GridLab has published a report by Michael Lee, former CEO of retail energy provider Octopus Energy US, that calls for states in the PJM grid region to enable new entry of retail electricity providers that could quickly promote distributed batteries and flexible loads, reducing capacity and energy costs for all customers.
The report calls for states with restructured electricity markets, such as Ohio, Pennsylvania, Maryland and New Jersey, to enact four broad changes to retail electricity markets.
The recommended changes, Lee says, would allow consumers to choose new retail providers that could provide incentives to install distributed batteries, making consumers “the primary source of new capacity.”
As one example, the report notes that in Texas, Base Power subsidizes the cost of behind-the-meter batteries for its customers. The retail provider has deployed more than 100 MWh of distributed batteries across thousands of homes in Texas, operating them as a virtual power plant. Customers contribute to the cost of their battery and receive electricity from Base Power at a price of 8.5 cents per kWh plus delivery fees.
Octopus Energy US launched a similar program in Texas in 2024. The report notes that Tesla is also operating a retail choice program in Texas.
Lee refers to such retail choice programs as “Retail 2.0,” to distinguish them from another approach common in restructured states. Lee says that approach, which he calls “Retail 1.0,” has generated legitimate customer complaints, which have “fueled utility-backed campaigns to eliminate retail choice entirely.”
Retail 2.0 also encompasses flexible loads controlled by smart thermostats or electric vehicle chargers enrolled in a provider’s virtual power plant.
Highlighting the need for additional capacity in the PJM region, Lee says “PJM’s recent capacity auction cleared at ceiling-level prices and is still 6.6 GW short of sufficient capacity for a 1-in-10-year event.”
“Governors across the region have expressed alarm over capacity prices,” Lee says, as the capacity costs must be paid by electricity customers.
The potential of Retail 2.0 to help solve such problems “is not theoretical; it’s proven in markets that have implemented the necessary regulatory enablers,” Lee says.
Lee’s first example is retail energy provider Octopus Energy in the United Kingdom, which “rewards customers for flexibility when the grid needs it most.” The company served more than 7 million households as of early last year.
Citing a Texas example, Lee says Base Power “makes battery backup affordable to everyday Americans by using wholesale market revenues to pay for the battery at the house.”
Base Power announced in October it had raised $1 billion to expand its business model beyond Texas, to deploy customer-sited batteries in other states and even internationally.
While Base Power and similar providers offer lower electric rates to their retail customers, Lee presents an economic analysis showing why both capacity prices and energy prices decline for all customers at the same time.
By adding capacity, Lee says, retail 2.0 providers reduce remaining demand for capacity, for example in the PJM capacity auction, thereby lowering the capacity clearing price for all customers across the grid.
As for energy prices, when flexible demand created by Retail 2.0 providers reduces aggregate consumption during the highest-priced hours, “the demand curve shifts left and intersects the supply curve at a lower price point,” so that “everyone pays that lower clearing price.”
Commenting on the report, GridLab Executive Director Ric O’Connell said on LinkedIn that “all we need are some modest regulatory reforms to unlock this new Retail 2.0 model.”
The report describes the four proposed reforms and their rationales. In brief, the reforms are:
- Require use of smart meter data for initial financial settlement between utilities and retail providers
- Require utilities to provide low-latency, granular data access to retail providers
- Reform how capacity costs are allocated to retail providers
- Allow retail providers to send branded bills to customers.
Additional “extremely helpful” changes are also recommended.
The report is titled “A vision for a customer-led low cost power grid.”
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