Navigant Research Blog

Australia Leading Solar PV plus Storage Innovation

— May 23, 2016

Rooftop SolarImprovements in technology and cost have allowed solar PV plus storage systems to become an attractive investment in many parts of the world. However, what remains to be determined are the optimal business models to unlock the full value of these systems. Pairing solar PV directly with energy storage holds the potential to dramatically transform the electricity industry and provide customers with cleaner and more secure power at a predictable price. Despite the potential, there has been little consensus in the industry on the best way to deploy these systems on existing grids and on how to overcome the significant barriers that the required upfront investment presents. 

Although solar PV and energy storage systems (ESSs) have been paired up in microgrids and remote settings for decades, their integration into existing electrical grids presents new challenges. Innovative models for the ownership and operation of these systems are being explored around the world, driven in part by the increasing funding flowing into the distributed energy industry. Australia has been at the forefront in the development of distributed energy resources, and two recently announced projects in the country offer different paths forward.

Dueling Approaches

In early adopter markets around the world, two primary models for deploying solar PV plus storage systems are emerging. Many stakeholders in the industry believe the optimal way to deploy these systems is through incumbent utilities and electricity providers that can leverage technical experience and access to financing. The recently developed suburb of Alkimos Beach in Western Australia was seeking a community-scale solution to help manage an increasing number of distributed solar PV systems and limit the need for new infrastructure to serve its growing population. The neighborhood elected to work with local energy provider Synergy to deploy a 1.1 MWh lithium ion ESS that is being fed by over 100 solar PV systems located on rooftops throughout the area. In addition to reducing costs for customers, managing the intermittency of PV generation, and limiting the need for new infrastructure, the project provides Synergy an opportunity to use community engagement as a way of combating the threat of grid defection.

Alkimos Beach is not the only community in Western Australia exploring innovative ways to harness the power of the solar PV plus storage combination. The community of White Gum Valley has chosen a different path toward a sustainable, local energy system both in terms of ownership and technical design. Most homes in the community will have both solar PV and battery ESSs onsite that will be operated in concert. In addition to the physical distribution of energy storage in this model, systems in White Gum Valley will be owned by the company managing most of the community’s apartment buildings. The company will act as a utility by owning assets and retailing energy directly to customers, a rare situation in Australia’s regulated electricity markets.

The Path Ahead

These two projects may provide some unique insights into how solar PV plus storage solutions can be optimally developed. They provide clear examples of some of the major debates in the distributed energy storage industry, such as whether it is better for systems to be centrally located or distributed, or if they should be owned by utilities or by customers. While it may take several years for these projects to illuminate the merits of one approach versus the other, they may be a sign of things to come as the distributed energy industry takes shape.

 

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.

 

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