Navigant Research Blog

Framing the Smart Grid of the Future

— April 29, 2015

Armed with years of data, utility industry officials are highlighting some of the results from the most ambitious smart grid demonstration project in the United States. One of the key lessons they learned is how difficult it can be to use the latest smart grid hardware to consistently produce high quality data.

That was the conclusion noted recently by Ron Melton, the director of the Pacific Northwest Smart Grid Demonstration Project and a senior leader at Pacific Northwest National Laboratory (which is operated by Batelle). Launched in 2010, the demo was federally funded under the American Recovery and Reinvestment Act (ARRA) at a cost of $178 million, making it the largest single project of its kind. It included five states—Oregon, Washington, Idaho, Montana, and Wyoming—comprising some 60,000 metered customers, 11 utilities, two universities, and assets in excess of 112 MW. The goal was to test a broad range of ideas and strategies to see if a regional smart grid could lower energy consumption and increase reliability.

Lacking Tools

One of the broad lessons for utilities is that the tools and skills to manage the huge volume of data from smart meters and sophisticated sensors on the grid are largely nonexistent, according to Melton. But it goes beyond merely managing data; the real challenge is to get consistently good data to ensure that sensors across the grid are working properly and that key operating decisions can be made based on reliable high-quality information.

Transactive Control

One of the core technologies used in the project is called transactive control, which in essence is two-way communications between electricity generation and end-use devices, such as electric water heaters, furnaces, clothes dryers, etc. The control signals communicate the price of delivering power to that device at a specific time, and the device can decide when to use electricity—with the owner’s consent, of course. This is the underlying technology for demand response (a topic discussed in detail in Navigant Research’s report, Demand Response Enabling Technologies). Project managers were able to show that transactive control works and could theoretically reduce 4% of peak power costs in the Pacific Northwest. But, as Melton says, this would require about 30% of demand on the system to be able to respond in this way. To get there will take a concerted effort to clearly show the value streams to all parties and then figure out the financial incentives.

Clearly, utilities are still in the early phase of the smart grid and handling big (and small) data in new ways is often uncharted territory. Nonetheless, this demo highlights the framework on which the future grid—what we at Navigant Research see as the energy cloud—will be built, and the steps necessary as the grid of tomorrow emerges.

 

ZigBee, Thread Find Common Ground

— April 29, 2015

Two key technology groups have taken a step toward interoperability that should make it easier for smart home devices with different capabilities to work in unison in the coming months and years. The ZigBee Alliance and the Thread Group have agreed to collaborate to enable ZigBee devices to operate over Thread’s protocol.

The two groups will define a specification that will allow the ZigBee applications layer to function over Google-backed Thread. The aim is to simplify product development for device manufacturers and give consumers a better experience as they connect devices and services in the home—an early-stage trend often called the Internet of Things (IoT).

New Connections

Specifically, the effort will make it possible for ZigBee devices, such as Philips Hue lights, to connect to a network that natively supports Internet Protocol (IP) addresses, which Thread does. The new specification will be focused on the ZigBee Cluster Library, which standardizes software functionality such as energy use, home automation, and lighting. The new specification is expected to be available sometime after June of this year.

Despite this cooperation, the two organizations are still committed to acting independently, and there’s not yet been any indication that they will merge their efforts. As pointed out by the EE Times, the move can be seen as a defensive one for ZigBee, which has been around for years but has lagged the trend toward 32-bit processors and IP networks.

Plenty of Rivals

In addition, the nascent IoT market still has many players and standards vying for dominance, or at least a significant share of the pie. Besides ZigBee and Thread, Wi-Fi, Bluetooth, Z-Wave, the AllSeen Alliance, the Open Interconnect Consortium, and the Industrial Internet Consortium all have a stake in this ecosystem. In other words, this is a crowded space, and remains fragmented for now.

Even with that fragmentation, utilities and energy management providers need to pay attention to the ZigBee-Thread détente. It could be the needed big step toward device and service interoperability that unleashes a burgeoning market of connected and intelligent devices like thermostats, appliances, and lights. This one move is not going to get it done alone. Others will need to alter their stances, or risk missing out on the expected boom. Of course, Apple could still go it alone with HomeKit, but proprietary solutions are hard to scale. And it is likely that most other vendors will seek more open standards so that the overall market can flourish, and not get stuck in silos.

 

China Spurs EV Development

— April 28, 2015

China has aggressively supported the production and purchase of electric vehicles (EVs) since 2010. The government’s goal to deploy 500,000 EVs by 2015 may seem unrealistic. Nonetheless, this target serves as a reflection of the government’s intention to combat pollution and save energy by means of EV deployment. Chinese automakers have struggled to improve the fuel efficiency of conventional vehicles. Between 2010 and 2014, fuel efficiency improved by 5.8% annually in Japan, 3.3% in Europe, and 1.8% in the United States—but only 1.1% in China. As such, the government’s support for EV deployment seems to be the preferred solution for China’s situation.

Incentives Spur the Market

Only around 70,000 EVs were on the road in China during 2014. This is still an almost 250% increase from the 2013 figure, and many experts forecast strong growth in the coming years. To further spur demand for EVs, the government has implemented various incentive programs applicable to approved EV models, which are locally produced. As of 2014, there was a ¥35,000 ($5,600) purchase subsidy for plug-in hybrid electric vehicles (PHEVs) and a ¥60,000 ($9,700) purchase subsidy for battery electric vehicles (BEVs). BYD’s Qin, one of the most popular EVs in China, retails from around ¥210,000, but with government subsidies, customers usually pay between ¥120,000 and ¥160,000 for the PHEV. Qin sold 11,200 units in the first 10 months of 2014.

In addition, the 10% purchase tax is waived for new energy autos, which include EVs, PHEVs, and fuel cell vehicles (FCVs). The government plans to allocate around ¥4 billion for this tax initiative, which is in effect between September 1, 2014 and December 31, 2017. Because the tax break applies to imported EVs as well, foreign car makers have been eager to enter the Chinese market. In 2014, BMW’s i3 and i8 EVs, as well as the Daimler and BYD joint venture EV model Denza, were launched in China. On top of the central government’s efforts, incentive programs and EV targets exist in mega-cities, such as Beijing, Shanghai, and Shenzhen. Beijing plans to deploy 170,000 electric taxis and at least 4,500 electric buses by 2017.

Due to the strong government support, many Chinese automakers, such as SAIC Motor, Dongfeng Motor, FAW, and Changan, as well as automobile components companies, are nowadays interested in manufacturing EVs. In March 2014, Wanxiang, an auto parts manufacturer, acquired American EV maker Fisker. Also, Foxconn, an IT manufacturer, has partnered with Tesla to enter the EV market.

Opportunities and Challenges  

Even though it’s difficult for foreign companies to enter the Chinese EV market, some—including General Motors (GM), Nissan, Hyundai, and Daimler—have jumped on the bandwagon via joint ventures with Chinese companies. However, two major variables are critical to China’s future EV market growth—charging infrastructure and battery technology. While charging equipment and infrastructure investment became open to the private sector recently to speed up development and construction, China lacks a national infrastructure standard. This can lead to operability issues from one city to another.

In addition, Chinese EV battery technology is in a transition from lithium iron phosphate (LFP) batteries to manganese-series batteries. Most EV markets around the world use lithium manganese oxide (LMO) and lithium nickel manganese cobalt oxide (NCM) batteries, which have better performance than LFP batteries. However, Chinese battery manufacturers currently lag behind their competitors in Japan, South Korea, and the United States in this area. Therefore, battery technology, as well as charging infrastructure standards and governance, will significantly influence the future of China’s EV market along with the sustainability of the current incentive programs and subsidies.

 

Waiting for the Supreme Court’s Call

— April 28, 2015

Many are waiting for the Supreme Court to decide whether it will take up the case on the Federal Energy Regulatory Commission’s (FERC’s) Order 745 on demand response (DR) compensation, possibly by the end of April. I thought it would be worthwhile to take a look at the contingency or stop-gap plans that some of the affected regional transmission organizations (RTOs) are contemplating, particularly for the capacity markets where the vast majority of DR participation takes place. PJM started the process several months ago; the New York Independent System Operator (NYISO) began a couple months ago; and the Independent System Operator of New England (ISO-NE) just released its proposal last week. All of them start from similar basics, but there are differing details that may affect the effectiveness of each one.

PJM: Laying the Groundwork

PJM laid the groundwork first and came up with a straightforward proposal whereby the DR would be moved to the demand side of the reliability pricing model (RPM) capacity market. The load-serving entity (LSE), which provides the retail electricity supply to customers (either a utility or a competitive supplier), would reflect the DR in its demand bid. This would lower the total demand in the market, leading to the same price effect as if the DR had bid into the supply stack.

Integration of DR Bids with RPM Demand Curve

(Source: PJM Interconnection)

In theory, this approach gets around the FERC jurisdictional issue in the court case because it would be retail entities bringing the DR to the market instead of direct wholesale market participation. The concern from DR providers is that this structure adds an extra layer of administration between the customer and the market, since the DR providers wouldn’t be able to bid in directly (unless they were an LSE) and they would have to work through the LSEs. That relationship may necessitate extra legal documentation. Plus, some LSEs may not be motivated to encourage DR and could bog it down, leading to a reduction in the amount of DR in the marketplace. PJM even submitted this proposal to the FERC to be proactive and have it in place should the court force its hand, but the FERC ruled that it was premature instead of proactive and should not be formally introduced until the court verdict is clear.

NYISO Twist

NYISO basically used the PJM proposal as a starting point and built upon it. After getting feedback from market participants about the drawbacks of the PJM structure, NYISO added a twist in which the LSE is basically just a pass-through mechanism for the DR to reach the market, while the DR providers are still the contracting agents that register the customers with the NYISO. This adjustment eases some of the perceived constraints from the PJM model, but there are still a lot of details that need to be worked out in terms of bidding and how DR providers can continue to participate in the NYISO stakeholder process.

ISO-NE Approach

ISO-NE had been pretty quiet on the matter until April 17, when it released its contingency plan. It took a different path than NYISO to try to address some of the shortcomings of the PJM approach. It still relies on the LSE to administer the DR, but it purports to provide more incentive to the LSEs to do so by changing the cost allocation methodology for capacity costs from a fixed charge to a performance charge reflecting the actual consumption of customers during scarcity conditions. LSEs consuming less than their allocated share of capacity would see their charge go down; the converse is true for those consuming more. In theory, this model incentivizes LSEs to reduce their load during these times; reality could prove otherwise if none of the large LSEs feel the risk outweighs the potential benefits.

There you have three different approaches to address the same issue. Perhaps none of them will be necessary if the Supreme Court ultimately vacates the lower court’s ruling, but in the meantime, many smart people have spent many hours getting ready for the worst-case scenario.

 

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