Navigant Research Blog

Innovators Wanted for DER Solutions: Part 3

— November 7, 2017

Coauthored by Brett Feldman

Earlier this year, Navigant Research wrote about innovations required to overcome challenges to widespread distributed energy resources (DER) adoption and integration. Next, we offered examples of some companies and products looking to address those gaps from different perspectives, with varying levels of success so far. Here, we follow up with a few more examples related to business models, customer relationships, market structures, and organizational paradigms.

Models

Edison Energy is an unregulated business unit of Edison International, the parent company of regulated utility Southern California Edison. It is branded as an advisory and services company that can design energy solutions—on both the supply and demand side—for large energy users. It is one of the major early competitors demonstrating the emerging energy as a service business model, having made rapid strides into the market by acquiring four startups—collectively, a $100 million investment (SoCore Energy, ENERActive Solutions, Delta Energy Services, and Altenex).

However, Edison Energy has also struggled to find its footing, despite the aggressive approach to acquiring new capabilities. It is now undergoing a major shake-up at the executive level, including the departure of its president in July 2017 after a strategic review by its parent company.

Relationships

The customer relationship with utilities, energy usage, and technology providers is changing. Utilities are now expected to offer a wider array of customer-facing services, offer a digital experience, and accommodate customer self-generation like solar PV. In many cases, utilities and technology providers are increasingly competing for the same customers (e.g., as a demand response program provider).

At the same time, other vendors are finding new products and services to sell to utilities to help them meet changing customer needs. Schneider Electric is one such vendor tapping into this transformation. In this case, Schneider Electric is marketing its WiserAir smart thermostat to utilities as a way to engage customers with an energy management platform before a competitor does.

Markets

Transactive energy is a hot topic in the energy industry and a concept that has great potential for DER markets. Transactive energy would allow customers with DER to trade power and grid services with each other and their utilities, leveraging blockchain technology for encrypted trading between parties. Policymakers and technology vendors have been the loudest proponents of transactive energy so far, but utilities are cautious about the value/benefits of such a market.

Utilities are also mindful of the influence of market forces on the reliability of their distribution systems and the large amount of software and grid technology that would be required to manage such a market. These are some of the primary reasons that a true transactive marketplace is still a relatively distant goal, even in California, which has been investigating DER for more than 10 years and is making progress on locational pricing for grid resources.

Organization

Many of the industry changes associated with DER have major repercussions for regulatory and utility organizational structures. These repercussions are most apparent in New York, under the Reforming the Energy Vision (REV) initiative. In 2016, the New York Public Service Commission approved structural reforms to electric utility regulations related to the alignment of utility shareholder financial interests and customer interests. Under the order, utilities have four ways of achieving earnings: (1) traditional cost-of-service earnings; (2) earnings tied to achievement of alternatives that reduce utility capital spending and provide definitive consumer benefit; (3) earnings from market-facing platform activities; and (4) transitional outcome-based performance measures. Changes to earnings, ratemaking approaches, and technology deployment will have a major influence on the affected utilities and how they are regulated.

 

Innovators Wanted for DER Solutions: Part 2

— September 21, 2017

Coauthored by Brett Feldman

Earlier this year, Navigant Research blogged about innovations required to overcome challenges to widespread distributed energy resources (DER) adoption and integration. This blog highlights examples of companies and products looking to address those gaps from different perspectives, with varying levels of success so far.

Hardware

 Tesla’s recent innovation in solar PV is the Solar Roof system, a glass solar tile product for homes that has a warranty of the lifetime of the house. The Solar Roof can also integrate with the Tesla Powerwall home battery. The out-of-pocket cost for a typical home in Maryland is estimated at $52,000 (pre-tax credit), but Tesla estimates that the system could earn a modest return of $8,000 over 30 years after, accounting for the tax credit and the value of the energy generated. Customers can choose to finance their Solar Roof through their home mortgage. The Solar Roof is a hardware solution that has the potential to increase the life of residential solar PV installations, improve the value of a home, and be more attractive to customers. However, the Solar Roof rollout appears to be moving slowly, with customer installations about to start and then ramp up through 2017. And as with many hardware innovations, price can be a barrier. Various analysts, including those at GTM, calculated a cost of $6.30/W, which is approximately double traditional solar PV prices today. Additionally, there may be complications for building-integrated PV receiving the federal Investment Tax Credit.

Software

In 2016, Tendril launched a new cloud software product called Orchestrated Energy, a residential continuous demand management solution for utilities that calculates a home’s heating and cooling needs, predicts customer behavior, and integrates connected devices to optimize system operation under a unique dispatch schedule. In pilot programs, the software solution reduced HVAC peak load by up to 50% and energy consumption from cooling by up to 20%. The solution is scalable and device-agnostic, and customers can interact with it via Tendril’s MyHome mobile app. The Orchestrated Energy software solution innovates by providing a seamless, optimized customer home energy management experience. Interestingly, there remains some doubt in the industry as to whether utilities are ready for this advanced software.

Platforms

Current, powered by GE is a startup within GE that offers advanced energy technologies—primarily combining LEDs and solar with networked sensors and software—for commercial and industrial facilities. It offers a single-source platform for energy management across multiple client sites, leveraging GE’s Predix, the cloud platform for all of the company’s Industrial Internet applications. Notably, Current has 125 plus partners providing apps for a variety of enterprise and municipal services (e.g., workspace/productivity management, asset management, and urban mobility/traffic planning) as add-ons to its Intelligent LEDs and the Predix Platform. In August 2017, Current announced a deal to install solar on 50 Home Depots in the United States in partnership with Tesla. Current has also partnered with AT&T to sell Internet-connected sensors to cities as a smart city infrastructure solution. San Diego was the first major city to sign on. The ability to leverage GE’s hardware and software is a strong starting point for the business, but the company has struggled to clearly define a strategy. In December 2016, GTM reported that Current is undergoing restructuring.

In the next installment, we will lay out other solutions related to business models, strategic relationships, market structures, and regulatory models.

 

One Water: A Path Toward Unified Water Management

— April 8, 2016

Oil refinery plant along riverDespite generally successful emergency water conservation measures and recent rains, the California drought has continued into 2016, highlighting issues around the state’s long-term ability to handle increased drought and flood conditions. This is an important topic considering the trend toward more frequent droughts and other effects of climate change. Unfortunately, the underlying organizational structure behind water resource management throughout the state has not changed significantly. According to the 2016 update of the California Water Action Plan, “There is broad agreement that the state’s water management system is currently unable to satisfactorily meet both ecological and human needs, too exposed to wet and dry climate cycles and natural disasters, and inadequate to handle the additional pressures of future population growth and climate change.”

Fundamentally changing the water resource management system is a significant challenge. One of the reasons for this is that water-related services are too often kept in silos established by regional and municipal jurisdictions. Because of the variety of roles and responsibilities as well as the large number of local agencies, it is not a simple environment in which to effect change.

Breaking Silos

For example, in the City of Los Angeles, the Bureau of Sanitation (LASAN) handles wastewater while the Department of Water and Power (LADWP) provides potable water and water conservation programs. Furthermore, the Los Angeles County Department of Public Works has jurisdiction over watershed management and stormwater management/flood control. Collaboration is especially difficult among different levels of regional entities such as this. In practice, this model inhibits true, sustainable water resource management.

To their credit, water organizations in California are aware of the importance of working together despite logistical challenges. In Los Angeles, great strides have been made by preparing the One Water LA Plan, which calls for close coordination between city departments and regional agencies to build resilient local water for a sustainable long-term supply. The effort is managed by LASAN and LADWP together, and has a long way to go—when the plan is completed in 2017, it will still have to be implemented. The California Water Action Plan also identifies several initiatives supporting more integrated water management, such as expanding funding for integrated water management planning, supporting local ordinance changes to enhance local water supply and conservation, and more.

The Right Direction

All of this work is certainly a step in the right direction and helps further the conversation about sustainable water management. However, sufficient collaboration to gain a complete perspective of and control over the entire regional water resource requires a huge organizational and intellectual investment. One solution is to modify the underlying structure itself instead.

Communities should move toward a single, holistic water function—One Water—to manage all aspects of potable water, wastewater, stormwater, and flood protection. But how? The concept of fully integrating water and wastewater utilities is not new, but the actual transformation of distinct local organizations into a single unit will take a significant amount of organizational change. The first step is to create a One Water strategic framework, then align and merge city departments so that they can implement and manage the strategy. In addition to managing water sustainably, the One Water approach should also reduce costs and improve service. In many municipalities, this can be accomplished by an ordinance or revision to the city charter.

Some U.S. cities already have aspects of One Water, such as combined sewer and stormwater treatment in San Francisco, and others are moving in this direction; for example, merging water and wastewater (and streets) into one public works department in Geneva, Ohio. California municipalities, under the pressure of drought, should strive to adopt a One Water approach.

 

Solar PV for Healthcare

— October 12, 2015

Navigant Consulting and the U.S. Department of Energy’s (DOE) Better Buildings Alliance recently released an On-Site Commercial Solar PV Decision Guide for the Healthcare Sector to address barriers and solutions to solar PV for healthcare facilities.

Why Healthcare?

More and more, healthcare facilities are looking for ways to reduce energy costs. According to the DOE, hospitals and healthcare facilities consumed more than 8% of the total energy used in U.S. commercial buildings in 2012 and spend more than $8 billion on energy annually. Following the food service industry, healthcare is the second most energy-intensive sector, with energy costs rising an alarming 56% between 2003 and 2008, according to the Healthier Hospitals Initiative. Many hospitals are focusing on energy efficiency, and Navigant Research forecasts the market for healthcare energy management systems will more than double by 2024. Solar PV is a key solution to reduce energy costs.

Some of the benefits of solar PV include:

  • It reduces electricity consumption and helps decrease peak demand, meaning lower operating costs and more resources for patient care.
  • It protects against rising energy costs and price volatility.
  • It generates electricity without any direct emissions.

Barriers to solar PV include:

  • Hospital roofs are crowded with other equipment and there is limited space for a solar array.
  • Staff have limited availability, and many hospitals do not have a dedicated energy manager.
  • Large healthcare systems are often made up of small, autonomous organizations, which complicates ownership models.
  • Nonprofit healthcare organizations and real estate investment trusts cannot take direct advantage of tax benefits.
  • Management sees solar PV as a large investment that may not be financially viable, especially compared to medical equipment.

Solutions and Strategies

Installation type: If the roof is dominated by medical equipment, design a carport or ground-mounted array. A carport array may be more expensive, but it also provides benefits like shading cars from the sun. Ground-mounted arrays put underutilized land to use and usually accommodate larger systems.

Commercial Carport-Mounted PV Array

Jay Blog Picture

(Source: National Renewable Energy Laboratory)

Location: Healthcare facilities other than hospitals often make better hosts and should be considered when siting a PV system. Medical office buildings, laboratories, material management centers, outpatient facilities, and other care centers typically have less rooftop equipment than a hospital.

Financing: Third-party ownership structures often involve a power purchase agreement (PPA), under which the healthcare facility purchases electricity at an agreed upon price. For non-profit organizations that cannot take advantage of tax benefits, a PPA is likely the best financing strategy because the third party will be able to access tax incentives and reflect this in a lower price.

Planning: The PV project should be approved by the Chief Financial Officer and the Facilities Manager/Director of Engineering. It will eventually go to the Board of Directors for approval, and would benefit from having an internal champion—like a Sustainability Manager—see it through the process. Healthcare organizations can also integrate sustainability efforts into the organizational structure.

Organizational Structure

Jay Blog Figure

 (Source: Navigant Consulting)

 

 

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