah says that’s costing us. 

“The utility says, ‘We need to be able to upgrade the distribution grid so that you can do whatever you want. You can turn every single thing on in your house at the same time, and we have to be able to serve you.’ That bargain is getting way too expensive—we can't keep upgrading the distribution grid,” said Shah.

“What they need to do is to figure out how to help work with customers to say, 'Hey, we need you to opt into load flexibility… in a way that isn't noticeable to you…and that requires cultural change.”

That cultural change involves ditching our outdated ways of getting electricity for a faster, smarter, and cheaper approach—each neighborhood makes and uses its own electricity. Enter: distributed generation.

Instead of ordering lemonade from one giant factory miles away, imagine if you could easily get it fresh-squeezed and locally made because every block in your neighborhood had its own lemon trees and lemonade stands. That’s how distributed generation works: Electricity is produced close to where it’s used.

Distributed generation systems can include multiple types of energy, like solar panels, small wind turbines, and emergency backup generators. These smaller energy devices form a microgrid—it’s local, efficient, and helps relieve the pressure on the big grid by supplying energy in more places.

Most examples of distributed generation technologies are renewables, such as solar and wind power devices. One of the biggest arguments naysayers have against these devices is that the sun isn’t always shining, and the wind isn’t always blowing, so they aren’t reliable energy producers.

While part of their argument is true, they fail to acknowledge that when the sun is shining and the wind is blowing, solar panels and wind turbines generate way more electricity than we need. That’s why energy storage is a huge piece to this puzzle.

Let’s say your neighborhood lemonade stand cranks out most of its lemonade in the morning before you have many customers—what do you do? 

You wouldn’t dump it out! You would likely store it in a cooler so it’s ready when the customers roll in. That’s what batteries can do for solar and wind power. All of the extra energy these devices produce during sunny or windy days goes into a battery. That way, when the sun isn’t shining and the wind isn’t blowing, electricity can be pulled from the battery for use.

Batteries reduce bills for all ratepayers—here’s an example

In 2018, municipal utility Braintree Electric Light Department (BELD) installed a 4 megawatt battery system with enough electricity to power about 700 homes for up to four hours.

BELD General Manager Bill Bottiggi says they primarily use the battery for “peak shaving,” or lowering electricity use during high demand. In Braintree, peak energy demand is typically around 4 to 5 p.m., when some families return home for the day while some businesses are still running.

“The transmission costs in New England have gone up dramatically over the last 20 years, and we get charged every month based on our peak usage of the transmission system,” explained Bottiggi. “So if you can shave that peak, you can save money. And we successfully did that, and we're still doing it.”

Braintree uses batteries similarly to how a homeowner would use a home battery for their household—it charges the batteries in the morning when there’s plenty of electricity on the grid and energy prices are low, and then discharges the stored energy when more is needed.  This ensures that the town has enough power supply during peak demand, sparing  BELD from turning to more expensive power plants to avoid a shortage.

Bottiggi says BELD also secures most of its electricity from clean sources, including solar, wind, and nuclear facilities throughout New England. As a result, BELD customers enjoy much lower costs than many of their Massachusetts neighbors.

 “The power is very inexpensive, and that helps average down all of my power supply. Our all-in electric rate is 16 cents a kilowatt hour, and investor-owned utility electric rates are about 33 to 35 cents. And the fear is that investor-owned utility rates are going to continue to go up,” said Bottiggi.

While adding batteries to the electric grid lowers everyone's bills by reducing grid stress, installing a battery at home can put money directly in your pocket if you participate in a virtual power plant (VPP) program. Virtual power plants sound complicated, so let’s go back to our lemonade stand example.

Imagine if all the neighborhood lemonade stands and their coolers worked together. If the lemonade stand on Street A was running low on juice, it could receive some extra juice from the cooler on Street B. You'd just need a manager to monitor juice production and inventory, then distribute the lemonade so every stand remained stocked when customers arrived.

That’s pretty much how a virtual power plant works. As the name implies, it’s an online system connecting thousands of homes with energy devices to ensure each home has electricity when it needs it.

VPPs are usually managed by utility companies, which often offer incentives for enrolling one of your energy devices (solar panels, batteries, electric vehicles, smart thermostat, etc.) In return, you give your utility the ability to virtually control that device to distribute energy evenly to all customers. This typically means your utility will reduce your energy use during peak demand hours—so handing over control of your devices may feel a little daunting. But Shah says the shift of energy use is typically non-invasive for homeowners.

“People don't really need their water heaters to turn on right after they finish taking a shower—they don't care as long as it's hot when they next need it. The same thing is true with electric vehicles. Most people who plug in electric vehicles keep them plugged in for 13 hours, and they're only charging for less than 3 of those 13 hours. So they don't care if it charges right when they plug it in or they charge at 1 in the morning,” said Shah.

VPPs make sense now more than ever because most of our new household appliances come equipped with WiFi and apps, making it easy for us to link them all virtually to better control our household energy use. That way, we can help evenly distribute energy in our neighborhood, city, region, and beyond.

Distributed generation is shifting from luxury to necessity as electricity demand reaches unprecedented levels nationwide, driven largely by AI data centers—massive buildings housing thousands of power-hungry computers..

The scale is hard to grasp. “They're talking a thousand megawatts of electricity to run these things. I mean our peak load in Braintree is about 80 megawatts, I can't imagine the generation that's going to be needed,” said Bottiggi. 

For some perspective, one large data center requires the same amount of electricity as about 750,000 homes. That power demand is already causing electricity issues for many homeowners nationwide, and more AI data centers are currently being built. 

Plus, new policies are killing the development of major clean energy facilities at a time when we need more power than ever to meet growing energy demand.

While we need to continue adding more energy to the grid, we're also not taking full advantage of the resources already at our disposal. Shah’s advice to the utilities is: “Leverage the assets that the residential solar industry has already put into your territory—assets that you've been ignoring for the better part of 15 years.”

It comes back to that cultural change, which starts with a mindset shift for utility executives.

“When you find that you have to upgrade a substation… is your first thought process, ‘Hey, we might be able to do this for one-tenth the cost if we just add residential batteries on that circuit?’ Or is your first thought process, ‘I know how we do this. We just get on the waiting list and wait four years for that new transformer and then upgrade it to a level that we don't really need, but it's what we're comfortable with?’ And right now, it's the latter, but we're getting to the point where electricity is becoming unaffordable. And so, we need to shift to the former,” said Shah.

Why are utilities stuck in this antiquated way of doing things when investing in microgrids would save us money, improve our power quality, and provide energy reliability during peak demand or grid blackouts? Perhaps it’s because change is hard, or because there’s a lot of political red tape right now. Or maybe it’s because many utilities make a lot of money by jacking up electricity prices in the name of upgrading the grid.

Jigar Shah says the best way to create this change in energy culture is for traditional utilities to pass the baton.

“Who is the most intelligent sector to lead this charge and to educate residential consumers? It's clearly residential solar companies,” said Shah. “But the residential solar industry is waiting for that shift before they show enthusiasm, and right now, they need to show enthusiasm first. They need to start getting trained on how to do this work. They need to start figuring out all these advanced features… and they need to start that process now so that two years from now, when the utilities hit their breaking point and they start moving in this direction, we're ready.”

Shah says residential solar industry professionals should be advocating for the shift toward microgrids.

“I do think that we can make this work now. But the question is, who's demanding? Who's writing op-eds in their local newspaper? Who's going to city council meetings and saying, ‘Hey, my company's right here and we know how to do this stuff’? Not the residential solar industry. They're waiting for someone else to do that work and then for them to get the business. And I'm saying that they're not going to get the business unless they start advocating for themselves and their employees.” 

If you're a homeowner looking to cut your electric bill, you don't need to wait for solar companies, utilities, and politicians to coordinate these large-scale grid changes. You can take control of your energy by installing solar and a battery. Your solar panels will produce electricity for you during the day, with the excess going straight to your battery. Then at night, you can pull electricity from your battery rather than taking it from your overpriced utility.

“Now that we have our solar panels installed, we’re definitely relaxed about our energy consumption, and we feel responsible,” said Stewart Lanier, a Massachusetts homeowner. “It pays for itself over the course of five years, then it’s going to be an investment in our retirement years.”

If you do get a battery, we recommend signing up for a VPP. You’ll get sweet incentives that can reduce your utility bill and maximize your solar energy investment. And, you’ll also ignite positive change for your community by contributing to even energy distribution.

“We have to be a good partner to the rest of the grid so that we are… solving problems for neighbors that don't have solar,” said Shah.

Think about it: If you wanted a glass of lemonade and had access to lemon trees, why would you order it from a giant factory far away? It would cost more and wouldn’t taste as good. But that’s precisely how we secure our electricity right now.

Life is handing us lemons, but we have the power to make our own lemonade. Generating our own electricity and developing microgrids within our own communities is better for our households, our neighbors, and America’s energy independence.