Navigant Research Blog

Batteries and Business Models Driving Utility-Scale Energy Storage Markets

— January 15, 2016

Accumulators and batteries close up.Navigant Research sees several key factors driving the global need for energy storage. The development of new distributed and intermittent variable generation sources being connected to power grids worldwide will require increased load balancing against demand. In addition, the restructuring of electricity markets is expected to create new marketplaces for energy storage systems (ESSs), as the regulatory and economic structure of these markets enables the valuation of the flexible benefits of energy storage deployments.

Furthermore, population changes affecting load profiles are expected to play a critical role in the structure and operation of the power grid, which is anticipated to influence the development of energy storage markets. Navigant Research anticipates that energy storage will increasingly become a viable option to costly grid and substation upgrades to meet changes in load. In addition, the stability of the local electrical grid will remain an important consideration. Areas with relatively unstable grids and frequent outages can benefit from distributed ESSs and microgrids with storage, whereas operators of stable grids are expected to consider utility-scale ESSs to minimize the impact of outages affecting large numbers of customers.

Advances in battery ESS technology, demonstrated by the rise of commercial installations, have enabled energy storage to meet performance requirements for both short-duration, power-focused and long-duration, energy-focused grid applications. These successes are driving revised power market rules and regulations that are expected to enable ESSs to deliver grid and load management benefits. And now, similar to what happened during the birth of distributed solar, we are seeing new ESS business models driven by project financing due to the emergence of predictable revenue flows to energy storage project asset owners.

A Maturing Market

The maturation and growth of energy storage markets will be dependent on three main areas. These include the specific application or applications the battery ESS will provide; the specific grid location of the project; and the quantification of the value that the storage project will create given the local power market rules. Navigant Research’s recently published Market Data: Advanced Batteries for Utility-Scale Energy Storage report examines the factors driving these markets and forecasts power capacity, energy capacity, and battery pack-equivalent revenue for the next 10 years globally.

Navigant Research sees lithium ion (Li-ion) batteries emerging as the leader in utility-scale applications of batteries on the grid given their flexible mix of performance specifications and cost for most energy storage applications. Flow batteries have the potential to deliver long-duration energy storage applications at lower costs, while advanced lead-acid batteries have proven to be excellent performers in certain power-intensive applications. According to Navigant Research, global revenue for advanced batteries for utility-scale storage is expected to grow from $231.9 million in 2016 to $3.6 billion by 2025.

New Installed ABES Pack Energy Capacity and Revenue by Region, World Markets: 2016-2025

Bill Blog Charts(Source: Navigant Research)

Navigant Research looks forward to participating in the 9th Annual Storage Week in San Diego later this month as a variety of industry stakeholders convene to examine the market factors and developments underlying the U.S. energy storage markets.


The Role of Renewable Energy Certificates in Community Solar

— January 12, 2016

solar panels and wind turbines under blue skyWhen community solar subscribers sign up for project shares, they will likely feel proud to be getting solar, even if the project itself is far from home. The question for utilities is this: are customers really getting solar? If their project share includes something less than a renewable energy certificate (REC)-bundled kilowatt-hour, how should the community solar program be marketed? Ever since the advent of RECs in the late 1990s, confusion has surrounded these questions, because according to widely held guidelines, electricity is only renewable if the RECs are included and retired.

Yet, policymakers and program designers know that most solar supporters are eager to get the REC value and would gladly trade away this distinction. Should the utility use REC purchases to sweeten the community solar offer or not? Navigant Consulting is currently collaborating on the Community Solar Value Project (CSVP), one of 15 community solar projects chosen for funding in 2015 by the U.S. Department of Energy’s SunShot Initiative under its Solar Market Pathways Program. The project just released a new factsheet, Understanding Renewable Energy Credits, to address this issue.

RECs in Concept

The REC, defined as the renewable energy attributes of 1 MWh of renewable electricity generated and delivered to the grid, is a concept originally developed for three main reasons. These include federal agency, business, and industry interest in purchasing green power; state-sanctioned accounting to meet renewable energy mandates; and added economic benefits in negotiating power purchase agreements to cover renewable energy project costs.

Today, all claims of using renewable electricity depend on the associated RECs. Even if a renewable generator produces electricity onsite, the project owner is not considered to be using renewable energy if the RECs are not associated with the electricity and retired on behalf of the customer. RECs are a credible way to buy and sell renewable electricity because they can be uniquely numbered and tracked. The electricity associated with a REC may be kept bundled with the REC or sold separately. If it is kept bundled, then it is called renewable (or green) electricity. If the electricity is split from the REC, it is considered standard energy.

Standard vs. Renewable Electricity

Andrea REC Figure(Source: Engineered to Excel)

REC guidelines apply to all renewable energy, including community solar. The most common REC allocation options for community solar programs include:

  • Utility owns and uses the RECs for current or anticipated regulatory compliance.
  • Utility or customer sells the RECs into the local or regional REC market.
  • Utility retires RECs on behalf of the customer.

According to a September 2015 National Renewable Energy Laboratory report, RECs for community solar projects are most often used to meet Renewable Portfolio Standard compliance. Considerations affecting how specific programs treat RECs include program goals, regulatory orders, negotiations with solar developers, and program economics. Many utilities with community solar programs claim that customers either don’t understand or don’t care about the RECs. In some cases, RECs are retained by the utility and aren’t even explained to customers.

Xcel Energy’s Community Solar Garden program in Minnesota has taken an interesting approach, allowing third-party community solar project operators to decide whether to retire RECs on their customers’ behalf or to sell them to the utility for $0.02/kWh-$0.03/kWh. Initially, the Xcel managers thought most third-party project operators would sell the RECs to the utility to improve their economics, but subscribers have been more interested in retaining the RECs than originally assumed.

The jury is still out regarding how the Minnesota community solar market will develop. However, no matter what your utility decides to do with community solar program RECs, it is important to engage customers and stakeholders honestly in the discussion. Clearly explaining the concept and treatment of RECs to subscribers is an important component of marketing any community solar program.


Solar Tax Credit Extension Enables Growth in Commercial Sector

— January 12, 2016

clean energy backgroundDexter Gauntlett also contributed to this post.

The 30% solar Investment Tax Credit (ITC) has officially been extended through 2021. The solar industry is now expected to continue its steady growth over the next 6 years and avoid the worst of the so-called 2017 cliff. Before the extension, the commercial ITC was scheduled to drop to 10% after December 31, 2016 and result in a sharp decrease in installed solar capacity in 2017 (shown in the chart at left below).

Under the recent extension, projects that start construction by 2019 will receive the current 30% ITC, while projects that begin construction in 2020 and 2021 will receive 26% and 22%, respectively. All projects must be completed by 2024 to obtain these elevated ITC rates. Navigant Research recently revised our solar capacity forecast to reflect the ITC extension, reducing the 2017 cliff by increasing the installed solar capacity from 2017 to 2022.

Expected Capacity Before ITC Extension

Andrea - Before ITC Chart

(Source: Navigant)

Expected Capacity After ITC Extension

Andrea - After ITC Chart

(Source: Navigant)
Note: Capacity is forecast in MW DC for these charts.

The extension of the commercial ITC has opened a new window of opportunity for commercial building owners over the next 6 years. Because of this, it is especially important to provide resources for the commercial sector to facilitate the decision to go solar. Navigant Consulting has been working with the U.S. Department of Energy (DOE) Better Buildings Alliance (BBA) for 2 years to promote solar PV for commercial buildings.

In 2015, Navigant focused on two commercial sectors identified as having untapped potential for commercial solar development: healthcare and hospitality. We also focused on leased buildings across all commercial sectors, which face particular barriers to installing solar PV.

Navigant interviewed solar developers, trade organizations, hotel groups, hospitals, building owners, and building tenants to better understand the benefits and barriers, technical and financial considerations, and strategies for installing solar PV systems in these sectors. We discussed some of our findings last year, and the following guides were recently published by the BBA:

In addition to these guides, the BBA published 10 case studies highlighting successful solar PV projects completed for healthcare facilities, hospitality businesses, and building owners that lease their buildings. The case studies include roof, carport, and ground-mounted systems ranging in size from 30 kW to a 5.5 MW portfolio of projects across multiple states. These case studies are all available on the Renewables Integration page of the BBA website. Stay tuned for additional BBA solar PV resources in 2016.


CES Lessons for Utilities from the Auto Industry

— January 12, 2016

CarsharingstandortI read a lot of news from the Consumer Electronics Show (CES) in Las Vegas last week about automakers embracing disruptive technologies like ridesharing and hailing, self-driving cars, and digital applications in vehicles. For instance, General Motors (GM) announced a $500 million investment in Lyft, Uber’s little sibling in the ride-hailing space. Some analysts wondered why a behemoth like GM would make such a move in a space that could ultimately eat into its sales. I doubt the company would invest that much just to try to ultimately torpedo the trend, so GM must feel like it’s better to be a part of the change in the industry than to fight it. Utilities should take notice.

Parallels at Play

There are a number of parallels between the utility and auto industries and the types of disruptions they are facing. Both sectors started over 100 years ago and enjoyed ever-rising demand for their products until the last few years, when, due to economic and technical reasons, demand growth has slowed and even stopped or declined in some localities. Daniel Ammann, president of GM, said “We think there’s going to be more change in the world of mobility in the next 5 years than there has been in the last 50. From a GM perspective, we view this as much more of an opportunity than a threat.” The same could likely be said for the energy industry.

Ford announced a partnership with Amazon to include the online retailer’s Alexa speech-control technology in Ford’s Sync vehicle voice control system. This would allow a driver to remotely communicate with his home, turning up the heat or opening the garage door. Ford has also started its own pilot ridesharing program, in which owners of Ford vehicles can rent their cars out for short periods to preapproved drivers. Ford CEO Mark Fields said his company was moving to become “an auto and mobility company.” Instead of just making cars, he said, Ford plans to offer transportation services for a generation of customers who may prefer to borrow vehicles rather than own them. “Those two companies (GM and Ford) are signaling that they understand that it’s not about moving metal anymore,” said Frank Gillett, an automotive technology analyst for Forrester Research. “It’s about having an ongoing relationship with the customer.” Ring a bell?

Alexa could be compared to devices like smart thermostats, which allow remote control of energy usage. Ridesharing is similar to community solar programs, where multiple people pool their funds together to share a common resource rather than everyone buying their own. Autonomous vehicles are analogous in some ways to energy storage, where consumers can start to be energy self-sufficient and let software automatically balance and optimize their usage of the energy highway.

Navigant just launched a new Utility Technology Disruption Report series to explore these and other trends that will affect the traditional utility business model. Change is never easy, but if the auto industry is a portent, it may be better to embrace change than wait to be left in the rear-view mirror.


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