Navigant Research Blog

Utilities Enter the Era of Distributed Generation

— March 31, 2014

From the “Internet of energy” to the “utility death spiral,” the causes and effects related to the distributed generation (DG) transformation go by many names.  Faced with what is increasingly recognized as DG’s inevitability, utilities and the companies that supply DG technologies are faced with the difficult challenge of defining viable business models in a multi-dimensional technology landscape.

Former Energy Secretary Steven Chu and outspoken NRG CEO David Crane have loudly pointed out the futility of business-as-usual thinking in the face of DG’s advance.  It’s a mistake to think the power sector is oblivious to the changes enveloping it, though: most utilities do not actually have their heads in the sand, as recent headlines suggest.  According to Utility Dive’s 2014 State of the Electric Utility survey, 67% of U.S. utility professionals believe their company should take a direct role in supplying DG to their customers ‑ either by owning and leasing distributed assets or by partnering with established DG companies.  At the same time, key suppliers like GE, recognizing a dawning opportunity, are positioning themselves for growth.

Tip of the Iceberg

Although solar PV has provided a blueprint of sorts, a suite of technologies – collectively called distributed energy resources (DER) – is primed to usher in a reimagining of DG’s value proposition.  Composed of renewable and fossil-based generation, diverse fuel sources like the sun and biogas, power generation and storage assets, and applications from microgrids to combined heat and power (CHP), DG’s multi-dimensionality suggests that existing business models are just scratching the surface.  An estimated 37 million homes in the United States, for example, now have natural gas lines running directly to them, which opens up the possibility of micro-combined heat and power and fuel switching.

For utilities, the challenge is fairly straightforward.  Demand-side generation is leading to death by a thousand cuts, as the cost of maintaining and operating the grid is spread over a gradually declining revenue base due to eroding customer demand.

In its widely-cited Disruptive Challenges report, published in 2013, Edison Electric Institute lists the financial risks created by DG: declining utility revenues, increasing costs, and lower profitability potential.  Simply charging higher rates – one solution offered by the most entrenched utilities – risks accelerating the revenue ”death spiral,” as rising rates make it increasingly attractive to adopt otherwise expensive DG technologies.  Recent experiences across Europe have demonstrated that utilities must adapt (see RWE) or risk obsolescence, at least in the traditional revenue sense.

Transforming is Grand

On the supplier side, companies like GE are positioning for what is an inevitable expansion of DG globally.  The company announced last month the creation of a new business unit called GE Distributed Power, targeting the global distributed power opportunity.  Merging three existing business lines – Aeroderivative Gas Turbines, Jenbacher Gas Engines, and Waukesha Gas Engines – GE will invest $1.4 billion to combine formerly niche generation products into a cohesive distributed power offering.

The move coincides with the publication of a recent white paper, “The Rise of Distributed Power,” in which GE forecasts that distributed power will grow 40% faster than overall global electricity demand between now and 2020.  The trend, according to GE, is nothing short of a “grand transformation.”  The company estimates that globally, about 142 gigawatts (GW) of distributed power capacity was ordered and installed in 2012, compared to 218 GW of central power capacity.

Four key trends are driving the distributed power transformation, according to GE: the expansion of natural gas networks; the rise of transmission infrastructure constraints; the growth of digital technologies; and the need for grid resiliency in the face of natural disasters.  While these trends are playing out in the U.S., GE’s efforts are focused primarily on the fast-growing Asia Pacific market and the expansion of natural gas.

Big in Bangladesh

The momentum behind DG is especially strong in the developing world, where electricity demand outstrips the pace at which centralized power stations and transmission infrastructure can be financed and built.  The IEA estimates that in 2009, 1.3 billion people lacked access to electricity, representing around 20% of the global population.  A significant proportion of this population lives in Asia Pacific.

While the DG era represents a degree of complexity that has yet to be fully grasped, initiatives from both utilities and their suppliers point to increasing acceptance of its inevitability.

 

Nest Faces Lawsuit over Alleged Thermostat Flaws

— March 31, 2014

Nest Labs faces a new lawsuit brought by a dissatisfied Maryland customer who claims the Nest thermostat that he purchased is defective since the faceplate heats up and inaccurately measures a room’s actual temperature.  The suit, which seeks class action status, asks for more than $5 million on behalf of other Nest buyers.

The lawsuit was filed by Justin Darisse of Gaithersburg, Maryland and alleges Nest “increases costs because Nest heats up, which causes Nest’s temperature reading to be from 2 to 10 degrees higher than the actual ambient temperature in the surrounding room.”  The suit also alleges the company violates warranty and consumer protection laws.  Darisse also noted in his suit that he would have kept his $30 Honeywell thermostat had he known the Nest device, which retails for $250, would not help lower his energy bill.

Not the First Suit

Nest Labs, which is now owned by Google after a January acquisition, has declined to comment on the suit.  Nest is no stranger to lawsuits, though. There is a pending suit with Honeywell over alleged patent infringement and another patent infringement suit brought by BRK, maker of First Alert smoke alarms, related to Nest’s introduction of its Protect smoke alarm.

While the merits of this latest lawsuit will be debated for some time, the truth is that Nest and parent Google will need to fight the negative perceptions this suit is likely to generate, especially if it does attain class action status.

Mixed Bag

There is no question a Nest thermostat provides some very cool features: it has Wi-Fi to connect with a mobile device, and it learns the patterns of people in a home and can make adjustments automatically.  But my own experience has been mixed.  I installed one in my home last year to control my natural gas furnace, and so far, I have used the same number of Btus over the past 7 months as in the same months the year before.  And the installation was not easy, requiring me to hire an installer to come in after I spent many hours on my own and with a Nest tech via phone to no avail.  Also, two friends have had issues with the Nest thermostat they purchased.  One said his energy bill increased after installing his Nest thermostat.  The other also had trouble installing it by himself and later got so fed up after a software update went bad that he had it replaced with a more standard thermostat.

Now it looks like Nest could have some explaining to do in court. More to come on this, I’m sure.  And for more on the market for smart devices for energy management in the home, please sign up for Navigant Research’s webinar, Home Energy Management, on Tuesday, April 1 at 2:00 p.m. EDT.  To register, click here.

 

How the Developed World Can Learn about Energy Solutions from the Developing World

— March 27, 2014

With utility resistance to policies that support distributed renewable energy emerging as a global phenomenon, it might be wise for vendors in the space not to push the panic button, but instead look to emerging markets in the developing world for a reality check.

As utilities and states modify their past support vehicles (i.e., net metering and feed-in tariffs) for technologies such as solar photovoltaic (PV) systems, purveyors of hardware and software that help integrate distributed renewables into power grids see increasing opportunity.  The decline in generous feed-in tariffs for solar PV, for example, creates new opportunities for energy storage.

Among those sensing opportunity is ABB.  When the company purchased Powercorp of Australia in 2011, few realized that ABB would integrate Powercorp’s distributed controls approach to remote hybrid wind/diesel microgrids (and its PowerStore flywheel technology) into its grid-tied offering.  ABB has recognized that a top-down approach to controlling distributed energy resources may not be the best fit.  Instead, innovation fostered in off-grid systems – which must provide 24/7 power under the most harsh environmental conditions – proves to be a better approach.  Peter Lilienthal of HOMER Energy agrees, arguing in Navigant Research’s Remote Microgrid Business Models webinar late last year that the smart grid is being pioneered in places like the Caribbean, Africa, and India, not in developed world markets like Europe or the United States.

Look to the Islands

While many observers are focused on the so-called utility death spiral, growing numbers of forward-looking utilities – along with diversified energy companies such as NRG Energy – see the proliferation of distributed generation as an opportunity.   In fact, NRG Energy is now developing remote microgrids, starting with the private island owned by Richard Branson.

The world of the future will not feature a one-size-fits-all business model – especially not the utility monopoly that has slowly eroded over the past century.  While long-term planning and dense regulatory proceedings won’t go away, the future of energy requires flexibility and learning from areas where the provision of electricity requires the utmost in creativity: the developing world.  Other large technology companies such as Toshiba are also moving into the remote island microgrid market.

Navigant Research’s new Nanogrids report shows that even the lowly sounding nanogrid is a huge market in the developing world, with global revenue forecast to exceed $20 billion by 2023 in three regions that have historically lagged behind the developed world in new technologies.

Residential Remote Nanogrid Vendor Revenue by Region, World Markets: 2014-2023 

 (Source: Navigant Research)

 

With A123 Buy, NEC Reveals Its Storage Strategy

— March 27, 2014

NEC has made a major play for a global energy storage system (ESS) business, specifically targeting the Chinese market and information technology (IT) and telecom sectors by acquiring A123 Energy Solutions to create a new company, NEC Energy Solutions.

NEC is no stranger to the grid storage market.  The company is using batteries from Automotive Energy Supply Corp. (AESC), similar to those installed in the Nissan LEAF, for both utility-scale storage (2 MW will be commissioned in Italy by Enel Distribuzione shortly) and the residential storage market.  It has also developed a residential system targeting the Japanese market with a 5.5 kWh home ESS.

There are three pieces to this transaction that will change the storage market going forward.  First, NEC is slated to establish a partnership with A123 Systems’ parent company Wanxiang to target the Chinese storage market.  Having a local partner will set NEC apart from other lithium ion (Li-ion) cell and system vendors targeting China.  Second, the acquisition includes A123 Energy Solutions’ ALM product line, a 12V Li-ion uninterruptible power supply (UPS) product housed in the same form factor as a traditional lead-acid battery.  This, coupled with NEC’s success and relationships in telecom and IT, will put the new company in a strong position to target the UPS market.

Finally, although A123 Energy Solutions has focused on the utility side of the meter using A123 Systems cells, NEC has experience on the customer side and also has its own Li-ion chemistry that’s manufactured in volume by AESC.

Storage Combinations

Navigant Research’s Advanced Batteries for Utility-Scale Energy Storage report forecasts that the market will reach $17 billion in 2023, with Li-ion taking a $7.8 billion share.  This estimate is strictly for the sale of ESSs to customers on the utility side of the meter, not on the customer side.  By definition, it excludes telcos, data centers, and other forms of commercial, industrial, and residential storage.  Navigant Research believes that the telecom market for Li-ion hit an inflection point last year, reaching $100 million in annual revenue, and is poised to grow quickly.  Regardless, NEC Energy Storage will have stiff competition in nearly all of these markets from major Li-ion cell manufacturers such as LG Chem and Samsung SDI.

What can we look forward to from NEC Energy Solutions?  A123 Energy Solutions will bring software, controls, and integration expertise, three facilities in the United States and China, a portfolio of existing installed storage assets, and any new orders to the table, whereas NEC’s strength lies with data, analytics, IT, and the cloud.  In fact, NEC’s original concept for the storage market revolved around the energy cloud.  It makes sense that NEC Energy Solutions would combine the two areas of expertise to deliver new product lines and cultivate new business models.

As a 114-year old company with 270 subsidiaries in its corporate umbrella and total annual sales in the last fiscal year of $30 billion, NEC has the resources and business relationships to use the A123 Energy Solutions acquisition as the platform for building a global business.

 

Blog Articles

Most Recent

By Date

Tags

Clean Transportation, Electric Vehicles, Policy & Regulation, Renewable Energy, Smart Energy Practice, Smart Energy Program, Smart Grid Practice, Smart Transportation Practice, Smart Transportation Program, Utility Innovations

By Author


{"userID":"","pageName":"2014 March","path":"\/2014\/03","date":"12\/18\/2014"}