Navigant Research Blog

Value of Flexible Grid Resources Coming into Focus

— February 1, 2016

Server room.Earlier this month, California’s big three utilities announced awards for a new initiative to bring clarity to the value that flexible distributed energy resources (DER) can provide to the grid. The Demand Response Auction Mechanism (DRAM) program is one of the first attempts to incorporate a wide variety of DER into statewide grid operations. While this program is focused only on one service—helping reduce peak load on the grid—it is an important development in recognizing the full value that DER can provide.

The recently announced awards include load reduction through four primary technologies: behind-the-meter energy storage, residential DR, commercial & industrial (C&I) DR, and electric vehicle (EV) charging. Although the majority of this capacity was awarded to traditional C&I DR, the inclusion of more innovative technologies validate claims made by vendors that their solutions can provide value to multiple stakeholders throughout the grid system. Residential energy management providers such as EnergyHub, Ohmconnect, and Chai Energy won bids totaling over 11 MW to reduce load primarily using smart thermostats. Distributed energy storage vendors Stem and Green Charge Networks won a combined 880 kW of load reduction utilizing batteries they have located in C&I buildings. Finally, startup eMotorWerks will be shaving over 1.2 MW of load by aggregating the operations of more than 1,000 smart EV chargers.

DER Value and Growth

The diverse technologies included in this program demonstrate the ability of multiple technologies to provide valuable services to the grid. While the value these technologies provide for their host users differs significantly, they can be viewed as a single, flexible resource by grid operators. Navigant Research’s recent Distributed Energy Resources Global Forecast report provides a detailed breakdown of the rapidly growing DER market in countries around the world. As shown in the report and with the DRAM program, traditional DR is currently the most cost-effective form of load reduction for utilities. However, other technologies are expected to see much faster growth in the coming years. Distributed energy storage is expected to be the fastest growing DER resource in the United States, with a compound annual growth rate of 45% over the next decade.

Once again, California is leading the way in identifying and valuing the diverse services that new technologies can offer the power grid. All bids have been kept strictly confidential through the DRAM program, an important point to note as the various technologies have widely differing costs to install and operate. These bids will help inform future efforts to integrate DER both in California and around the world.

 

Tracking the Rise of Distributed Energy Resources

— December 21, 2015

While leaders from nearly 200 nations reached a historic agreement in Paris last week to limit greenhouse gas (GHG) emissions, market forces are already driving the growth of distributed energy resources (DER). This rapidly evolving technology landscape is forcing stakeholders throughout the industry to reconsider the structure of the grid itself in addition to the economics of generating, distributing, and consuming electricity.

Utilities and regulators have taken widely differing stances on the deployment of these resources. While some are beginning to embrace the DER trend by developing new products and services and demonstrating the necessary flexibility to evolve, others have been lobbying aggressively to limit or halt their spread. Although all DER represent a shift away from the traditional centralized grid, the potential of different technologies to disrupt the industry varies considerably. While the term disruption can be somewhat vague, in this sense it refers to developments that can alter the relationship between incumbent service providers and their customers or require significant new investments in grid infrastructure. Navigant Research’s recent report, Distributed Energy Resources Global Forecast, explores the growth and impact of DER worldwide.

New Players Emerging

The DER expected to be the most widely deployed over the coming decade are actually those that will cause the least amount of disruption to the industry; demand response (DR) and fossil-fueled generator sets are already widely deployed and have not resulted in significant change in the industry. Equipment to charge electric vehicles (EVs) is expected to be one of the fastest growing DER segments worldwide. This emerging technology is expected to add significant load on the grid and necessitate new business models by both utilities and third parties to effectively manage this new resource, including vehicle-to-grid capabilities. Some utilities have begun experimenting with innovative programs to own new infrastructure and benefit from the integration of EVs.

Disruption on the Horizon

The rapid growth of distributed solar PV is proving to be disruptive to the industry, generating contentious debates over proper compensation for system owners as well as causing a need for new technologies on the grid to help maintain stability. Along with solar PV, the most disruptive new DER technology in the coming decade may be distributed energy storage systems (DESSs). These systems can provide end users with the ability to consume most of the power they generate onsite, lower their bills, and have power available during an outage, among other benefits. Customers empowered with these technologies may have a radically different relationship with their local energy service provider. Several utilities have taken an active role in this growing industry by offering energy storage and solar PV solutions directly to their customers. Energy providers that fail to adapt to new technologies may find their customer base migrating to alternative solutions.

The growth of DER technologies will bring about the need for a greater level of coordination between stakeholders on the grid to enable a two-way flow of energy and services between customers, utilities, and potentially between customers themselves. Known as the Energy Cloud, this concept can lead to the development of new players within the industry, such as the role of a network orchestrator to ensure a balance of supply and demand on the increasingly distributed and complex network. While the future of DER in most areas may rely heavily on new regulatory frameworks, there is no doubt that the ground is shifting under the global industry and the need for new business models is only a matter of time.

 

Renewed Interest in Older Forms of Energy Storage

— November 17, 2015

After recently receiving support from Governor Steve Bullock, a planned pumped hydro storage (PHS) project in Montana has moved one step closer to reality. While the Gordon Butte project still faces many hurdles on the road to development, it is being embraced by many in Montana as a way to help take advantage of the state’s abundant renewable energy resources. Located in remote Meagher County, the facility would add a 400 MW resource capable of storing excess wind energy to be released at times of high demand. Montana-based Absaroka Energy is developing the project, working to secure financing and permits, as well as an interconnection and partnership agreement with a regional utility.

This project is part of a trend of renewed interest in PHS and other forms of electro-mechanical energy storage. According to Navigant Research’s Energy Storage Tracker 1Q15 report, there are 42 PHS projects in various stages of development around the world, including 13 located in the United States. As the penetration of renewable energy increases globally, energy storage solutions of all types are emerging as efficient ways to manage fluctuating supply and demand. While advanced batteries are an ideal choice for managing the grid’s stability over short time periods, the economics of very long duration (6+ hour) energy storage often do not line up given the high upfront cost and limited lifetime of battery technologies. Thus, many grid operators are looking at alternative storage technologies to help align the output of renewable energy with times of peak demand.

Generation and Demand

A common issue with renewable energy is the mismatch between when energy is generated and when demand is highest; this is a particularly acute problem in remote areas or physical islands that are unable to import or export energy whenever it is needed. In Montana and other areas, wind power is generally most productive at night (when there is minimal demand for energy) and is generally unavailable during peak demand hours when energy is needed most. The aim of Gordon Butte and other planned PHS projects is to allow this abundant wind energy to be shifted from when it is produced to times of peak demand, often in the evening, helping to ease utility concerns around balancing wind’s variable output. An economical means of storing large amounts of wind energy could allow Montana to fully capitalize on its immense natural resources, potentially allowing the state to export power to surrounding areas and greatly reducing the amount it spends on importing fossil fuels.

Despite the attractive economics and potential positive impacts PHS facilities can have, development of such large and complex infrastructure projects can be challenging, costly, and time-consuming. In addition to concerns regarding impacts on water resources and local wildlife, issues surround land-use and permitting have derailed past projects. These projects will face increasing competition from rapidly advancing battery technologies that are improving the economics of long-duration storage with more flexibility and less complex development processes.

 

California Incentive Program: Remaining Challenges for Energy Storage

— October 23, 2015

California’s Self-Generation Incentive Program (SGIP) has significantly advanced the state’s distributed energy storage market and has also highlighted the remaining challenges facing the industry. The program provides incentives for customers to install qualifying technologies including: small wind, waste-to-energy, generator sets and microturbines, fuel cells, and energy storage systems. SGIP has made California’s burgeoning energy storage industry one of the most advanced in the world. Storage systems currently receive incentives of up to $1.46 per watt, the second highest rate in the program. As a result, 224 storage systems have been deployed through the program, representing just over 11 MW of capacity. Despite this success, the industry still faces many challenges that are evident when analyzing the program’s project data.

Program Backlog

While an impressive number of systems have been deployed through SGIP, many projects have been cancelled, and many others currently sit idly by with little chance of being developed. There are currently 301 systems in the SGIP pipeline that were initiated before the start of 2014. These systems account for $25.1 million of held-up incentives that could otherwise go to more active projects. Given the program’s annual statewide budget of $77.1 million, these languishing projects account for 32% of the available incentives.

One reason for this backlog is the relative ease with which customers can begin working with vendors and reserve incentives through the program. Several companies active in California have employed a strategy of taking as many reservations as possible from prospective customers, regardless of the odds of the companies following through with an installation. While this strategy may improve a company’s market share for pipeline alone, it is detrimental to the overall program goals because it works against the other companies that focus efforts on the appropriate and more reliable customers. A potential fix for the program could include stricter milestones and required reservation timelines. Currently, a proof-of-project milestone is due 90 days after the start of most projects, meaning many systems have been in the pipeline for well over a year since that milestone was passed.

Remaining Challenges

The program’s large pipeline and rate of cancelled storage projects highlight challenges for both the program and the overall storage industry. The average ratio of systems deployed to systems that are eventually cancelled is only around 18% for leading vendors in the program. This results in a significant amount of capital resources for emerging companies that are lost on identifying and working with customers that never install systems. Furthermore, this dynamic highlights challenges with systems integration and installation that are faced by the relatively new industry. Changes in interconnection and installation requirements in different parts of the state—often not discovered until well into the development process—can add substantial costs to a project and significantly alter the overall economics, resulting in cancellations.

The large number of cancelled and delayed projects undoubtedly illustrates that the distributed storage industry as a whole must mature to improve the efficiency of operations and lower costs. Improvements should come naturally to the rapidly growing industry as customers become more educated and as increasing sales volumes lead to more standardization and streamlined processes, perhaps similar to California’s recent experiences with solar PV.

 

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