Navigant Research Blog

Considering the Costs and Benefits of Grid Alternatives

— April 29, 2016

AnalyticsDespite significant media attention, distributed energy resources (DER) are only beginning to make an impact on the grid in certain areas. While DER have the potential to transform the electrical grid and provide significant value to multiple stakeholders, they are not properly understood and valued. This is partially due to the diverse array of technologies included in the DER classification. Solar PV, conventional generators, fuel cells, energy storage systems (ESSs), and load management devices all have distinct operating characteristics as well as costs and benefits. Both utilities and industry regulators are working to address these issues using differing approaches. New York is one of the leading states to tackle this issue through the state government’s Reforming the Energy Vision (REV) initiative.

Costs vs. Benefits

A recent REV program development is helping shape the future of DER in the state. In February, the New York Public Service Commission introduced the Benefit Cost Analysis Order. The order includes a methodology for how electric utilities should evaluate the costs and benefits of proposed grid investments and calculate the net benefits of traditional infrastructure investments compared to portfolios of DER. This is an important development because under the REV initiative, utilities are prohibited from owning DER in most circumstances. The utilities will have to determine where on their systems DER can provide the most value and identify the best way to work with customers and third-party providers to deploy those assets.

A key feature of this order is that the environmental benefits of DER, such as reduced emissions, must be taken into consideration and should help determine the value of DER and compensation paid to system owners. For example, a network of aggregated solar PV plus storage systems can provide the same grid capacity constraint relief as upgrading an existing power plant, only with no added emissions. Although there may be some issues with the proposed valuation methods (such as how to properly compare upfront versus lifetime costs of certain investments), this is certainly a step in the right direction.

Utilities in New York have already been looking into DER alternatives as they are faced with growing populations and rising electricity demand necessitating significant new investments. A notable example of this is Consolidated Edison’s Brooklyn Queens Demand Management Program. The program seeks to defer the construction of a new substation and other investments that would be expected to cost around $1 billion. As an alternative, the utility is making smaller equipment upgrades and investing around $200 million in new demand-side management programs and DER incentives that are expected to reduce grid demand in the area sufficiently to defer the new substation until at least 2024. This includes increased payments for demand response programs and incentives for the installation of distributed ESSs.

Advantages of Flexibility

As a result of this new order, it is likely that utilities may be supportive of and incentivize most flexible DER, particularly ESSs. Unlike other forms of DER, customer-sited ESSs of all sizes can provide a highly reliable form of load reduction for grid operators, as they can be called upon to reduce a customer’s demand without affecting their comfort or operations. Additionally, ESSs provide significant flexibility—when not needed to reduce demand, they can be used to help integrate distributed solar PV and improve reliability for customers. Navigant Research’s recent report, Market Data: Commercial & Industrial Energy Storage explores the benefits and business models for customer-sited energy storage. While New York’s efforts will help bring clarity to the value and benefits of DER, there remains much uncertainty over the most effective business models to realize the full potential of these technologies.


Smaller Utilities Explore Energy Storage-Enabled Solutions

— April 20, 2016

GeneratorWhile California’s investor-owned utilities have received the most media attention for their high-profile energy storage procurements, smaller municipal and cooperative utilities around the country are beginning to recognize the value that energy storage can provide. The services that energy storage systems (ESSs) can provide these smaller utilities may differ from larger organizations, as will their procurement processes.

One notable difference is that municipal and cooperative utilities are generally able to make much quicker decisions regarding investments, as they are not as burdened by regulatory oversight and financial commitments to shareholders. Many of these organizations have been exploring the diverse benefits that energy storage and microgrids can provide, particularly as renewable energy developments become more common for smaller utilities. It is estimated that member-owned electric cooperatives in the United States have nearly 240 MW of solar PV capacity online or in development, which may bring about the need for energy storage to effectively integrate these resources and ensure grid stability.

Problems to Solve

Much of the interest from publicly owned utilities in energy storage and microgrids stems from the generally large geographic area that these entities control. In addition, many customers are located at the end of long feeder lines in relatively remote areas. As utilities see load growing at the end of these isolated circuits, issues around relatability and the need for significant new investments will arise. This challenge is magnified by the fact that many public utilities do not own generation assets, making it different to control frequency and voltage on their system when the generators feeding power are potentially hundreds of miles away. Increasingly cost-effective energy storage is emerging as an ideal solution to these problems by allowing utilities to defer investments in new infrastructure, enabling greater control over their networks and improving reliability for remote customers.

Emerging Solutions

Municipal utilities are able to solve challenges using energy storage either distributed throughout their service territory or at a single facility. For example, the Eugene Water & Electric Board in Eugene, Oregon is developing a solar PV and energy storage microgrid utilizing a 500 kW lithium ion battery from developer Powin Energy. The system will ensure the operability of critical facilities in the event of an outage as well as reduce the expensive peak demand energy the utility buys on wholesale markets. Eventually the utility may look to sell excess capacity into energy markets themselves. An alternative model is being tested by the Glasgow Electric Plant Board in Kentucky, which will deploy distributed ESSs at the homes of 165 customers in partnership with Sunverge. The systems will charge at night when costs are low and discharge during the day or during peak demand, reducing the need to supply additional power and lowering overall costs. This network of ESSs will also provide detailed, real-time insights about the local grid’s performance and ensure customers have power in the event of an outage.

These programs demonstrate the various ways that smaller utilities can enjoy the benefits of energy storage while improving service for their customers and integrating local renewable resources. As energy storage costs continue to fall, there will be numerous opportunities for the nearly 3,000 publicly owned and cooperative utilities in the United States to benefit from the technology.


DER Solutions Emerge from Utility Rate Changes

— March 18, 2016

electric meterAs debates around solar PV net metering and other distributed energy resources (DER) compensation programs continue around the world, there is great uncertainty for many vendors. These compensation mechanisms and programs provide stability and guaranteed revenue streams that are essential for many DER business models. While the reduction or termination of net metering programs may be detrimental in the short term, these policies are likely to be replaced with rate structures that more accurately reflect the costs to serve customers in a given location at a given time. Various DER technologies can provide customers with unprecedented flexibility to respond to changing rate structures to benefit both the grid as a whole and their power bills. Leading vendors are already working to offer innovative solutions that combine multiple technologies into an optimized, flexible DER solution.  

The Hawaii Connection

The rapid growth of Hawaii’s solar PV market over the past several years has resulted in state regulators ending the utility’s net metering program in October 2015. The program was replaced with two new options that allow customers to be compensated below the retail rate for energy sent back to the grid, or keep all the energy they generate onsite and gain faster access to grid interconnection. Although this change is likely to slow solar PV installations in the near term, it opens up vast new opportunities for other DER to help customers save money while improving the efficiency of the grid. Vendors have already responded with new offerings tailored to these rate structures. Late last month, SolarCity introduced their Smart Energy Home offering, which includes solar PV, battery storage, smart electric water heaters, and a smart thermostat designed to maximize solar PV generation and self-consumption. The system automatically modifies energy usage and storage based on how much solar power is available to prevent energy from being exported to the grid in accordance with the utility’s new rate structures.

While SolarCity’s solution may be the first to offer this specific suite of technologies to customers, it is not the only company looking to capitalize on rate structure changes and consumers’ desire for control over their home energy systems. Across the Pacific Ocean, Australian telecommunications company Telstra recently announced plans to roll out a home solar plus storage solution to the millions of customers it already serves in Australia. This plan is part of a whole-home connectivity package that also includes Internet and phone. Telstra has the advantage of a large customer base and well-established customer support to help expand its offering as solar compensation programs wind down throughout the country in the coming years.

Global Trend

Utilities around the world are also getting in on the action, with companies in Vermont, Germany, Australia, and Arizona looking to offer integrated DER solutions to their customers. Perhaps the most intriguing vision for this type of offering comes from Tucson Electric Power, where CEO David Hutchens recently discussed the possibility of offering a type of “premium energy service” that may involve the utility owning and operating a whole suite of DER—including solar, storage, electric vehicle chargers, and more—based on customer needs and wants. These innovative offerings from various stakeholders in the industry are just the beginning of a post net-metering world where DER can provide increasing value to both customers and to the grid as a whole.


Indian Market Moves Forward with Solar + Storage Request

— March 11, 2016

Control panelThe Indian energy storage industry recently took a major step forward with the announcement of tenders for up to 750 MW of new solar PV capacity with a requirement to include energy storage. The Solar Energy Corporation of India, a state-owned entity that is helping to drive the country’s ambitious National Solar Mission, is looking to ensure this new variable generation capacity can be smoothly integrated onto an already unstable power grid. The structure of this requirement indicates that every bidder for solar capacity into the project will have to include a small energy storage system (ESS), likely determined by a set percentage of PV capacity. While this program is still in the early stages with many details not yet announced, it is expected that new storage capacity could total 100 MW.

According to Navigant Research’s Country Forecasts for Grid-Tied Energy Storage report, India is expected to be the fourth largest (and an incredibly fast-growing) market for storage worldwide in the coming decade. Nationwide deployments of storage are anticipated to increase from 110 MW in 2016 to 4.1 GW by 2025. Several key factors are driving the market for energy storage in the country, perhaps most notably the ambitious National Solar Mission. In 2014, Prime Minister Narendra Modi announced a national target to install 100 GW of solar PV capacity by 2022, which would make the country one of the largest solar power markets in the world. India’s rapidly growing population, particularly in urban areas, is driving the need for increased investment in both electricity generation capacity and transmission and distribution infrastructure across the country.

Recognizing the Need for Storage

Although the Indian government agrees that adding energy storage to new PV plants can add significant costs to the final price of delivered electricity, it recognizes that the greater control provided by storage is becoming increasingly necessary to operate the grid. The rapidly growing amount of renewable energy on the national grid combined with the significant potential for natural disasters to disrupt grid operations is making a more flexible and resilient grid enabled by energy storage a necessity.

This announcement of tenders is an important development for the global energy storage industry, as it represents one of the first times grid operators in a large country are requiring energy storage to be included with new PV plants. Although this type of requirement has been introduced in countries with smaller grids such as Puerto Rico, India will be the largest grid to recognize this need for storage. Grid operators in India admit that their system has a much lower tolerance to integrate variable forms of energy generation compared to other regions. Similar requirements are likely to be introduced in other areas around the world as the penetration of renewable energy increases. However, the rate at which energy storage will be needed to help maintain grid stability in each country will vary significantly.


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