Navigant Research Blog

New Florida Generator Law Presents Opportunity for Behind-the-Meter Flexible Generation

— June 5, 2018

Governor Rick Scott recently signed bills into law that require all of Florida’s 3,774 nursing homes and assisted living facilities to have emergency backup power. The bills were first proposed in response to the tragedy in the aftermath of Hurricane Irma, when 12 residents lost their lives at one facility from heat-related symptoms. Thanks to new flexible generation business models, generators could be deployed to these sites in a way that could both generate additional revenue and provide elderly residents with even more reliable backup power than traditional standby generation.

Natural Gas Backup Generation Increasingly Attractive

The new bills require 48-96 hours of fuel to be stored onsite, though pipeline natural gas is exempt. This is in part thanks to the natural gas grid’s high reliability, which a 2013 MIT study pegged at around 99.999% in non-seismic areas, much higher than the electric grid. But natural gas is increasingly attractive for other reasons, too.

Natural gas gensets, while more expensive upfront than their diesel counterparts, tend to have lower emissions and levelized costs of energy. With about half the greenhouse gas emissions and far lower criteria pollutants, natural gas gensets allow for cleaner local air and are generally subjected to less air permitting scrutiny. Natural gas gensets can avoid the complex storage tanks of diesel generators. And when used for more than backup generation (as explained below), their levelized cost of energy can be lower than that of diesel gensets.

New Standby Generator Business Models Unlock Revenue Potential

Value stacking is a buzzword in distributed energy today, and it remains so for a reason. From the genset perspective, companies like PowerSecure, Enchanted Rock, and edgeGEN have been deploying gensets behind the meter at commercial and industrial sites. These gensets can provide backup power in an outage along with other services like peak shaving, demand response, and more to utilities and grid operators. Combined with third-party financing, these value-stacking flexible generation business models bring backup generation at steeply discounted costs to facilities managers that would not otherwise be able to provide them. As an important bonus, such operations can exercise generators at a much higher cadence than typical maintenance schedules, a practice that has been proven to enhance availability across fleets of generators.

Calls for Backup Power Present Opportunities

The Florida facilities, which include thousands of sites and hundreds of megawatts of capacity, could present a unique opportunity to deploy generators creatively like this—in microgrids with other distributed energy resources (DER) or even in a virtual power plant (VPP). In the VPP example, a network orchestrator that coordinates operations could enable thousands of generators to become a controllable power source ready to provide grid services for the 95%-plus of the time they are not otherwise being used. As a regulated electricity market not part of a regional transmission organization, Florida may not be the likeliest place for a major VPP—though nearly anything is possible in today’s rapidly changing regulatory environment. New calls for backup power like this present ever more opportunities to leverage the new connectivity, controls, and business models that make onsite generation smarter.

 

Heating: The Next Frontier of Decarbonization?

— April 12, 2018

Low carbon energy is gaining steam in fast-growing technologies like solar PV and battery EVs, but a key lagging sector—heating—may see a pickup in its own decarbonization. Alongside transport, the CEO of E.ON UK recently mentioned heating as a specific area where the company wants to play a larger role, suggesting perhaps that renewable electricity has more sustainable momentum than heating. This agrees with trends Navigant Research has been following and projecting, as outlined in this blog.

Though global data on heating alone is somewhat limited, for example heating and cooling in Europe accounts for 51% of final energy use, the stakes are indeed high. Together, transport, electricity, and heat accounted for about two-thirds of global CO2 emissions in 2015, according to the International Energy Agency.

Multiple Pathways Will Decarbonize Heating

There are several parallel paths to decarbonizing this sector—one that has traditionally relied on burning fossil fuels onsite. Among these paths, fuels can be decarbonized, heat production processes can be made more efficient, and heat sharing business models can be expanded.

Fuel decarbonization is covered in depth in a new report for the Gas for Climate consortium by Ecofys, a Navigant Company. The report concludes that renewable gas—including biomethane and power-to-gas—can help achieve a net-zero carbon energy system in the European Union by 2050, while saving €138 billion annually compared to a scenario without any gas. The report mentions space heating and industrial heating as benefiting from gas especially during the coldest winter snaps, when the fuel can be dispatched in huge bursts for both heat and power.

Heat production can also be made more efficient with the use of heat pumps and a variety of combined heat and power (CHP) technologies such as fuel cells. Heat pumps are broadly adopted for heating and cooling applications and, especially in high adoption places like Europe, look to provide a compelling bridge between clean electricity and heating and cooling. Meanwhile, CHP systems are being embraced in ever-smaller applications, much smaller than traditional multi-megawatt systems. This is enabled in part by improved packaged systems in the 1 kW-100 kW range, which open massively larger markets than before. Navigant Research forecasts significant growth in CHP in microgrids, and smaller package systems such as micro-CHP fuel cells ready to rise in Europe and elsewhere following significant sales in Japan.

Winning Energy Solutions Serve Multiple Sectors

Energy use in most sectors increasingly overlap. Renewable gas usage can be used for transport, electricity generation, and space heating, among other things, and heat pumps also provide a key link between electricity and heating and cooling.

As a final example, consider thermal storage systems such as those at University of California, Irvine (UCI), where 44% of total energy is used for space cooling. On a high PV penetration electrical grid that values flexibility, the cold thermal storage well pays for itself by allowing the campus to shift loads across the day, saving millions of dollars in demand charges while offering an efficient and lower carbon solution.

This type of system works well on large campuses that can share the load across many buildings—in UCI’s case, 8 million SF. But the same basic concept applies to district energy systems that dispense heat and cooling to many facilities and households, especially in certain larger cities. If there is a serious desire to keep this planet from overheating, these types of models should be embraced in ever-smaller, and more flexible, applications.

 

The US ITC Was Reinstated for Fuel Cells: Is It Enough to Recharge the Industry?

— March 20, 2018

In an 11th hour move, the US federal Investment Tax Credit (ITC) was reinstated for certain orphaned generating technologies in February’s congressional tax bill. Among the technologies extended, fuel cells have the highest incentive: as much as 30% of the system cost can be taken as a tax credit. For stationary systems made by the likes of Bloom Energy, Fuel Cell Energy, and Doosan, the credit can be worth around $0.02/kWh on a levelized cost basis—a significant amount that can decide whether a project gets built.

Will it be enough to reignite an industry that largely treaded water in the US in 2017? That depends on whether industry players can address certain key issues.

Capital Costs Must Be Lowered

The high capital costs of fuel cells remain the biggest hurdle to mass adoption. Installed capital costs vary widely but typically range from about $4,000/kW to $8,000/kW. By contrast, turbines, microturbines, and reciprocating gensets are significantly cheaper per kilowatt—as low as $1,000 or less for certain gensets and turbines. Fuel cells make up for this with high efficiency, but that advantage is hobbled in a world of low natural gas prices. Cost declines in recent years have been promising, but more must be done. Incentive certainty should help drive investment, volume, and thus economies of scale, but more must be done with manufacturing process improvement and the use of lower cost assemblies and materials.

Flexibility and Load Following Must Be Improved

The US electrical grid is experiencing increasing volatility thanks in part to fast growth among intermittent renewables. This has led to demand for flexible, dispatchable technologies like battery storage. The higher temperature fuel cells popular in the +500 kW range tend not to follow load well. This is a disadvantage, especially for applications like microgrids that value islanding from the grid. Pairing the fuel cell with battery storage (a la Bloom Energy) can help overcome this lack of flexibility

Carbon Emissions Still Represent a Liability

Despite super-low levels of criteria pollutant emissions, fuel cells using natural gas still emit carbon dioxide. This can be a significant liability when compared with, for example, the emissions-free PV-plus-storage systems that continue to fall in price. Though fuel cell emissions per megawatt-hour tend to be lower than most electrical grids right now, those grids are focused on decarbonizing. This is of special interest among corporate buyers thinking increasingly about sustainability. Low carbon fuels like biogas are a key decarbonizing pathway. Some programs, like California’s SGIP, encourage biogas market transformation by requiring increasing amounts of biogas in covered systems. Using biogas as a fuel is a strategy for fuel cells to compete better on system carbon emissions.

Fuel Cell Technology Needs More than Just the ITC

The reinstatement of the ITC gives a welcome boost to the stationary fuel cell industry in the US. It lowers both uncertainty and costs to the end user, and enhances economies of scale. But more yet is needed to truly scale the industry. Cost cuts have been aggressive in recent years but must continue. The ITC is scheduled to phase out over 5 years, dropping to 22% before ending in 2022, giving fuel cell companies a clear timeline for hitting lower cost targets. Pairing up with other dispatchable technologies like batteries may help fill the gaps in load following capability. And to limit carbon emissions, alternative fuels like biogas and green hydrogen will become increasingly important fuels. Fuel cell technology still shows great promise, but there is much yet to be done.

 

Changing Building Codes Are the Latest Proof of the Distributed Energy Revolution

— March 8, 2018

The distributed energy resources (DER) revolution is underway, and there are signs all around us. Readers of this blog have seen discussion of distributed PV, energy storage, microgrids, and similar technologies grabbing ever wider bandwidth in trade journals, social media, and popular news outlets.

Building codes just may be the latest proof of the dramatic shift to distributed energy. The 2017 version of the National Electrical Code (NFPA 70), the most widely adopted electrical construction standard on the planet, has a total of five new articles (or sections)—and four of those five are directly related to DER, as shown in the table below. Since the code’s key purpose is for electrical safety and fire protection, the addition of these articles reflects the need for setting safety standards among these fast-deploying technologies.

The addition of four articles is significant. Over its 120-year history, the code had accumulated eight articles related to DER (including generators, fuel cell systems, EVs, and the like), so this adds a notable 50% increase. Watch for changes to existing articles and more hybridized, interactive DER, and standard DER-related articles in subsequent versions.

New Articles Added to the National Electrical Code 2017

(Source: National Electrical Code)

Going beyond Code Requirements

Beyond just making safe and code-compliant equipment, DER vendors need to proactively address the concerns of building officials, fire marshals, and other authorities charged with protecting public safety. Since many codes are updated on a 3-year cycle—an eternity in the current wave of innovation—some products are invented and may have multiple generations before technical committees can officially weigh in. This author has heard an initially skeptical building official consider approving a fuel cell on a parking structure express concerns with “the thermal power plant on the roof” (the project was approved). Lithium ion battery storage installers (and lead-acid before them) have spent years educating fire officials on safety measures and operating procedures for their equipment. Vendors of newer technologies often learn from those that went before. But in most cases a proactive, trailblazer approach pays dividends.

One example of a DER technology overcoming safety concerns is the case of distributed PV in California. While not strictly building code related, California’s Rule 21 interconnection requirements were recently significantly updated to reflect growing trust of grid-tied inverters like those used in PV systems. Whereas inverters were formerly required to immediately shut off at the slightest sign of grid trouble or outage (for safety reasons), new smart inverters are allowed and able to stay operational under a much wider set of circumstances. This was as much a function of increased trust of the technology as it was a need to not have megawatts worth of generation going offline after each slight blip in frequency or voltage.

Industry Recommendations

Codes and similar regulations are important—they can encourage or limit technology deployment, effect installation costs, and even determine the number of hours a system can provide usable power (e.g., California’s Rule 21 for PV). Thus, it pays for vendors to take an active approach in educating city officials and first responders, and to be active in code development cycles. The relative infancy of the DER revolution means more growing pains likely lay ahead. Since DER are not yet truly ubiquitous, a proactive approach by vendors is a wise investment.

 

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