Navigant Research Blog

Kauai and the Quest for More Renewable Energy

— March 13, 2017

Remote islands and microgrids have been a hotbed for renewable energy resources throughout the past several years. Historically, remote systems have relied on small diesel generators to support electricity needs, but volatile fuel prices can be high in comparison to renewable alternatives. According to a recent International Finance Committee (IFC) and Navigant Research co-sponsored white paper, more than 80% of growth in renewables and energy storage for both energy production and consumption will come from new and emerging markets by 2035. Remote islands will play a huge role in this development based on evolving grid and end-user needs, physical infrastructure, and decreasing technology costs.

Ambitious Goals

Specifically, on Kauai in Hawaii, the Kauai Island Utility Cooperative (KIUC) laid out an ambitious renewable energy goal in 2008. The strategic plan previously aimed to reach 50% renewable energy by 2023, but the cooperative now expects to hit that goal in 2018, 5 years earlier than expected. The new target is to reach 70% renewables by 2023. To put this goal in context, Kauai had just 5% renewables penetration in 2009. In 2015, the island reached 37.4% renewable generation.

One of the most notable projects in Kauai’s pipeline is a 28 MW solar array paired with a 20 MW/100 MWh lithium ion (Li-ion) battery system; this will bring the island’s renewables penetration up to 58% when it comes online in late 2018. AES Distributed Energy, Inc. and the KIUC also established a power purchase agreement of $0.11/kWh, below the cost of fossil fuel power currently used to provide baseload generation to the island. Several other renewable projects dispersed around the island are up and running, pushing the plan forward. The KIUC wants the island to reach 100% renewables by 2045.

Most of the Hawaiian islands experience peak solar generation during the day, and consequently have diesel generators ramp up during peak demand at night. Several new projects are being paired with storage to help eliminate the use of these generators. Diesel plants on islands typically operate at high variable load, resulting in high variations of demand, which often is incongruent with the large size of diesel plants. Islands generally have more fluctuating power demand than mainland areas; over a year, generation can fluctuate significantly due to seasonal variation in tourism, for example. The AES project alone is expected to reduce the KIUC’s fossil fuel usage by over 3.7 million gallons annually.

Cutting Edge

Kauai and the KIUC are committed to ensuring that customers are on the cutting edge of the energy industry. By deploying emerging technologies like solar, energy storage, and smart metering systems, the cooperative is giving its members more transparency in how they can track their own energy use and set personal goals for efficiency. Making these investments and meeting these short-term goals pushes the KIUC’s vision forward to being a leader in shaping a thriving state for future generations.

Other small island nations and areas can learn from the KIUC’s goals. By engaging customers, testing grid stability, and aggressively looking for new projects, smaller markets can drastically change their energy outlook in a short period of time. Additionally, smaller markets can change rapidly in terms of renewables or storage penetration with just one or two large projects. Every market faces its own unique challenges, so it will be important for the government and private and public sectors to engage in efforts to push for ecologically and economically sustainable futures.

 

China Exploring New Avenues for Energy Storage in 2017

— February 8, 2017

BatteriesLooking back on 2016, the energy storage industry in China has had its positives and its negatives. Navigant Research believes that energy storage increasingly is valued based on the services that a system provides. Overall, China is an attractive market for energy storage, particularly lithium ion (Li-ion) batteries. Market activity in 2016 included increased sales of EVs throughout the country, electricity market reforms to spur grid-tied storage resources, and a multimillion-dollar increase in investment of national battery companies. The country is embracing a cleaner, more connected future going into 2017.

Electric Vehicles

Long projected to be the largest global EV producer and market (despite reports of inflated plug-in EV sales figures being used to garner government subsidies), policies that promote the development of alternative fuel vehicles drive EV sales in China. The central government began giving out subsidies for EVs in 2013, and the value of subsidies has decreased annually since then. The 2016-2020 Notice on the Financial Support Policy for the Promotion of New Energy Vehicles from the country’s Ministry of Finance announced that, compared to the 2016 level of subsidy, the 2017-2018 level and the 2019-2020 level will be reduced by 20% and 40%, respectively. In addition to the subsidy, the central government has also waived the vehicle sales tax. Additional subsidies in China can be found predominantly at city governments. For example, Beijing and Shenzhen allow a 1:1 matching subsidy for consumers, effectively doubling the national EV purchase subsidy.

On the grid-tied storage front, Navigant Research anticipates that China will be the single largest country market for energy storage, reaching 5.5 GW of new capacity by 2025 across the utility-scale market alone. Though the country’s electricity market has long been government-run, recent market reforms have allowed non-state wholesale power producers to enter the market, opening up opportunities for independent power producers (IPPs) to provide ancillary services by way of energy storage resources. Compounded with the big push for new variable generation resources within China, storage greatly improves the business case for renewables by eliminating the need for new transmission and distribution resources.

Battery Manufacturers

Large battery manufacturers headquartered in China (such as BYD, CATL, Lishen, and Wanxiang A123) have deployed several systems in various EVs and stationary storage installations; these companies introduced several rounds of investment plans to further develop their respective technologies. In April 2016, China’s Ministry of Industry and Information Technology announced that any EVs applying for the Chinese government subsidy had to utilize a battery manufactured by a Chinese-owned company listed on the ministry’s so-called White List, effectively eliminating competition from other large global manufacturers like Panasonic and LG Chem. Chinese battery companies are also targeting other applications in foreign markets. For example, Neovoltaic, GCL Integrated Storage, and Pylontech have launched residential solar plus storage solutions ranging from 2.5 kWh to 8 kWh for residential customers in Australian, German, and American markets. Several other Chinese Li-ion battery providers are looking to establish partnerships with other systems integrators to further expand into other attractive storage markets.

The battery energy storage industry in China goes where the government steers it. Though the effect of policy and demand-side incentives varies by territory, the country seems to have a clear plan on what role storage will play in its clean energy future. As the industry matures, customer needs and grid needs will evolve and allow for EVs and energy storage systems to penetrate new markets. It remains to be seen whether China’s aggressive clean energy adoption strategy will be successful in the long term.

 

Recognizing the True Value of Storage and Facing Cybersecurity Threats

— October 28, 2016

AnalyticsEnergy storage has historically been too expensive to integrate with distributed energy resources (DER), but prices have fallen significantly across several portions of the value chain in the past few years. To continue to improve the economics of the technology, it’s important for new and existing energy storage systems (ESSs) to provide multiple services to customers. This will open up a larger market for aggregated systems that can help realize the true value of storage. Software platforms that can analyze, operate, and optimize battery energy storage-enabled virtual power plants (VPPs) will be critical to capitalize on value stacking.

Aggregated Energy Storage Systems

Powershift

(Source: PowerShift Atlantic)

For instance, energy storage service provider Greensmith Energy was chosen to provide its software and integration services for several recent projects. In September, investor-owned utility American Electric Power (AEP) chose Greensmith’s GEMS platform to manage its 2 MW/14M MWh ESS in West Virginia. AEP plans to leverage the software’s functionality to expand the use of the system into a revenue-generating asset rather than solely a backup system for its distribution network. Several other companies like Sunverge, Demand Energy, and Green Charge Networks have also recently partnered with utilities where smart software will be used for flexible ESSs.

Energy storage software is increasingly becoming a vital part of determining the bankability of a project. Software modules optimized for different grid-level or customer-level applications create value for both utility-scale and behind-the-meter (BTM) users. Particularly for residential and/or commercial customers, the software module can create viable revenue streams by:

  • Optimizing self-consumption in real-time across multiple variables (e.g., demand charges, utility tariff data, etc.)
  • Participating in utility-sponsored demand response and resource adequacy programs
  • Providing long-duration backup power and islanding capabilities

A noteworthy development in the residential ESS software market is a recent partnership announced by energy Internet provider AutoGrid and distributed ESS manufacturer sonnen. The two companies partnered to fully integrate AutoGrid’s flexibility management suite with sonnen’s residential and commercial battery solutions. AutoGrid and sonnen will help energy project developers, utilities, and other energy service providers better manage, optimize, and aggregate sonnen ESS systems and other DER. Both companies believe that the partnership will help maximize project return on investment (ROI), reduce project delivery times, and unlock new revenue streams for several value chain players.

Need for Cybersecurity

With the increased automation of energy storage and DER in general, it will be important to consider the cybersecurity threats that could occur. These attacks can disrupt general system functionality or cause targeted damage to intellectual property, critical infrastructure, and physical assets. Incidents of cybercrime and associated costs can be substantial; companies must prepare for the worst-case scenario. This is not only important to protect against threats, but also to aid in how businesses continue to operate during an attack, as well as how they adapt and recover after. So what does this mean for DER businesses and stakeholders?

  • Utilities have the ability to drive the storage market forward, enabling ESSs to achieve profitability under several business cases like VPPs.
  • DER software companies should focus on developing controls that can optimize multiple use cases to maximize the value of projects.
  • ESS and other DER software developers must ensure they are adequately protected from cyber threats, including developing strong compliance programs, having advanced functionality to mitigate against vulnerabilities, and ensuring systems are in place to immediately alert stakeholders of breaches.
 

Is Consolidation Good for the Energy Storage Industry?

— August 5, 2016

Batteries 2New deployments of energy storage in 2015 broke records with more than 1,653.5 MW of new storage capacity announced. 2016 appears to be shaping up to be another big year. The past several months have seen several multi-billion dollar acquisitions of energy storage providers by large energy companies. Three of these mergers that made headlines were Total Energy’s acquisition of industrial battery manufacturer Saft, Engie’s purchase of Green Charge Networks, and Doosan’s agreement with software provider 1Energy Systems. Under synergistic circumstances, mergers can certainly jumpstart long-term growth for an enterprise, but the failure rate of mergers and acquisitions is between 70%-90%. This begs the question: will increased consolidation of the energy storage industry help or hinder the widespread adoption of new energy technologies?

To help illuminate the issue, it is important to understand why these energy giants are interested in energy storage. Daniel Halyk, CEO of Total Energy, stated that the ultimate goal of the company is to “accelerate its development in the fields of renewable energy and electricity, initiated in 2011 with the acquisition of (solar panel manufacturer) SunPower.” Total Energy is undergoing internal structural changes, and renewables are a key focus of its vision going forward. With the addition of a new fourth business, the company plans to capture several portions of the electricity value chain by expanding into downstream gas, renewables, and energy efficiency. Total Energy believes Saft is an ideal partner due to the company’s product portfolio, positioning in niche markets, international presence, and strong technical knowledge.

There exist several reasons why enterprises would choose to acquire companies: to increase profits of existing business segments (or decrease costs along the value chain), to fundamentally shift the core competencies of the company to another business segment, or some combination of the two. Creating shareholder value is important to secure longevity in any market; investor expectations help incent company innovation. Key motivations behind these acquisitions appear to be project financing and accessibility to behind-the-meter customers. Having more financial resources bolsters a storage company’s influence when bidding for larger grid storage contracts.

The Industry Looking Forward

Recent innovation in the storage industry has occurred with storage enabling technologies like software and controls and technical services components of the value chain, as several companies have emerged with primary expertise in technologies other than physical hardware. Investors recognize the value that these companies add to the profitability of a project and are making funds available to these integrators (e.g., GE Ventures’ $50 million investment in Sonnen and Macquarie’s $200 million investment in Advanced Microgrid Solutions). There could be other major mergers on the horizon in 2016, one of the largest being Tesla’s interest in purchasing Solar City. As the proposal builds upon a partnership that currently exists, some investors fear that anything beyond a partnership could lead to the demise of both companies. Tesla CEO Elon Musk states that if Tesla and Solar City truly want to scale up, the deal must happen.

While specific dynamics and patterns in energy storage markets vary considerably worldwide, energy storage systems can be invaluable assets that can provide flexible solutions for power providers and customers. Energy storage is increasingly becoming a cost-effective tool for grid operators to maximize the efficiency of existing power resources and infrastructure while helping to minimize costs passed on to ratepayers. All things considered, this is an exciting time for the energy storage industry, and we can expect many more changes to occur throughout the course of the next few years.

 

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