Navigant Research Blog

Can Virtual Marketplaces Unlock the Potential of Distributed Energy Resources?

— March 28, 2017

In previous posts, I have explored innovative business models that aim to maximize the value of solar plus energy storage systems in Australia. The country has quickly become a leading market for these technologies—as well as the advanced business models and platforms necessary to unlock their full potential.

Navigant Research tracks the rapidly growing Australian market through its new Energy Storage Projects Data Service, which provides unique insights into the dynamics of markets around the world. As shown below, the majority of storage systems in Australia are being used to integrate new solar projects and maximize their value for both customers and the grid.

While the Australian market for both solar and energy storage has grown exponentially in recent years, these technologies will only be an economical investment for select customers given current business models and regulations. A new program being launched by software provider GreenSync hopes to change this situation by opening new opportunities for customers to benefit from its distributed energy resources (DER).

Navigant Research Data Services

(Source: Navigant Research)

Making Connections

GreenSync’s software-based marketplace, known as the Decentralized Energy Exchange (deX), aims to provide an avenue for distributed solar PV and energy storage system owners to trade their system’s services with local network operators in exchange for payments. Initially, the primary goal of the exchange will be to help operators manage both peak demand and variable solar generation on the grid. The opening launch of the marketplace will focus on trials with two utilities. ActewAGL, in Australia’s Capital Territory, hopes to understand how market-integrated batteries can alleviate constraints in certain parts of the grid, particularly those struggling to handle high levels of solar PV. United Energy in the Melbourne area is piloting the deX marketplace to reduce grid congestion where summer peak demand is straining existing infrastructure.

These utilities join a number of others in Australia that are working to understand how networks of DER can be utilized to provide services for grid operators in addition to the customers who own them. Utilities like AGL Energy, SA Power Networks, and Ergon Energy are working with various vendors to maximize the value inherent in energy storage systems and other flexible DER to improve the efficiency of the grid while allowing for greater amounts of solar PV to be added by customers.

Coordination Is Key

For DER providers to reach the most customers and realize the full potential of their technologies, these types of virtual aggregation platforms will be essential. Without proper coordination, the growing number of DER on the grid can result in significant systemwide inefficiencies, and their benefits may only be accessible to select electricity customers. Collaboration and coordination among DER stakeholders on the grid are key themes explored in Navigant Research’s recent white paper, Navigating the Energy Transformation.

The ability to effectively aggregate and coordinate distributed systems will be crucial for both utilities and vendors to capitalize on all the values these systems can provide. Vendors with a narrow focus on only providing cost savings and backup power for customers will significantly limit their addressable market, as their solutions may be too costly for many customers. They also risk missing out on the opportunity to play a foundational role in the development of the next-generation transactive energy system that will transform the industry.

 

Support for EV Charging Presents New Challenges and Opportunities

— March 9, 2017

As new EV models are introduced at increasingly low prices, the need for charging infrastructure is growing around the world. According to Navigant Research’s report, Electric Vehicle Charging Services, plug-in EVs will represent 22.6 million MWh of demand by 2020. Major efforts are underway by governments, utilities, and private companies to capitalize on this new source of energy demand that is necessary to facilitate the transition to electrified transportation. With this new demand for electricity comes both the possibility for disruptions to the grid and significant opportunities for solutions capable of overcoming these new challenges.

Motivations for Change

Around the world, governments are stepping up efforts to support the growth of the EV industry by facilitating the development of charging infrastructure. Perhaps the most significant effort is the recently announced plan for the Chinese government to support the installation of 800,000 new EV charging points in 2017 alone. The main drivers for governments to support the EV industry are to reduce air pollution, enable a new source of economic growth by supporting local vehicle and component manufacturers, and drive new infrastructure investments. These issues are particularly relevant in China, where urban air pollution is a national health crisis and where EVs are a growing domestic industry.

Private companies are becoming increasingly involved in the EV industry. In early 2017, multinational oil major Shell announced that it will begin installing EV chargers at the company’s gas stations. Shell and other oil companies are looking to EV charging as an opportunity to diversify revenue streams, as the current low gasoline prices are reducing profit margins and overall gasoline consumption is projected to continue to decline.

Challenges and Solutions

Finally, utilities in many areas have been major supporters of the transition to electric transportation. At a time when overall electricity consumption is decreasing and more customers are generating their own power, EV charging is likely to be the most significant source of new demand on the grid, and utilities are eager to help it grow. This dynamic is evident in the recently announced proposal by utilities in California to spend approximately $1 billion on new EV charging infrastructure. While EV charging is an opportunity for utilities, they are also faced with a number of major new challenges caused by the technology. EV charging causes considerable spikes in demand, often with little control or coordination. Additionally, charging stations are often located at the edges of the grid on circuits that may already be approaching capacity constraints during peak demand periods.

EVs and charging systems are integral pieces of the rapidly evolving distributed energy resources (DER) ecosystem. For many DER, the overall value and ability to effectively integrate with the existing grid is greatly enhanced by pairing complementary technologies together. Distributed energy storage may emerge as an ideal technological match for EV charging. There are already a number of partnerships between EV charging and energy storage providers aiming to reduce the effect of charging on congested infrastructure and shift renewable energy generation to align with EV charging needs. To fully realize the benefits of combined EV charging and energy storage, along with most DER, sophisticated software platforms are required to align the needs of the grid with those of customers. Software platforms with the ability to monitor and coordinate EV charging and optimize the use of energy storage to limit detrimental effects to the grid can alleviate many of the concerns that have limited the deployment of charging infrastructure to date.

 

New Utility Program Hopes to Stimulate Sustainable Energy Storage Growth

— February 17, 2017

There is considerable debate throughout the energy storage industry about what the optimal location is for energy storage systems (ESSs) to provide the most value. Systems can be installed either behind the meter (BTM) for individual customers, or located strategically on the utility side of the grid. While these two types of systems are typically designed for different purposes, the advances being made in storage software platforms are blurring the lines between these markets and the specific services they are able to provide. A recently proposed energy storage program from utility Consolidated Edison (Con Ed) is hoping to capture the most advantageous aspects of both approaches.

Although BTM energy storage has been a rapidly growing market over the past 2 years, a number of challenges remain that limit growth prospects. One of the major issues is that the value of an ESS varies considerably from one customer to another and across different regions. To realize a solid return on investment from energy storage, customers must have specific load profiles with enough variability to result in high demand charges and the willingness to invest in a relatively new technology. While opportunities to participate in competitive wholesale markets are often touted by vendors, actual revenue streams from these opportunities remain uncertain or entirely unavailable in many areas. As a result, excess storage capacity that could be used for participation in these markets is not built into projects, leaving economies of scale unrealized.

A New Approach

With its newly proposed energy storage program, Con Ed hopes to overcome many of the barriers facing BTM storage while also taking advantage of customer facilities to host new systems. Through this proposal, Con Ed will partner with developer GI Energy to deploy in front of the meter battery ESSs that will be located at customer sites. In exchange for hosting these systems, customers will be paid a set rate for leasing their space. This should make hosting storage a lucrative opportunity for a much greater number of customers, regardless of their energy usage patterns.

The utility believes this program will be able to realize much more value from a battery system compared to customers installing these systems on their own. By leveraging the utility’s support and third-party financing, Con Ed will be able to deploy much larger storage systems resulting in greater economies of scale. Additionally, these systems can be installed in select locations of the grid experiencing capacity constraints or other challenges to allow for the deferral of new infrastructure investments. These systems will also compete to provide services in wholesale markets when available, such as energy arbitrage, capacity, and frequency regulation. While a much greater array of values can be realized from these systems, the host customers still get what they are looking for—reduced energy costs.

Initially this program will seek to deploy four relatively large (1 MW) storage systems in select locations throughout Con Ed’s territory. However, if successful, this program could be expanded to all customers and potentially provide a framework for similar programs in other regions. There remains a number of details to be worked out through this program, including how exactly the systems and the services they provide will be paid for, how various services will be prioritized, and specifically how the utility will select which developers to work with. Despite the uncertainly around a few pieces of the program, Con Ed’s proposal is an innovative approach to stimulating sustainable energy storage market growth for the benefit of all stakeholders.

 

New Energy Solutions Shaped by Local Challenges

— January 3, 2017

HydrogenThe transition to a renewables-based energy system is taking different forms in regions around the world. This stands in contrast to the traditional approach to energy infrastructure and development, which has been very much one-size-fits all, utilizing large centralized generation and standardized transmission and distribution systems. Moving forward, the optimal grid architecture and mix of energy generation and storage technologies will vary based on the particular needs and resources of a given area. A prime example of this dynamic are Scotland’s remote Orkney Islands, which are ahead of most of the world in the transition to renewables-based energy. While much of the world is looking to batteries to solve challenges associated with the intermittency of renewable energy, local conditions in Orkney are driving the islands to take a different approach.

Innovation on the Islands

The islands are home to the European Marine Energy Centre (EMEC), where innovative wave and tidal energy systems are being tested. The EMEC recently launched its Surf ‘n’ Turf project to capitalize on the excess energy produced at the facility using a 500 kW electrolyzer from ITM Power for hydrogen storage. Elsewhere on the islands, another hydrogen storage project is helping maximize the use of renewable generation while improving grid stability and reducing the need to import fuels for transportation. The BIG HIT project launched early in 2016 aims to limit the amount of curtailed wind energy, which has reached nearly 30% annually over the past 3 years. This project will use excess wind energy to power a 1 MW electrolyzer to generate hydrogen that can be used for power generation in fuel cells, as fuel for a new fleet of 10 fuel cell powered vehicles, or to supply two recently installed hydrogen powered boilers for district heating.

A hydrogen-based energy storage system is an ideal solution for the Orkney Islands for a number of reasons. With only two 33 kilovolt cable connections to the Scottish mainland, the islands do not have the luxury of exporting excess renewable generation to neighboring systems and are forced to curtail energy during peak production. While batteries are able to store a few hours’ worth of excess generation, the islands often require an entire night’s worth of generation to be stored for relatively long periods of time. Storing excess electricity in the form of hydrogen is much more well-suited to this need and provides numerous other benefits, as well.

Like most islands, residents in Orkney pay high prices for transportation fuel given the lack of local resources and the need to transport everything via ships. The Orkney Islands Council is hoping to improve this situation through the use of battery and fuel cell electric vehicles powered by energy generated locally on the islands. The Council also believes hydrogen will play an important role in the islands’ future as fuel cell technology becomes increasingly common for powering ships. By establishing and refining hydrogen storage and fuel cell technology for the maritime industry, the islands hope to emerge as a hub of innovation and develop technologies to export worldwide.

Local Resources, Local Solutions

Given the specific local conditions and challenges, a hydrogen-based energy system is well-suited for the islands. However, this will not be the case in all locations. As the industry continues to evolve in the coming decades, energy systems will be based more on local conditions and resources than ever before. This will result in a much more diverse and complex industry as the resources available in each region are tapped into. Orkney is providing an early example of how local conditions will shape the development of the next generation of energy systems.

 

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