Navigant Research Blog

Postcard from Hawaii to Nation’s Capital

— June 29, 2017

The mood at the second annual VERGE conference in Honolulu, Hawaii last week was upbeat about the future of clean energy, despite pushback on the US mainland. Apparently, those committed to a clean energy agenda, including the private sector, are more motivated than ever to push forward with aggressive programs to bring renewables resources online. They aim to not only combat climate change, but also create jobs.

Conference attendees clearly supported the supposition that clean energy is here to stay, no matter what might be unfolding in Washington, DC. The proposed dismantling of the federal Environmental Protection Agency’s Clean Power Plan and recent withdrawal of the United States from the Paris Agreement on climate change only seemed to serve as motivation to push forward even harder.

Hawaii’s Renewable Energy Vision

Hawaii is the first (and so far) only state in the United States to commit to a 100% renewable energy future. Governor David Ige of Hawaii didn’t seem to blink in the face of counter currents flowing from the Trump administration. A confessed energy geek, he seemed to take particular delight in the fact that Hawaii has emerged as a key testing ground for bolstering commitments to infrastructure needed to integrate variable renewables for both power and transportation services. Since each island of Hawaii is its own separate electric grid control area and retail costs are high due to such a reliance upon imported sources of fossil fuel, Hawaii is in a unique spot. The economics in the state clearly favor renewable energy.

Industry Momentum Is for Renewables

Even Connie Lau, CEO of Hawaiian Electric Industries, reported that her investor-owned utilities brethren have all bought into the clean energy agenda. If the administrative about-face on clean energy had occurred 8 years ago, then the momentum for renewables and other clean energy may have been halted, but that time has passed. Past government and industry investments have driven down the price of solar PV, wind, and batteries while software innovation to manage such resources has scaled up.

Nevertheless, there are challenges in implementing aggressive clean energy goals. Just look at California, where the state is paying neighboring states to take excess solar production. Many models show that once one reaches 80%-90% renewables penetration, the cost of integration can jump dramatically.

One of the key tools Hawaii will rely upon to reach its 100% renewable energy goal is to integrate devices like energy storage into self-balancing distribution networks such as microgrids. As of now, over 90 MW of new energy storage devices has been authorized by state regulators to be installed among the Hawaiian islands, with the majority of that capacity—70 MW—to be installed in Oahu.

Continuing Conversation

I had the pleasure of helping to run a 4-hour workshop on how to overcome challenges to developing a microgrid at VERGE with cutting edge microgrid market makers such as ENGIE and Spirae. I also moderated a session on how microgrids boost clean energy on islands, with featured speakers from ABB—which is pushing forward with a 134 MW microgrid designed to reach 50% renewable energy on the island of Aruba by 2020—and representatives from Hawaii and the US Navy.

Ironically, there may still be some room for collaboration between Hawaii and Washington, DC in the clean energy space. As I noted in a previous in a previous blog, one area where the interests in promoting national security in DC and a clean energy agenda in Hawaii align is the microgrid space. Watch for a report on that topic later this year.

 

Taking VPPs to the Next Level

— June 20, 2017

The primary goal of a virtual power plant (VPP) is to achieve the greatest possible profit for asset owners—such as a resident with rooftop solar PV coupled with batteries—while maintaining the proper balance of the electricity grid at the lowest possible economic and environmental cost.

The purpose is clear, but getting to this nirvana is not easy. Nevertheless, there are clear signs that the VPP market is maturing. New partnerships are pointing the way for control software platforms that can manage distributed energy resources (DER) in creative ways.

Creating a DERMS for Utilities

Case in point: the recent collaboration between Enbala Power Networks and ABB to create a DER management system (DERMS) platform for utilities. Underpinning this foray into smarter DER controls is the following statistic: more distributed generation (DG) will be coming online in 2017 than traditional centralized generation (coal, natural gas, and nuclear power plants). By 2026, 3 times as much DG will be coming online and sending power into the grid than these traditional centralized power plants. That gap will only widen more over time.

Annual Installed Centralized vs. Distributed Power Capacity, World Markets: 2017-2026

(Source: Navigant Research)

The entire ecosystem of DER, including DG, will need to be managed in new ways if value is to be shared between diverse asset owners and the incumbent utility grid. Utilities are slowly coming to see this as an opportunity rather than a threat. Consider these survey results from January of this year, with over 100 utilities responding. 18% of respondents indicated that they already had a DERMS in place, while 77% said they planned to implement their own DERMS program within the next 36 months. These responses show a majority of utilities today anticipate needing to implement DER control solutions in the near future.

There are many innovators in the VPP space, including Enbala. Along with its new partnership with Swiss industrial grid powerhouse ABB, the company’s recent expansion of its controls and optimization architecture leveraging recent advances in machine learning are helping to push the VPP platform into the mainstream. In the process, Enbala is providing metrics that suggest a promising ROI for VPPs.

Cost of Traditional Power Plants versus VPPs

Here’s a quick comparison. According to the US Energy Information Administration, the cost of building a new coal power plant is approximately $3 million/MW. This capital outlay does not consider the risk of future environmental regulation that may occur over the 20- to 30-year life of the project. While the cost of a new natural gas-fired power plant is much less—approximately $900/MW—that cost still represents a potential future liability. In comparison, the cost per megawatt for a VPP that takes advantage of the diverse set of existing DER assets is approximately $80/MW. Furthermore, the investment in the software and supporting IT infrastructure that creates the VPP does not carry either environmental liability or the risk of stranded investment. The VPP value can only increase over time as new markets emerge for grid services.

In the final analysis, VPPs optimized by smart software controls and new innovative business models such as transactive energy are key to realizing a vision of the future that Navigant has deemed as the Energy Cloud. To learn more, check out the new white paper developed by Navigant Research for Enbala and look for details about the forthcoming webinar on August 15.

 

C&I Customers Are the New Rage in Today’s Evolving Microgrid Landscape

— May 8, 2017

The world of microgrids offers a spectrum of vendor opportunity. Each market niche has its own set of opportunities and barriers and vendor leaders and laggards, as well as preferred business models.

While governments and policy wonks tend to focus on the surge of interest in both the utility and community resilience microgrid sectors, the commercial and industrial (C&I) microgrid segment is now coming to life.

Just how big is the total C&I microgrid market? As discussed in the recently published C&I Microgrids report, Navigant Research expects the global capacity of these microgrids to reach 448.3 MW in 2017. This figure is expected to grow dramatically to 5,389.1 MW annually by 2026 at a compound annual growth rate of 31.8%.

Slow in Uptake, Quick to Catch Up

Thinking in terms of the typical evolution of a market, it makes inherent sense for the C&I sector to be slower in its uptake of microgrids than other microgrid market segments. With a razor sharp focus on the bottom line and an aversion to risk, the private sector initially lags behind other market segments that are privy to explicit government support. Yet, when the stars align on proven technologies and viable financing business models, businesses move swiftly.

Here are three reasons Navigant Research forecasts that C&I is emerging as the fastest growing of all microgrid markets over the next decade:

  • Steep drops in the cost of distributed solar PV and energy storage. While this trend benefits all microgrid developments, it is particularly pertinent to the C&I segment. C&I customers place a premium on reliability but also do not want to pay a premium for energy services. The lower the cost of key microgrid enabling technologies, the more attractive the microgrid value proposition becomes.
  • Major advances in software controls translate into the ability of microgrids to maximize the value of legacy assets (such as backup diesel generators) and new technologies (like solar and batteries). One of the primary sticking points in the past was confidence in the ability of smart inverters and software overlays to manage diverse distributed energy resources to substitute for the tried and true pure fossil fuel solutions of the past. Multiple commercial projects validate that this is now possible.
  • Business model innovation that addresses the fierce internal competition for fiscal resources within a corporate structure. Vendors offering no money down power purchase agreements, sometimes coupled with software as a service controls platforms, limit upfront capital expense. A microgrid looks a lot better from a corporate balance sheet perspective, as it is viewed as an ongoing operations and maintenance (O&M) expense.

Evolving Opportunity

As Navigant Research noted in its Market Data: Microgrid O&M Revenue Opportunities report, the microgrid O&M revenue opportunity is much larger than originally thought. As the fleet of all global microgrids grows, vendors are waking up to the opportunity. Likewise, both vendors and potential microgrids hosted in the C&I space are beginning to recognize the inefficiency of old school backup diesels, uninterruptible power supply systems, and redundant utility feeds. This is especially so for data centers, which have long focused on uptime linked to mission-critical loads, but abhor new technologies and anything that might be perceived as a risk.

Perhaps the best way to understand how C&I microgrids will lead future growth are these statistics: in 2017, C&I microgrids—both grid-tied and remote—are expected to capture just under 20% of the total implementation spend. By 2026, that market spending share is anticipated to surge beyond 35%.

 

Microgrids or VPPs or Both?

— April 25, 2017

What’s the difference between a microgrid and a virtual power plant (VPP)?

I like to say that there’s a 75% overlap between microgrids and VPPs. What they have in common is the aggregation and optimization of distributed energy resources (DER). Where they differ is that a microgrid has a confined network boundary and can disconnect from the larger grid to create a power island. In contrast, VPPs can stretch over much wider geography and can grow or shrink depending upon real-time market conditions.

The DER portfolio in a VPP is as equally diverse as a microgrid. Yet, the primary value proposition for a VPP is that the services from these DER assets flow upstream to a utility or transmission grid operator; services are not sealed off into an island from the larger grid.

Once I go through this standard definitional description, the most common follow-up question is: Which of these two distribution networks represents the best opportunity for vendors over the next decade? While pundits like to pick winners and losers, I see future growth globally for both microgrids and VPPs.

Four Examples of Energy Cloud Innovators

Four companies active in what Navigant Research has dubbed the Energy Cloud—which encompasses both microgrids and VPPs—will share the stage at an upcoming panel at the fourth annual Microgrid Innovation Forum taking place in Washington, DC on May 16.

Navigant Research uses the term Energy Cloud to describe transcendent changes sweeping over the electric utility industry. Rather than bigger is better, which drove utility planning for over a century, the shift is toward smaller and smarter DER portfolios. While increasing complexity in energy management, the evolution of a collective Energy Cloud also promises a more dynamic energy market in which buyers and sellers engage in transactive energy.

Each of these four companies has a slightly different take on the Energy Cloud:

  • Sunverge: This San Francisco-based solar PV and energy storage innovator is focused on VPPs that aggregate the DER installed at residences to provide value to utilities. Its recent initiative to sell its software independent from its hardware components speaks to the value of its software.
  • Enchanted Rock: This Texas company offers a fresh take on microgrids. Focused on ultraclean natural gas generation, the costs of its microgrids are so low that cost-conscious commercial and industrial customers are jumping on board. The key part of its value proposition, however, is wholesale market participation revenue.
  • Enbala Power Networks: Ranked No. 1 by Navigant Research in last year’s Navigant Research Leaderboard Report: Virtual Power Plant Software Vendors, this Canadian company is hardly standing still. It has integrated machine learning principles into its new product architecture while also partnering with to develop a DER management system solution for utilities.
  • Blue Pillar: With its focus on Internet of Things (IoT) data management, this Washington, DC-based company’s claim to fame is the ability to bring networks of DER online quickly. Its approach is cost-effective due to the ability to squeeze more value out of existing asset base.

I think the VPP epitomizes the value of Energy Cloud trends since it addresses the so-called utility death spiral head on. If a residential home with solar PV and a battery are part of a VPP aggregation, the home can have it both ways. It can reduce its own energy costs while also contributing to the reliability of the larger utility grid.

The Energy Cloud is all about creating new relationships between and the grid. Which of these four companies do you think will have the greatest future impact?

 

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