Navigant Research Blog

Innovators Wanted for DER Solutions

— April 18, 2017

Coauthored by Ken Horne and Laura Vogel 

Distributed energy resources (DER) are a hot topic in the energy industry these days. Some industry players take it as gospel that there will be an inevitable transition from centralized electricity generation to dispersed sources of both producing and reducing power to manage the bulk of grid supply—including Navigant Research.

The Energy Cloud and Changing Relationships

The Energy Cloud will most likely be the result of a fundamental shift in the way electricity is generated and distributed. It will signify an evolution in the traditional relationship between stakeholders across the electrical grid, particularly between utilities and their customers.

The Energy Cloud

(Navigant Consulting, Inc.)

Such a change may occur in the long term, but there are plenty of challenges that need to be overcome that invite numerous opportunities for innovation from current and new players in the energy industry. The issues range from technical to economic, regulatory, and consumer-based.

Energy Cloud Issues: Opportunities for Innovation

(Navigant Consulting, Inc.)

Technical Issues Facing the Energy Cloud

On the technical side, many hardware and software questions need to be answered. It is not so simple as to throw DER onto the existing grid—which was designed for one-way power flow. If clusters of DER on one feeder or substation occur, which is more likely than perfectly dispersed resources, voltage and reverse power flow issues must be dealt with. Visibility to DER on the grid will be key, along with real-time state estimation for behavior of the grid under near-term changes—for example, a switching operation. Communication standards (such as OpenADR) for different vendors, devices, and resource types will be necessary so that the grid operators do not need to rely on each DER vendor’s proprietary system. Big data management will be paramount for optimizing transactions, telemetry, prices, and controls on the grid.

Capturing Value Streams in the Energy Cloud

Assuming all the technical hurdles can be met, policy and economics will determine the types of business models that will succeed in a DER environment. No two countries in the world or even states in the US have identical regulatory structures. Thus, in order to scale up efficiently, flexible business models that can capture multiple value streams will be required. In some markets, the regulated utility may be allowed to own and finance projects, while in others the utility may be prohibited from such activity. Measuring the value of DER will vary by market as well, so creative financing mechanisms will be necessary. Finally, a new type of transactional platform will be imperative to accurately enact deals between suppliers and consumers—or even from consumer to consumer—in a timely manner.

 

Natural Gas Demand Response – Not Just for Electricity Any More: Part One

— March 31, 2017

Coauthored by Jay Paidipati

Demand response (DR) in the electricity sector has been a common practice for decades for utilities and grid operators. When there are emergency situations or high prices, some residential customers and commercial and industrial (C&I) businesses are willing to reduce their electrical load or turn on distributed generation in return for financial compensation or the knowledge they are helping to maintain the grid. Historically, DR is less prevalent in the natural gas industry, but changing market factors have increased interest in the practice.

Similar to the electric side, some utilities offer large C&I natural gas users interruptible rates (IR). IR is an optional program between customers and the utility company that gives the utility company the right to shut off gas service to facilities in return for a reduced rate. It is a blunt instrument compared to customers shutting down parts of their operations to reduce gas usage. Some customers maintain backup gas storage onsite so they can switch to in case of interruption.

A more fine-tuned type of natural gas DR starts by putting communication devices at a customer’s site, then dispatching the device during critical times. The current implementation uses smart thermostats to control residential furnaces and slightly reduce temperature settings during peak heating times.

Why Natural Gas DR Now?

There is an indirect need for natural gas DR because of how it affects the electricity grid. In the past 5 years, natural gas has become the predominant fuel source for generation in many areas of the United States, often replacing coal and nuclear plants as they retire. However, the gas pipeline system was mainly designed to accommodate gas usage for end uses like cooking, heating, and cooling. The pipeline capacity did not anticipate large volumes flowing to power plants—especially in the winter when heating demand is highest.

The limited pipeline capacity was most evident during the polar vortex in January 2014, when pipelines were full but some gas generators could not get fuel, leading to electricity supply concerns and high energy prices. Since the polar vortex, other natural gas constraints and storage leaks have led to other fuel shortages. Some utilities and grid operators have instituted winter electric DR programs to address this concern, but curtailing natural gas usage is another.

The investigation into natural gas DR continues. Part 2 of this blog series will explore barriers to natural gas DR and which companies have successfully implemented it. Part 3 will explore what new concepts could develop in the future.

 

No Days Off for the Patriots and EnerNOC

— March 14, 2017

Just like Bill Belichick famously stated after winning Super Bowl LI last month, EnerNOC appears to be taking “no days off” lately. There has been a series of project wins and partnerships announced in various parts of its business since the beginning of the year. However, the biggest bombshell came during its 2016 annual results earnings call on March 14. CEO Tim Healy revealed that the company has hired advisors and is already in the process of exploring new potential corporate structures such as divestiture of business lines or a full sale of the company.

Let’s start with the most recent positive project news that the company signed a 2-year contract with Taiwan Power Company to provide 200 MW of demand response (DR) as the exclusive provider. Taiwan has experienced very low electricity capacity reserve margins lately, and since it is a densely populated island with an abundance of mountains and rainforest, there is not a lot of land to build new power plants. EnerNOC entered into a joint venture with a local Taiwanese energy services company, Cheng Long Intelligent Engineering, to get quick access to a number of large commercial and industrial customers that are good candidates for DR. When I spoke with EnerNOC President David Brewster, he said that the program compares to other markets in North America and Asia in terms of capacity-based DR, baseline rules, dispatch requirements, and payment rates.

Bigger Picture

Looking at the bigger picture, the company has come to the realization that its corporate structure may not be optimally arranged to maximize shareholder value. On the earnings call, CEO Healy mentioned multiple times that EnerNOC’s business is complex, hard for investors to understand, and prone to market forces outside of its control. The software business had already been restructured last year, but it now appears that a more holistic review is in play.

I would not necessarily say that this news comes as a surprise. I wrote multiple blogs last year about Oracle’s acquisition of Opower and EnerNOC’s restructuring of its software business in which I pondered the ideal business model for DR companies in general, and EnerNOC specifically. Now the truth is out in the open. The possible options include selling off part of the business and remaining a smaller independent entity, being bought out and going private, or being bought by a larger corporation. CEO Healy made it clear on the earnings call that the wheels are already in motion and he expects a quick resolution soon.

Whatever the outcome, I hope the resulting organization is able to maintain its leading position in the DR industry and continue to push for the global expansion of this important grid resource.

 

Energy Efficiency Becoming a Resource Force

— March 9, 2017

Energy efficiency used to be a fun little side show in the energy industry, a feel good story about shutting off lights and wearing more sweaters. This is no longer the case, as the size of utility and government-run energy efficiency programs have grown and program energy savings rival the production of large power plants. Electricity usage growth historically mirrored GDP trends, but these are no longer connected because usage has stagnated in many parts of the world while GDP expands.

A couple of recent industry events and reports highlight the magnitude of energy efficiency’s value. In early February, the Independent System Operator of New England (ISO-NE) held its Forward Capacity Auction for the 2020-2021 power year. 640 MW of new energy efficiency and demand response cleared in the auction, an amount ISO-NE describes in its news release as “the equivalent of a large power plant.” In total, about 3,000 MW of existing and new energy efficiency cleared, approximately 9% of the total capacity market.

Additionally, a new report issued February 16 by the Appliance Standards Awareness Project and the American Council for an Energy-Efficient Economy (ACEEE) claimed that the average American household saved nearly $500 on utility bills in 2015 due to state and federal energy efficiency standards for appliances, lighting, and plumbing products. Average household savings by state ranged from 11% to 27% of total consumer utility bills, with a national average of 16%. Total business utility bill savings from standards reached nearly $23 billion in 2015. Business savings equaled 8% of total spending on electricity and natural gas.

A Navigant Research report, Market Data: Global Energy Efficiency Spending, highlights these trends and others on a global basis. Such funding is expected to grow from $25.6 billion in 2017 to $56.1 billion in 2026. Europe and North America have fostered these types of programs for decades, while other regions and countries, particularly China, are expected to significantly increase energy efficiency investments in the future due to economic, technical, and environmental drivers.

As energy efficiency spending and savings expand, utilities and solutions providers will have to adjust their business models to find new ways to profit and create value for consumers or they will risk being left in the cold.

 

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