Germany enters brave new world of decentralized power

By Eric Marx | 11/20/2015 07:53 AM EST

BERLIN — The theory of a decentralized power system — one that does not rely on standard steam-fired electric generators — has been around for a long time. But now some applications of it are coming into commercial reality.

BERLIN — The theory of a decentralized power system — one that does not rely on standard steam-fired electric generators — has been around for a long time. But now some applications of it are coming into commercial reality.

In Germany, they will most likely involve rooftop solar photovoltaics feeding battery storage systems for saving and using the power generated on-site, but it will also include a variety of other technologies such as electric heat pumps and chargeable electric vehicles.

Digitization and networking will play a major role in this, and most likely all these services will have to be bundled together into an offering whose value proposition is simple and easy to understand: 100 percent autonomy from the grid paid for in a flat monthly service contract that allows the customer to shift his energy use from daytime solar to nighttime electric heat.

Wind turbines
Some of the pieces for what is becoming known as a “virtual power plant” are shown in this picture of Freiburg, Germany. The solar panels on the rooftops will run heat pumps and store unused electricity in batteries. Unseen here are the networks of companies and computerized distribution systems that can quickly feed in wind power and trade for renewable energy in other areas when needed by the local network. | Photo courtesy of Flickr.

"In the residential market there are thousands of people who want to be autonomous from the utility, and there is an interesting way to get there right now, today," said Christian Feißt, who along with Marco Demuth are the two heads of Beegy, a new energy company that is aiming to upend Germany’s traditional utility model.

By combining solar photovoltaics (PV) and electric heat pumps, customers supplement their storage potential and can thereby cover both daily peak periods and seasonal changes in climate.

It’s a highly data-driven business model, explained Feißt, who formerly worked at Cisco Systems on smart grids and is a founder of Munich-based information technology specialist firm GreenCom Networks. With digital control technology, Beegy is able to guarantee its customers a discounted electricity bill, in part thanks to the backup green energy it has access to through its parent company, MVV Energie, one of Germany’s largest publicly owned municipal utilities. Beegy also is in partnership with BayWa RE, a PV developer with links to a deep installer network, and Glen Dimplex, a family-owned Irish company that is one of the world’s leading manufacturers of electrical heating systems.

Supermarkets and discount chains with flat roofs are ideal customers. Industrial concerns are also fair game. Commercial clients like these have the necessary cash flow for the large upfront investments. Beegy has this space covered alongside other competitors, namely the big four utilities and other municipal energy companies, all now partnering together in similar joint ventures. Each has staked a small portion of the market, with the big payoff — 42 million consumer households — still to be cracked.

Of the roughly 1.5 million German homes with solar panels, only 15,000 are linked to a storage device. That’s a number that is expected to double in the next year as solar PV and battery systems continue dropping in price.

Demuth, with 25 years of experience running logistics operations for incumbent utilities, said the "dealmaker" is the company’s ability to combine and bundle services across the entire energy value chain. Intelligent IT systems make it possible to now expertly manage distributed assets, forming them into a new power architecture — commonly referred to as virtual power plants (VPPs) — which are tailored to the consumer’s specific needs. "But without an integrated processing of installation services," he added, "that won’t happen."

Virtual power plants and trading

Analysts say it’s this combination of scale and efficiency that sets Beegy (a name chosen from the English words "better energy") apart from its competitors.

MVV, the largest stakeholder in the joint venture with a 35 percent ownership interest, has emerged as a powerhouse renewables investor. Based in Mannheim, where it operates several coal-fired power plants, MVV has in the past year quickly diversified through the acquisition of two large wind energy companies. It now manages 174 megawatts of installed wind capacity and is a significant player in the biomass sector.

"We have access to a large portfolio that helps us to reduce the risk," Feißt said. "We have the intelligence. We do portfolio management, trading and leveraging the capabilities of our shareholders."

Because a VPP can be large enough to access the wholesale electricity market, it can pass real-time wholesale pricing signals to its internal sources, leading to more efficient price signal response and, in turn, generating savings for the customers.

In that way, Beegy is able to offer its customers a flat price guarantee — what it calls an "autonomy package" — feeding power to households during times in which there is an energy shortfall.

Others are managing energy in similar VPP operations. Few, however, are providing both the components and service. BayWa, with its deep installer network and access to PV panels and battery storage, closes the loop in terms of planning, installation and service maintenance, said Demuth, what he called the "industrialization of the last mile."

PV panels already come integrated with a measurement device that is, in reality, a smart meter, Feißt said. Beyond production and consumption data, the assets themselves have much more information that can be used for providing good service. Redundancies can be avoided and the overall system controlled with a high level of remote precision that consumers would be hard-pressed to accomplish on their own.

Following a U.S. model

Harald Överholm, an associate with the Stockholm Environment Institute, likens the Beegy offer to the rise of integrated solar services companies in the United States, beginning around 2005. Companies like SolarCity and SunEdison pioneered the model, and now in Europe this kind of solar leasing is very much the trend of the moment.

Those companies always retained ownership of the equipment, however, and what Beegy is offering is a power purchase agreement that guarantees them a price and provides backup (if needed), but does not include any of the costs of hardware purchase and installation. SolarCity customers, for example, still get a utility bill, whereas, in Germany, Beegy is attempting to make the utility disappear.

"There was a lot of growth in the U.S. market due to the value proposition being very easy to understand," Överholm said. "Put solar on a roof, pay a monthly fee, and this is how much money you owe. There is no hassle, and the value proposition is clear. If you make it more complicated by adding additional benefits … I don’t think you can be as aggressive in the same way as SolarCity."

According to Överholm, SolarCity has expanded its offer in recent years. After selling rooftop PV, it now comes back and attempts to sell additional energy services, but those initiatives reportedly account for less than 10 percent of overall revenues.

What big utilities have is their customer base, but thus far they have failed in selling it additional services. It comes down to brand image, said Rodger Rinke, an analyst at Landesbank Baden-Württemberg.

"That is the point where all of them are struggling," Rinke said. "It makes more sense to take over one of the smaller players, and perhaps regional electric utilities are in a better position to do this."

Utilities will start models that cannibalize their other businesses, but they have to accept that as they have to move forward with both power generation and service.

Exploring a market without subsidies

The scale-back in feed-in tariffs, which subsidized renewable energy, is forcing these new models, noted Gerard Reid, an energy analyst with the corporate advisory firm Alexa Capital. Less generous support makes battery storage more attractive. Adding an electric heat pump into the mix is, however, entirely new.

"It works, let’s be clear," Reid said of the quantum system being offered by Glen Dimplex. There’s a community north of Dublin with 140 households currently using the heaters to aggregate their power during periods of surplus wind production. It’s what France does with nuclear power incentivizing electrical heating during nighttime hours when energy is at its cheapest. Germany once did the same, owing to the inability of nuclear power plants to quickly ramp up or down.

"Now the vision is cheap daytime solar electricity," Reid added, "but what hasn’t yet been proven is the ability to do it on a more intelligent and flexible basis."

Yet that day is fast approaching given pending reforms to the German power market that are inching toward allowing the trading of renewables on the fastest intraday timelines.

One final issue is cultural: German engineers are loath to use electricity to generate heat, given its status as a waste product derived from other energy sources.

"Any engineer will say this is crazy and will quickly accept taking and burning local gas," Reid said. Moreover, gas now costs roughly half the price of solar. Biomass also runs cheaper.

"We are very close to an inflection point when it comes to these solutions succeeding in the market," he added, "and that’s why the Beegy model is so interesting. They are out there in the front end of the market. Nobody else is really doing this."