Navigant Research Blog

U.S. Campus Microgrids Lead, but Utilities Still Stand in the Way

— August 31, 2011

Hurricane Irene, which knocked out power for approximately six million customers in 13 states and the District of Columbia this week, raises a question: What smart grid technology could have enabled homes, businesses, and mission critical institutions to have played a more vital role in providing reliability, security, and emergency services?

The simple answer is a microgrid, as all of the sensors and sophisticated IT systems that been receiving so much hype would have, for the most part, been rendered useless once power went out. As this moniker implies, a microgrid is a small version of the larger utility grid, but with an important distinction. When there is an emergency – whether that is a huge storm or a terrorist attack – microgrids can keep the lights on, maintaining power internally by sealing themselves off from the large grid, creating islands of energy self-sufficiency.

That’s one reason the U.S. military is so enamored by the technology. In terms of actual online capacity, however, it is college and university campuses that are leading the way, according to a new report from Pike Research. By 2017, for example, Pike Research forecasts the North American education campus environment segment will reach 1,281 MW at a CAGR (2011-2017) of 17.5% in the average scenario. Overall, the North American campus environment sector will reach 1,572 MW out of a global total of 1,642 MW, a world market share that exceeds 95% in the same average scenario.

Typically, these educational institutions already manage energy in a comprehensive way, often integrating within the confines of existing technology for on-site electric and thermal generation and loads. Thus, the leap up to a microgrid configuration is the next logical step in achieving greater autonomy and control of energy futures for these financially secure enterprises. This sector is the largest of the global microgrid market sectors. Like the military sector, it is also dominated by the United States. Annual revenue is projected to reach almost $800 million by 2017 in Pike Research’s average scenario.

One of the two leading states for campus environment microgrids is New York, where three such microgrids have come online since 2009:

  • The 38 MW Cornell University microgrid
  • The 13.4 MW New York University Washington Square Park microgrid
  • The 3.6 MW Burrstone Energy Center microgrid (which encompasses Utica College, and St. Luke’s Hospital and Nursing Home)
  • Indeed, New York City, due to transmission constraints and a utility – Consolidated Edison – that views microgrids as an opportunity to sell natural gas to combined heat and power (CHP) units, may be the best single urban market for microgrids in the world. The impacts of Irene throughout Con Ed’s service territory may only accelerate efforts to expand this energy management platform through the Eastern seaboard, as well as throughout the United States where hurricanes can cut traditional power supplies.

    Nevertheless, the most active state market for this college microgrid segment is on the other side of the country. The 23-campus California State University (CSU) system has, for example, adopted policies mandating renewable energy purchases and installations, conservation, and green buildings. At present, virtually all of the CSU campuses feature some form of a microgrid, though most are fairly primitive, first generation manual systems. At least four CSU campuses are currently entertaining proposals to develop state-of-the-art microgrids incorporating carbon-free renewable distributed energy generation (RDEG), as well as smart grid demand response (DR) and other energy efficiency upgrades.

    The vision of General Microgrids, which is negotiating to develop the first four CSU microgrid upgrades incorporating new RDEG, CHP, fuel cell, and advanced storage systems, is to develop a network of microgrids that could serve as the basis for a secondary market for grid operators such as the California Independent System Operator (CAISO). Under this compelling but provocative vision, microgrids can protect and service the larger utility-operated grid and cooperate with adjacent microgrids. Moreover, these microgrids can work independently as well as aggregate their capabilities, thereby becoming integrated systems.

    Note that meeting California’s 33% by 2020 Renewable Portfolio Standard (RPS) goals will require 20,000 MW of new generation capacity. Governor Jerry Brown has signaled that roughly 12,000 MW of this total could be distributed renewable energy resources, an extremely difficult integration challenge for CAISO. Certainly, distribution utilities, primarily the investor-owned utilities (IOUs), have no capability to leverage their distribution circuits in the same fashion as transmission circuits, providing two-way power flow. Thus, to reduce the risks attached to integrating distributed renewables, storage, and load management, General Microgrids is offering the concept of building a secondary market for microgrids, adjacent to CAISO, to support grid reliability. The CSU system could serve as the backbone of this groundbreaking aggregation and optimization network.

    Yet according to Len Pettis, Chief of Energy and Utility Operations in CSU’s Chancellor’s office, it is utilities that are standing in the way of progress. He gave this quick example: “A stand-by service charge by a utility is worthless in time of a natural disaster and is a luxury we can no longer afford.” These charges are often rendered by utilities under the presumption that they need to back-up any on-site customer owned power supplies due to their legal obligation to serve. But these charges are also used to make alternatives to utility service uneconomic. During a storm or earthquake, utilities often cannot provide back-up as that is when their grid is most likely to go down.

    “We need to develop contract partnerships with utilities, because we’ll be here for decades to come,” said Pettis, noting that at present, CSU is doing grid upgrades on a piecemeal basis. “Instead, our college campus network could integrate excess capacity and islanding functions and solve many of the problems linked with integration of new renewables for the next two decades. We’ve got the technology, but we have a bunch of knuckleheads in Sacramento and San Francisco,” he added, referring to the locations of the State Legislature and California Public Utilities Commission, respectively. With the right regulations in place, college campuses could add two to three times as much new supply as needed on-site, and then export that power locally within the community, reducing the 15% of power lost today due to long-distance transmission of electricity.


    Frequency Regulation Market’s Winning Combination: Low-Risk, High-Value – What More Could One Ask For?

    — August 30, 2011

    I recently got the chance to speak with the vehicle-to-grid technology (V2G) firm Nuvve, which is currently working on a pilot project in Denmark demonstrating V2G. Pike Research has previously covered Nuvve’s projects in Denmark from a purely technological perspective. What is most interesting about Nuvve’s business model is that it, like many other grid services firms, are targeting the lucrative market for frequency regulation. This small slice of the ancillary services is also being targeted by innovative energy storage technologies.

    The characteristics of the frequency regulation market make it an ideal application for innovative, new storage technologies, either as stationary installations or in electric vehicles. Balancing the grid’s frequency, which is constantly fluctuating, requires quick responses of either input of power or a removal of power from the grid. These events generally do not last for long, usually only minutes at any given timeframe. For batteries, where degradation is a significant concern, shorter duration applications are ideal because of the potential costs of shortening their lifespan. In electric vehicles this is especially a concern for both auto OEMs and consumers alike.

    In terms of resource compensation, many deregulated markets are implementing market structures that will compensate resources for their service capacity in the frequency regulation market. Fortunately for these technology and service providers, frequency regulation is one of the most expensive ancillary services on a per megawatt basis. In some deregulated markets, like PJM or the New York Independent System Operator (NYISO) territory, the value of frequency regulation can average between $30-$45/MW per hour. In many ways, the frequency regulation market represents a low-risk, high-value arena for new grid technologies.

    Nuvve has found considerable success in its ability to access the Danish regulation market. The grid operator in Denmark, Energinet, is also aggressive in its pursuit of new grid technologies given the country’s small size and grid resources. With a remarkable 19% of electricity production attributable to wind resources, Denmark’s need for frequency regulation is rising and as a result they are looking to innovative technologies and services to aid renewables integration. Nuvve’s V2G technology – a technology spun out of the University of Delaware – is a cost-competitive option.

    Many operators in deregulated markets still need to address rules that will make the frequency market accessible by storage technologies and develop the means to compensate them in a manner commensurate with traditional generation resources. This is particularly true in the United States. Pike Research’s coverage of the ancillary services market is broken out to give ample attention to new emerging technologies and business models in equal measure. More specifics on the market as a whole can be found in upcoming reports on both energy storage for ancillary services and vehicle-to-grid technologies, and in previous Pike Research commentary.


    Plug-in Electric Vehicle Sales Need a Shake-up

    — August 25, 2011

    Although it’s only August, the electric vehicle market has the feeling of coming into the home stretch for the year. We have seen the race for plug-in electric vehicle (PEV) glory boil down to the Leaf and Volt this year, with the Volt sputtering a bit earlier than expected. We have seen numerous delays pushing new launches back months (I am looking in your direction, Coda, Fisker, Ford, and Toyota). All of this has left the PEV market feeling a bit underwhelming for 2011. Particularly when you consider that the President has given the market a goal of 1 million PEVs on the road in four and half short years – 8,000 down, 992,000 sales to go.

    You can probably see where I am going with this. My colleague John Gartner and I recently completed the forecasts for PEVs and expect that the U.S. market will reach 667,000 PEVs sold by 2015. In fact, we anticipate that the goal of 1 million vehicles is almost slipping out of reach at this point without substantial shake up in the market in the next couple years. What do I see as the potential market shake-ups?

    1. New models

    So far, the only two mainstream models available compete in similar segments and have similar packaging. Market delays for competitors means lost time towards meeting this goal. In the last couple of weeks, we have seen several new model announcements a bit earlier than typical (although “typical” has been thrown out the window recently) with BMW’s i8 and i3 releases and Cadillac’s announcement of the ELR plug-in hybrid. But these are not going to be the “substantial shake-ups” that the politicians need for the market to meet their goals. So, where are the potential shake-ups? Toyota’s Prius PHV, if it’s priced right, has the potential to turn many current Prius owners into plug-in owners. Ford’s multi-vehicle platform could prove a winner too, but the C-Max bodystyle is still yet to be tested in the U.S. mass market.

    2. Faster production ramp-up

    GM claims that the Volt is out selling its production, which seems likely true, but then added capacity and lower production costs have to follow soon. Nissan’s Smyrna, Tennessee plant will have the capacity for 150,000 Leaf’s per year, but production is not scheduled to start until late 2012 and could even be delayed into 2013. In the meantime, expect Americans to remain hungry for the Leaf as production gets allocated across the globe. (As a side note, I would bet that you can expect a facelift for the Leaf about then too, as it seems hard to believe Nissan would start a plant with tooling for a three year old vehicle, but stranger things have happened.) If production capacity can be increased and production costs can be lower, that would likely have a transformative affect on the availability of PEV models in the next few years.

    3. Better pricing

    Whether that is via government purchase incentives, lower battery costs, or good old-fashioned vehicle incentives (financing, rebates, dealer cash, et cetera), the price for PEVs has to come down. Batteries are the cost drivers and are therefore held as the Holy Grail for cost reductions in PEVs. In the meantime, fixing the flawed federal purchase incentive program or reducing the price to generate interest seems the most likely short-term tools. GM recently announced that the 2012 Volt will see a price decrease of about $1,000 (every little bit helps), while Nissan announced a $500-$1,000 price increase to the Leaf. The competition, specifically Toyota, seems poised to put these two on notice with significantly better pricing for what many will consider a competitive choice (I do realize that these three vehicles are very different animals, but at the end of the day, the only thing that matters is whose dealers customers comparison shop between). Others like the $45,000 Coda or $57,000 Tesla will price many buyers out of the market, regardless of how good the vehicles are.

    While there are a lot of challenges to launching vehicles, setting prices, and establishing production, the bottom line is that the current market is not on track to meet the political goals. And, it looks from here that the blame belongs to the supply side of the equation.


    Letter from San Diego: China Energy Storage Alliance

    — August 24, 2011

    Several weeks ago, I attended my second energy storage event of the year: Storage Week 2011 in San Diego, California. The energy storage community is fairly small, particularly when compared to sister industries such as wind or solar. This makes it easier to keep up with individual technologists, project developers, and other analysts in the space. While the Electricity Storage Association (ESA) conference in San Jose focused on technology, research, and lessons learned, Storage Week was more focused on markets for energy storage, how to roll out technology, and market structures.

    As a market analyst who loves to geek out on technology, I enjoyed both conferences. However, I am always keen to ask the question, “Yes, but how does it work in the field/in the market/in the real world?” That is a question that was answered time and time again by the participants at Storage Week. Often, the answer was, “We’re not quite sure, but we have an idea” or alternatively, “We’re not quite sure, but here’s what we’re trying.”

    I’d like to share a few ideas and developments in the market that I find compelling. While in San Diego, I met with a representative from the China Energy Storage Alliance (CNESA). Organizations such as the CNESA are important for several reasons. First, China and other emerging market economies show an incredible amount of promise when it comes to cleantech in general and energy storage specifically.

    Second, there is an impressive amount of conflicting or misinformation about the Chinese market and specific market opportunities. This reflects a few unique characteristics of the Chinese market: Chinese leadership is centralized but project management is local, information is not consistently disseminated, and conflicting information is not uncommon.

    Third, in order for storage to be successful in China, it needs an advocate. The CNESA has done just that, by working with other industry stakeholders to successfully lobby the government to make energy storage one of the “preferred technologies” in China, as designated by the national government in its Five-Year Plan. Without this preferred status, energy storage would have taken a back seat to other technologies for another five years or until the necessity of storage for the grid became too great to ignore. Instead, China is beginning to position itself to understand, develop, and eventually integrate energy storage for the grid.

    Fourth, the value propositions for energy storage in China are quite different from those found in the U.S. and European markets. China’s unique generation makeup and wholesale energy markets make it very difficult to directly apply approaches used in more mature markets. However, in order to achieve greater government support and attract greater industry interest, the value of energy storage in China must be quantified in economic terms. This is not all that different from the U.S. and European markets where the leading applications for energy storage are those that have a direct economic benefit. However, the market conditions in China are unique and therefore the value proposition of storage will also be unique. In order for storage to take off in China, the economic value of storage must be well-understood and compelling.

    From my conversations with the CNESA, one of the key missions of the organization is to organize a utility-scale grid storage demonstration project in China. Although the China Electric Power Research Institute (CEPRI) is currently running pilots with several different energy storage technologies for wind integration, a project run outside a national lab is an intermediary step to commercialization, in the vein of the Department of Energy’s (DOE) Smart Grid funding awarded in 2009.

    There are many pathways to commercialization in emerging market countries; this reflects the value of energy storage and the diversity of technologies in this space. Next week, I will highlight the Indian Energy Exchange.


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