Navigant Research Blog

The Adaptable Utility: In a Darwinian Era, Only Evolving Companies Will Thrive

— September 17, 2012

Utilities are facing a learning curve, but to paraphrase Darwin, it’s not the strongest that will survive, but the most adaptable.  In most utilities, the relationship between the utility and the customer is largely transactional; the provider delivers electricity, gas or water and the customer pays for that service.  However, as the grid modernizes and consumers become increasingly vocal and expressive, asking the customer to interact with the utility in the way that’s easiest and most efficient for the utility is no longer a viable strategy.   Control, persuasion, and influence have run their course; instead, helping consumers achieve benefits efficiently and effectively is at the heart of consumer empowerment and utilities’ success going forward.  (For more on this topic, sign up for this upcoming webinar on Smart Grid News, titled “Lessons from the Real World: Understanding and Engaging with Your Customers,” on September 25.)

The empowerment of energy consumers is an opportunity to drive innovation in the utility that can create operational and competitive advantage (where there is competition) by interacting with people on topics related to energy information, efficiency, safety and new product offerings.  The digitization of the customer voice, powered by individuals’ ability to access information on almost any topic instantly, is a potent determinant for the success of customer relationships.  The interactivity of social networking creates a collective customer experience where customers discover new products together and share their experiences and their opinions.  Anybody who has ever gone to Google for help with a computer problem understands this; like-minded users are often better qualified to help other customers than company employees.

By recognizing the fact that customers can and will advise each other, utilities that seamlessly integrate company expertise in a manner that facilitates customer collaboration will create gratifying experiences for their customers.  As the Smart Grid News webinar will explore, utilities can increase customer satisfaction and loyalty at a lower cost than traditional means of reputation management, differentiation and marketing.  To realize a return on investment from these new processes, utilities must adapt their customer interaction practices and develop systems for the analysis of results that allow for adjustment and fine-tuning of useful and meaningful messages.

Realizing that current marketing practices like “message exposure” and “captive audiences” may in fact be creating worn-out and bored customers is the first step in moving toward customer empowerment.  Utilities must become customer-centric for real engagement to work.  The primary difficulty is accepting that there is a loss of control perceived in turning the organization to an outside-in focus.  This fact underscores the need for a comprehensive approach to creating cultural change that acknowledges the fact that customers are strategic assets, not captive ratepayers.  Adaptable utilities will figure out how to optimize and exploit innovative and emerging application platforms to deliver tailored marketing strategies, tools that make it easy for customers to understand the product offerings that help them modify their consumption patterns, and merchandising techniques that provide information, interaction, and customization.


Why Big Wind Won’t Harm the Climate

— September 15, 2012

Supporters of wind power got a boost this week with the release of a new study from scientists at Stanford and the University of Delaware that found there’s plenty of energy available from wind to supply at least half the world’s electricity demand, without harmful effects to the world’s climate.

One of the theoretical objections to wind power on a massive scale is the supposed plateau effect – essentially, the idea that each wind turbine sucks a small amount of energy out of the atmosphere, and that building thousands (or millions) of them would both provide diminishing returns from additional wind farms and have incalculable and possibly destructive effects on the global climate.  In their new study, entitled “Saturation wind power potential and its implications for wind energy,” and published in the Proceedings of the National Academy of Sciences (PNAS), Mark Jacobson, a professor of civil and environmental engineering at Stanford, and Cristina Archer, an associate professor of geography and physical ocean science and engineering at U. Delaware, found that, indeed, such a saturation point exists, beyond which each succeeding turbine would produce less and less power.  That plateau, however, is far beyond what it would take to supply 5.75 terawatts, or around half the world’s total electricity demand.  That would take something on the order of 4 million turbines and would have no effect on Earth’s wind patterns or climate, Archer and Jacobson found, using a three-dimensional, geophysical computer model known as GATOR-GCMOM.  And there’s no technological barrier to doing it by 2030, they add.

Of course, building 4 million wind turbines in the next 18 years raises all sorts of financial, geopolitical, and cultural questions, not the least of which is, Where in the world are we going to get the money to do that?

“To get there, however, we have a long way to go,” Jacobson said, with a scientist’s understatement, in an appearance on NPR’s Science Friday. “Today, we’ve installed a little over 1% of the wind power needed.”

Blue-sky pronouncements like the wind power study tend to cut two ways.  On the one hand, it’s easy to dismiss the idea that we can build nearly 4 million wind turbines in under two decades, given the expense, the certain local opposition, and the possible bird mortality.  Jacobson himself advocates building turbines in high-wind areas like the Gobi Desert, the Great Plains, and the Sahara – an arrangement that would require transmission networks of almost unimaginable scale, crossing some of the least hospitable terrain on Earth.

On the other hand, it’s good to get the more theoretical objections to large-scale renewable energy out of the way up front – and to demonstrate that creating enough renewable energy to replace a large percentage of fossil fuels is not impossible.  It’s just hard and really, really expensive.


Leasing Drives U.S. Distributed Solar Market

— September 14, 2012

As we described in the recently released report, Renewable Distributed Energy Generation, solar leasing options, including residential solar power purchase agreements (PPAs), are available in a dozen states and have become the leading driver of the U.S. distributed solar PV market.  These solar leasing options represented more than half of the residential solar sales in California in 2011.  The market share of solar PV leases is expected to exceed 75% for distributed installations in 2012.

Investors have been pouring money into residential solar financing, enabling a growing list of companies like SunEdison, SunRun, SolarCity, SunGevity, and Gen110 to enable customers to generate clean electricity without ever owning the system.  Depending on the agreement, the customer enters into a 15 to 20 year contract with the solar service provider and pays a fixed rate that, with incentives, typically comes in just below the cost of retail electricity from the utility.

Since most utility rates are expected to go up over time, these solar PV customers will pay less for electricity than those who continue to only buy utility power.  This model has been a game changer in the U.S residential solar PV market because it enables homeowners to install solar for little to no money down.  Currently, the best SunRun deal in rainy Oregon enables qualifying residential customers who pay $6,000 up front to receive $6,000 in state and federal tax credits back in $1,500 increments over the following 4 years.

As solar lease providers proliferate in the United States, some companies have expanded overseas.  SunEdison, which was purchased by MEMC in 2009, is typically credited with developing the residential solar lease model, and now provides residential, commercial, and utility-scale solar plants throughout the United States, Europe, and Asia Pacific.  The company has more than 550 operational sites, with more than 500 megawatts of installed capacity across both solar leases and outright solar sales. The company has raised more than $2.5 billion in financing for solar leases alone.  Sungevity recently exported its operations to Europe and Australia, partnering with Zonline and Nickel Energy, respectively.  In Australia, the joint venture offers a pay-as-you-go financing model that functions similarly to a solar PPA.

The combination of reduced solar module prices, falling levelized cost of energy via microinverters, and expanded solar financing options may have tipped the scales to smaller, distributed generation that is often less costly than larger, centralized systems.


As Goes Guar, So Goes Natural Gas

— September 14, 2012

The price of guar gum, a product used to thicken food for decades, has been up and down this year.  The gum is made from guar beans grown in India.  The country produces over 1 million metric tons of guar beans and exports nearly half a million metric tons of guar products annually.  Guar gum is also used in medical products and to thicken and bind various products like pills and lotions.  Recently, guar gum has been put to a different use.  Hydraulic fracturing (or fracking), the process by which hard-to-get natural gas is extracted from shale, requires a “gelling” product, a hydrocolloid, to keep cracks open as water and natural gas are pumped back out.  Guar gum has proven to be an economical alternative to other gelling agents used in fracking and less detrimental to the environment.

Indeed, fracking is rapidly becoming the largest market for guar.  Over the past 2 years, the demand for guar gum rose from 250,000 metric tons to 480,000 metric tons per year.  That’s why in March 2012, when the Forward Markets Commission (FMC) of India closed physical guar contracts for the season, drastically reducing exports, an outcry arose.  The Commission’s reason was the rapid rise in guar prices; between December 1, 2011 and March 27, 2012, the price of guar almost quadrupled.  This caused inflation in food prices, especially in parts of India such as the desert state of Rajasthan, where guar is still used as a primary protein source.   Since the FMC’s intervention, however, the price of guar seeds has fallen 7% and the price of guar gum is down 6%.  The market is expected to open for contracts again sometime in the next few months, once guar crops have been sown.  However, potential droughts could mean a short supply of guar, despite high demand.  Prices are expected to soar again as soon as the FMC reopens the guar market.

Due to the highly unstable supply and fluctuating prices of this humble bean, many companies are now exploring alternative gelling options.  TIC Gums, for example, is introducing Ticaloid Guar Replacement (GR) 8700, a complete replacement for guar gum in applications ranging from fracking to food additives.  Other companies experimenting with guar substitutes are Baker Hughes Inc., Halliburton Co., Nabors Industries Ltd., Trican Well Service, and Ashland Inc.

The lack of a reliable, inexpensive hydrocolloid means natural gas markets may not expand as rapidly as initially projected.  Indeed, the pace of natural gas drilling in Pennsylvania has slowed considerably since 2010, from an average of 6 new wells to 4.6 wells per day.  Lower supplies of natural gas would slow the shift away from coal, nuclear, and other forms of power generation.    Finding a synthetic substitute for guar could stabilize price and, therefore, the supply of natural gas.  Once the export ban is lifted, though, impoverished farmers in Rajasthan will enjoy  high-demand from the fossil fuel industry halfway around the world.


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