Navigant Research Blog

Are Investments in Changing Energy Consumers’ Behavior Worth it?

— July 26, 2012

There’s been lots of dissecting of the slide in venture capital investments in the smart grid sector recently.  According to the “Q2 2012 Smart Grid Funding and M&A” report from Mercom Capital Group, worldwide smart grid investments are weak, with just nine funding deals at $66 million.  The Mercom study notes, “Funding levels continue to be extremely weak in the smart grid sector, a reflection of shifting business models as the industry continues to struggle to understand customers [sic] needs and address customer misconceptions along with security concerns among other issues.”  The average deal size has diminished as well, from $25.4 million in Q2 2010 to $7.3 million in Q2 2012.

However, a closer look at the investments makes me wonder if someone forgot to tell the venture capitalists that it’s too hard to figure out these customers.  Investments in consumer energy management companies Tendril, Navetas, and GreenPocket totaled $23.7 million – almost 36% of the overall investment dollars.

A single point of commonality exists in these companies’ products: the application of behavioral science.  Behavioral science attempts to understand an organism’s (in this case, a human’s) activities and interactions in their natural environment in order to understand their decision processes.  If the natural environment is the home, behavioral science examines the behaviors related to the human use of energy along with the activities that lead to its usage, and draws conclusions about how to help the energy consumer change their energy use.

Inducing consumers to adopt new behavior is never easy, especially when they have anxieties and worries about things like privacy and security.  Many companies are trying, and some seem to be gaining traction.  For the sake of this discussion, let’s consider these recent investments.  What makes investors think that Tendril, Navetas, and GreenPocket have something worthy of millions of dollars?

The Power of Community

Tendril, based in the United States, picked up an $11.3 million investment in Q2.  The company has developed a suite of consumer engagement programs based on its Connect platform that emphasizes an interactive web portal connected to the smart meter and in-home devices.  The platform provides personalized consumer information and recommendations, goal-setting incentives, and social media that include gaming and collaboration with peers.  Customers can take actions, such as choosing savings goals, and receive feedback along with personalized recommendations, expert advice, and social recognition.  Using the power of the social community, the system’s recommendations can be validated and discussed through a dynamic forum.

Navetas, headquartered in the United Kingdom, took on an $8 million strategic investment from Sensus.  Navetas’ product allows consumers to monitor their energy habits through a variety of devices and delivery mechanisms.  The goal is to help consumers understand how their home environment uses energy and how their behavior affects this environment, by providing in-context, highly granular information about energy use in the home.  The technology monitors in-home appliance activity over a period of time, and automatically disaggregates the energy consumption by the appliances in real-time.  Disaggregation is especially powerful, as it enables the consumer to avoid the tedious, inconvenient (and sometimes inaccurate) process of turning their appliances on and off to identify the usage profiles of their energy loads.  Navetas leverages its algorithms to fully integrate the energy management experience into the consumer’s everyday activities.

GreenPocket, based in Cologne, Germany, gained $4.4 million from a Series B funding round.  GreenPocket has developed what it calls the Energy Expert Engine, which interprets and visualizes smart meter data for both residential and business consumers.  Inputs into the analytical engine include weather data, purchasing information, consumption data, and household size.  Energy consumers can control their chosen actuators or sensors through tablets, smartphones or a web portal.  Part of the solution is an application that provides social media linkages, including “social metering” contests that are designed to motivate users to reduce their energy consumption.  Instead of just providing consumption feedback, GreenPocket incorporates interpreted information that is designed to engage the consumer at a personalized level.

Without remarking on the successful likelihood of any of these ventures, I do believe that companies that care about the quality of the interactions between consumers and their understanding of energy use can deliver products that will truly engage consumers in making sustainable choices about their energy use.  Energy management products that help people align their goals, beliefs, values, ideas, and desires will drive action.  Behavioral science may be the bridge that closes the gap between customer intention and sustainable customer action.


Quantifying the Benefits of Microgrids

— July 26, 2012

The value proposition for microgrids at the residential community level is becoming increasingly clear to companies such as Gen110, a power purchase agreement (PPA) solar company based in San Francisco.  The company sees dollar signs that increase in direct proportion to proposed utility rate increases.  The company’s ultimate goal: funding microgrids through the PPA model that has driven down the price of solar photovoltaics (PV), whose price has plunged over the last three years.

Who is Gen110’s top target?  Pacific Gas & Electric, which has proposed a series of rate increases to cover upgrades costs to its transmission and distribution (T&D) system for electricity as well as its much maligned natural gas network.  All told, the investor-owned utility claims ratepayers could see an increase of an average of 15.6% by 2016 if the PG&E proposal is adopted by the California Public Utilities Commission (CPUC).

The pitch companies such as Gen110 make is, Why not skip out on paying for these utility upgrades to the T&D system, and just lock into steadily declining solar photovoltaic (PV) technologies?  These costs make up roughly two-thirds of the typical residential customer bill.  By locking in price certainty with a solar PV PPA today, one can skip out on the inevitable rate increases that ratepayers will face as our aging grid infrastructure is upgraded into the 21st century.

From a societal benefits point of view, one could argue about the efficacy of such a sales pitch, particularly if one works for a regulated utility.  If widely successful, the Gen110 model could lead to a death spiral for utilities, as a shrinking customer base incurs higher and higher fees to pay for a grid infrastructure that ultimately serves us all.

Yet, there’s also a radically different point of view on microgrids.  Instead of viewing microgrids as the enemy, a few brave utilities – among them San Diego Gas & Electric, American Electric Power, and the Sacramento Municipal Utility District – are developing their own microgrids.  Interestingly enough, a recent analysis by Lawrence Berkeley National Laboratories (LBNL) sheds some light on why.

According to LBNL, the features of a microgrid that have the largest impacts on economic benefits for all stakeholders (including utilities) include the following: whether combined heat and power (CHP) is included in the generation mix; what specific combination of distributed energy resources (DER) sources were integrated (i.e., fossil fuels versus renewables); the mixture of loads (including whether loads were dispatchable or critical loads); power market characteristics (ancillary services, time-of-use pricing, etc.); grid-connected or remote application; and the capability of seamless transfer to island mode.

Who Benefits?

In order to calculate stakeholder economic benefits, LBNL assumed a typical, large, Canadian, semirural feeder, with 10 MW peak load and 6.2 MW average load.  Three scenarios were analyzed: 1) base case (in which no distributed resources or microgrid was installed in an existing distribution feeder); 2) DER only (with no microgrid functionality); and 3) full microgrid, in which DER and microgrid hardware are both installed, with full islanding capacity.  The outcomes examined and quantified by LBNL were the following:

  • Reduced electricity purchased
  • Investment deferral
  • Reduced greenhouse gas emissions
  • Increased reliability

DER Only & Full Microgrid Scenario Stakeholder Benefit Tallies

(Source: LBNL)

The distribution network operator – i.e., the distribution utility – received the smallest benefit of microgrids deployed on a feeder line among primary stakeholders; however, its economic benefits increased with a microgrid overlay if compared to the pure distributed energy resource base case scenario.  It’s noteworthy that the microgrid case increases overall stakeholder benefits by more than $100,000 annually and boosts utility benefits by more than 50%.

In the final analysis, microgrids – whether developed by utilities or customers or independent developers – may be the end goal of what a smart grid is all about.  A forthcoming Pike Research report on utility distribution microgrids will reveal some surprising trends in this dynamic space.


A Fresh Breeze for Advanced Batteries

— July 26, 2012

Cleantech markets have been weighed down lately with discouraging news, including concerns about dropping investment rates, corporate bankruptcies, and stagnant global economies.  Many of these headwinds have been concentrated in the battery sector, which continues to struggle with technical problems and significant market hurdles.  But recent breakthroughs have given the industry a breath of fresh air – so to speak.

The University of St. Andrews, in Scotland, announced a breakthrough in “breathing” lithium-air batteries, a technology that several other research institutions and high-profile firms are developing.  These batteries combine lightweight lithium metal with oxygen at the anode to increase energy density.  The combination of lithium, the lowest density metal on the periodic table, and oxygen reduces the overall weight of the system for a theoretically dramatic improvement of energy density – four to ten times higher energy density by mass, according to The New York Times’ “Wheels” blog.  Such a system could enable an electric vehicle to enjoy a driving range of more than 500 miles on a single charge.

The technical potential of lithium-air technology is generating significant market attention, as supporters claim it can ameliorate the strongest concerns associated with lithium-ion battery systems, most notably weight and drivers’ range anxiety.  The theoretical energy density is so high that the head of Argonne National Lab’s Energy Storage Initiative has said it could rival petroleum – leading The New York Times to call lithium-air “the automotive version of Mr.  Right”.

Is this the game-changer needed by battery manufacturers and cleantech applications that are banking on energy storage (both transportation and renewables integration have a lot riding on advanced batteries)?  Commercialization of this technology could be 10-20 years away – but combined with the recent McKinsey study on cost reductions, these advances seem to be countering the pessimism that has been pervasive in recent months.  Incremental improvements in materials science, module packaging, and project development continue to keep the advanced battery market dynamic.


The Inverter Market Heats Up

— July 26, 2012

The dynamic and rapidly changing inverter industry will play an increasingly crucial role in the relationship between utilities and system owners attempting to reach a balance between functionality, reliability, and safety.  Increased technical standards and requirements for connecting to the AC electric grid are naturally pushing the industry to smart inverters, an absolutely critical component to enabling the smart grid.  Smart inverters, loosely defined as inverters that do more than just converting DC to AC power by playing a larger communication and monitoring role in a renewable energy system, are a game-changing technological development, based on the following characteristics:

  • The ability to safely and accurately manage bidirectional power supply (both to and from the grid)
  • The ability to communicate with utilities and grid operators, and provide ancillary services that assist these entities in maintaining grid reliability and safety
  • The ability to monitor and optimize system performance, and to alert the system owner of problems

As we describe in our newly published report, Inverters for Renewable Energy Applications, we are already beginning to see steps toward this increased sophistication from the major inverter manufacturers (in an industry where the top four companies possess 50%-60% market share) and from early-stage companies alike.  Disruptive technological innovation is already taking place, as start-ups and early stage companies rapidly change the face of the industry, as evidenced by solar PV micro-inverter company Enphase’s recent IPO, by Eetrex in the electric vehicle space, and by SolarBridge’s AC module partnership with SunPower.  Since power conversion is essential to all electricity generating assets, many corporate entities have completed acquisitions to move into the inverter sector.  Along with rapid price declines, these trends will only accelerate over the next 5 years, as the costs of renewables decrease and states and countries close in on their renewable energy targets.

While the opportunity is significant, the inverter industry, like solar PV cell and module manufacturers, is facing pressures to reduce manufacturing costs.  Unlike solar cells and modules, however, the movement toward smart inverters based on sophisticated algorithms, monitoring software, and utility operability requirements could make it difficult for low-cost Asian manufacturers to gobble up market share in Western markets (even if incumbent inverter manufacturers increase manufacturing capacity in those markets).  Inverter companies point to microchips as a good example of an industry that cannot be easily penetrated.

This might be wishful thinking, as inverter manufacturers have already begun slashing prices and are doing everything they can to avoid the death spiral witnessed in the solar PV industry.  New revenue streams in the form of service contracts have become common among the major inverter manufacturers.  As in all markets, companies that can differentiate themselves and continually increase reliability, performance, and functionality will be successful, but it’s going to be a bumpy road.  There is no doubt that both the electrical grid and the inverter landscape will look very different five years from now.


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