The Decentralized Energy Revolution

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1 The Decentralized Energy Revolution

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3 The Decentralized Energy Revolution Business Strategies for a New Paradigm Christoph Burger and Jens Weinmann

4 Christoph Burger & Jens Weinmann 2013 Softcover reprint of the hardcover 1st edition All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No portion of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, Saffron House, 6 10 Kirby Street, London EC1N 8TS. Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The authors have asserted their rights to be identified as the authors of this work in accordance with the Copyright, Designs and Patents Act First published 2013 by PALGRAVE MACMILLAN Palgrave Macmillan in the UK is an imprint of Macmillan Publishers Limited, registered in England, company number , of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan in the US is a division of St Martin s Press LLC, 175 Fifth Avenue, New York, NY Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave and Macmillan are registered trademarks in the United States, the United Kingdom, Europe and other countries. ISBN ISBN (ebook) DOI / This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. Logging, pulping and manufacturing processes are expected to conform to the environmental regulations of the country of origin. A catalogue record for this book is available from the British Library. A catalog record for this book is available from the Library of Congress Cover image: Stylized detail of the US electricity distribution grid

5 Contents List of Figures List of Boxes Acknowledgments List of Abbreviations ix x xi xii Introduction: Decentralized Energy as a Disruptive Innovation 1 The design of the future energy system 1 How to read this book 4 1 Empowerment Paradigm The Age of the Prosumer 7 Technological drivers 11 Regulatory drivers 13 Empowerment drivers 14 Agents of change 15 2 Small Is Beautiful 17 Theoretical framing 17 Industry development 17 Innovation competence of incumbents 18 Micro CHP 19 The efficiency advantage 19 Exploiting scarcity pricing in the wholesale market: virtual power plants (LichtBlick) 32 Manufacturing synergies and economies of scale (Volkswagen) 41 Micro turbines 51 Aviation technology for the energy market 51 Market entry and sales strategies (Greenvironment) 54 Cooperations and alliances (Greenvironment and Viessmann) 58 Findings on micro CHPs and micro turbines 61 3 The Rise of Island Systems 64 Theoretical framing 64 Capabilities and collective empowerment 64 Race to the top and strategic differentiation 66 Bioenergy villages 68 The countryside strikes back 68 v

6 vi Contents Ownership and participatory processes (Jühnde) 69 Information dissemination and Smart Community consulting (Jühnde) 77 Recommunalization 80 The concept of citizen value (SWK, SWU, GASAG) 80 Findings on empowerment and recommunalization 84 4 Smart Management of Electricity and Information 87 Theoretical framing 88 Network externalities 88 Standardization and lock-in effects 89 Smart grid 91 The feed-in induced revolution (Siemens, EnBW Regional, and ODR) 93 ICT to manage bidirectional power flows (Itron, Argentus, and ODR) 105 Smart meters 110 Competing standards (Itron) 110 Netting peak-shaving and increasing the share of flexible power demand (Itron, SWU, and Siemens) 119 Smart home and cross-selling opportunities (Siemens, E.ON) 125 Findings on smart management of electricity and information Local Storage Solutions 131 Stationary storage 131 The alternative to grid renewal 133 Developing the blueprint for carbon-free energy systems (Younicos) 136 Electric vehicles 140 A hype revisited 140 Combining lead markets and lead suppliers (Daimler) 144 Findings on stationary storage and electric vehicles Enabling Negawatts 150 Theoretical framing 150 Inelastic demand for durable goods 153 Split incentives and the principal-agent dilemma 155 Transaction costs and incomplete contracts 156 Building efficiency 158 Technological progress driven by standards? 158 Creating lasting ties with the building owner (co2online) 164 Energy performance contracting 169 From engineering to economics 169

7 Contents vii Product standardization as the key to customer management (Argentus) 178 Risk reduction via guaranteed energy savings (Argentus) 181 Findings on building efficiency and energy performance contracting Insights from Germany for a Decentralized Energy Future The decentralization snowball Emotionalization of energy From single technologies to systemic viability Exploiting market volatility Guidance in the information tsunami From optimizing to satisficing Innovation and dissemination networks The right sequencing of the energy transformation From unbundling to rebundling Public service obligation for transparency 193 Appendix: Company and Interviewee Profiles 194 Argentus 194 Konrad Jerusalem 194 Bioenergy village Jühnde 195 Eckhard Fangmeier 195 co2online 196 Johannes Dietrich Hengstenberg 196 Daimler 197 Ulrich Müller 197 E.ON 198 Eckhardt Rümmler 198 EnBW Regional 199 Michael Kirsch 199 GASAG 200 Andreas Prohl 200 Greenvironment 201 Radu Anghel 201 Itron 202 Karsten Peterson 202 Werner Paech 202 LichtBlick 203 Ralph Kampwirth 203 ODR 204 Frank Hose 204 Siemens 205 Michael Weinhold 205

8 viii Contents Stadtwerke Krefeld 206 Carsten Liedtke 206 Stadtwerke Unna 207 Christian Jänig 207 Viessmann 208 Manfred Greis 208 VW 209 Jürgen Willand 209 Younicos 209 Alexander Voigt 210 Notes 211 References 213 Key concepts, persons and technologies 219 Companies and organizations 221

9 List of Figures 1.1 Energy system trajectory Efficiency gains of cogeneration, compared to conventional methods The China Pavilion, an energy-saving building at the Expo 2010 in Shanghai Residential fuel cell unit used in the ENE-Farm initiative Global micro CHP unit sales by technology Industrial production of micro CHP units at Volkswagen Quiet Revolution turbine at Environment Energy Centre, Leyland Micro turbine CHP plant with biogas in Muntscha Recharging with the Nuru Power Cycle Energy-supply concept of the bioenergy village Jühnde Samsø s main energy production sites Jühnde villagers in a meeting next to the biogas plant Proposed master plan of Masdar City Solar thermal heating in Dezhou The externality problem with the design of smart grids Components of the smart grid Ownership of decentralized energy generation units in Germany Smart metering solution by Siemens Smart home vision by General Electric McKinsey abatement-cost curve for the buildings sector in Germany, year Share of German heating systems replaced annually Energy efficiency measures implemented in commercial buildings Celebration at Druk White Lotus School, India The concept of energy performance contracting 172 ix

10 List of Boxes 2.1 Heat and Power Cogeneration at the World Expo 2010, Shanghai ENE FARM commercialization of a residential micro CHP unit based on fuel cells Small wind turbines innovations for downsizing in urban settings Energy poverty, village level entrepreneurs, and the Nuru Power Cycle Samsø energy autonomy in the Baltic Sea Masdar island solutions under harsh environmental conditions Dezhou and the Chinese Solar Valley reconciling growth with environmental protection A smart grid for a Smart City Boulder paves the way and shows the obstacles Telegestore in Italy benefits of a mass rollout of smart meters Building efficiency in developing countries Druk White Lotus School in Ladakh, India Weather forecasts to increase the energy efficiency of intelligent buildings 182 x

11 Acknowledgments First and foremost, we would like to express our gratitude to the interviewees, who agreed to share with us their experiences and spent a considerable amount of time revising and improving their individual narratives. Their enthusiasm for decentralized energy gave us the inspiration and endurance to write this book. We are also indebted to Jinfeng Ding and Chen Huihuang from the China Executive Leadership Academy Pudong (CELAP) for providing information on our Shanghai business case. We wish to thank our colleagues at the European School of Management and Technology for their intellectual, academic, and logistic support during the writing phase, in particular Derek Abell, Olaf Plötner, Mario Rese, and Gabriele Weber, as well as Bianca Schmitz and Frauke Wriedt. Last, but not least, we would like to extend special thanks to Eleanor Davey-Corrigan at Palgrave Macmillan and Vidhya Jayaprakash at Newgen Knowledge Works. xi

12 List of Abbreviations CCGT CHP CO 2 EEG GW ICT IEA IFMA kw el kwh kw th MW MWh SME SWK SWU VW combined-cycle gas turbine combined heat and power carbon dioxide Erneuerbare Energien Gesetz (Renewable Energies Act) gigawatt information and communication technology International Energy Agency International Facility Management Association kilowatt kilowatt hour kilowatt (thermal) megawatt megawatt hour small and medium enterprises Stadtwerke Krefeld (municipal utility Krefeld) Stadtwerke Unna (municipal utility Unna) Volkswagen xii