Navigant Research Blog

Net Metering Fight Comes to New Mexico

— January 8, 2015

The fight over solar interconnection and net metering – a topic I’ve covered previously in several blogs (here, here and here) – has come to my home state.  In a rate case filed in December, Public Service of New Mexico (PNM) asked that customers with their own solar generation capacity solar customers be charged $6 per kilowatt (kW) of capacity, per month, beginning in 2016.  It also proposed that “banking” of excess power sold back to the utility be discontinued; this means that rather than selling back excess kilowatt-hours (kWh) generated in March for top dollar in July, solar customers will receive the net value of the energy in the same month that it’s generated.

Girding for a Fight

Solar industry advocates suggest that the plan will severely dampen demand.  New Mexico has abundant sunshine, but a relatively poor economic base, and solar adoption in the Land of Enchantment has been lower than one might expect.  According to IREC, New Mexico ranked 9th nationwide in total PV installations, with 257 megawatts (MW), at the end of 2013.  With accelerating economic recovery and the expiration of federal tax credits just 2 years away, New Mexico is poised for strong growth in 2015-16.

And that’s why PNM is making this move now.  Its argument that non-solar customers are increasingly subsidizing solar customers has merit, and growth in installations is only going to cost PNM more as it not only loses revenue from solar customers, but also must invest in its grid to support increased two-way electricity flow and changing load profiles.

Hitting Home

I’ve studied the proposal with more than just professional interest.  I recently got a quote for a solar array on my own home, in southern New Mexico, and while PNM isn’t my utility, El Paso Electric, my local provider, will surely be watching the proceedings closely.  Here’s my take on the situation, both as an analyst and as a potential solar customer.

First, $6/kW is fairly substantial, from a solar customer’s point of view.  PNM says that the average New Mexico system in its territory is 3-5 kW, but solar installers suggest that recent installations average 6 or 7 kW.  In order to serve my 2,800 square foot home, a 10kW system was proposed.

So while PNM says its fee would average $18-$30/month, my own system would cost $60/month under the PNM proposal.  That would extend the payback period for my system from 8 years to 11 years.  But, unless I sell my house in the next 10 years, it’s still a good investment.

The solar industry, however, doesn’t agree.  A recent article in the Albuquerque Journal offered detailed numbers to illustrate how PNM’s fees will change the solar equation to the point where consumers are better off sticking with the utility.

Payback Period

There are some flaws with this analysis, however.  First, solar panel prices have been falling dramatically, and should continue to do so for many more years.  So the math outlined in the Journal, based on current prices, will likely become moot in another year or two.  Second, the article fails to ascribe value to the fact that once the system is paid for, the homeowner pays only the connection fee to the utility.

In my case, the average monthly bill would fall from $223 (today) to $60.  Call it a $200 per month saving to account for rate increases.  Even with PNM’s proposed connection fee, the system will easily last long enough to support the investment –.

New Mexico’s installed base of solar systems is likely to double or triple over the next decade.  It’s not reasonable to expect utilities to interconnect these customers for free, pay them peak prices for non-peak production, and spread those and other costs over the shrinking base of rate payers.  But I do think it’s reasonable to question the $6/kW figure and ask PNM to justify it—especially since Arizona’s compromise plan last year came in at a far lower level.

 

Utilities Poised to Join Enterprise Cloud Migration

— January 8, 2015

According to a study released by Infosys in November, more than 80% of large organizations are either using or planning to use cloud-based, mission-critical applications over the next 2 years.  Here at Navigant Research, we believe that trend is now extending to electric power utilities, as described in our white paper, Smart Grid: Ten Trends to Watch for 2015 and Beyond, also released in November.

Infosys and Forrester Consulting surveyed more than 300 technology managers and business decision-makers from the United States, Australia, and Europe.  Key findings included:

  • 77% of respondents are either using or planning to use Internet as a service (IaaS), platform as a service (PaaS), or software as a service (SaaS) for a wide range of business applications.
  • 66% of enterprises agree that they should prioritize developing a comprehensive cloud strategy for their IT infrastructure.
  • 70% of businesses want to work with a cloud implementation provider that offers a single point of accountability.
  • 66% of companies are either concerned or very concerned about the complexity involved in managing and governing a hybrid cloud environment.
  • 83% of the cloud adopters surveyed are struggling to consolidate their cloud services – from IaaS, PaaS, and SaaS and from public and private clouds.

The survey also found that agility – rather than cost savings – is now the dominant driver for cloud adoption.  The full report can be found here.

Smart Grid in the Cloud

In Navigant Research’s white paper, we observed that smart grid as a service (SGaaS) is now moving from hype cycle to real world product, driven by the growing complexity of smart grid applications, a dearth of qualified IT professionals at all but the largest utilities, and increasing understanding on the part of utility execs that they may benefit by sticking to their knitting (i.e., keeping the lights on).  Itron, General Electric, ABB, and AT&T have all moved decisively into the SGaaS space over the last 18 months.

From a vendor perspective, the SGaaS model is appealing because it generates recurring revenue, which can help smooth out the ups and downs of direct sales.  Navigant Research expects that the market for managed utility services will grow from $1.7 billion in 2014 to $11.7 billion in 2023.  (For additional analysis and detailed forecasts for the SGaaS market, see Navigant Research’s report, Smart Grid as a Service.)

Annual SGaaS Revenue by Category, World Markets: 2014-2023

(Source: Navigant Research)

 

Itron Utility Week: Beyond Smart Meters

— December 1, 2014

Nearly 1,000 executives from the water, gas, and electric utility industries gathered in San Antonio between October 17 and 24 to discuss “resourcefulness” – Itron’s term for smarter grid, water, and gas utility technology and solutions – and share best practices.  The conference featured a Knowledge Center showcasing the solutions offered by both Itron and its partners, and dozens of panel sessions covering five tracks: Energy Efficiency and Conservation, Data Management & IT, Advanced Measurement & Communications, Smart Grid, and Analytics & Applications.

The opening general session featured a fascinating keynote address by Scott Klososky, principal at Future Point of View, on “Achieving Humalogy” (“digital Darwinism” and how organizations must evolve to stay relevant), and a killer poetry slam by David Bowden entitled
“Dead Leader Walking” – providing a millennial’s take on management (you can watch the keynote here, skip to 1:23:00 to view the slam).

In the Fog

Itron showcased its new grid edge intelligence solution, Itron Riva, at the meeting.  Itron Riva leverages open standards and Cisco’s IOx Fog computing platform to support Internet of Things functionality, including distributed computing power and control and analytics for automated decision-making at the network edge.  Itron Riva also delivers an integrated, hybrid radio frequency/power line communications (RF/PLC) network, which dynamically selects the best network path for the environment.  Itron Riva has been tested and debugged in a Hong Kong deployment with CKP Power.

Itron notes that the hybrid architecture means the system can flexibly switch from the RF solution (in the winter, for example, when foliage isn’t blocking the path) to PLC (in the summer).  The solution is also good for utilities with both rural and urban environments to cover.

At its Alliance Briefing, the president of Itron’s electricity group, Mark de Vere White, shared his insight on how the smart grid market is shaping up.  De Vere White noted that, while the North American market had slowdowns post-American Recovery and Reinvestment Act (ARRA) funding, the company sees that turning around now, and added that managing solar is a high priority.  Globally, Itron is “very optimistic” about 2015 and anticipates smart grid market acceleration in 2016 and 2017.  Itron’s ERDF Linky deployment in France will begin in the second half of 2015.

Spanning the Globe

In the Asia Pacific region, Itron is seeing activity in Australia, New Zealand, Singapore, Thailand, Japan, and Tonga.  De Vere White also noted growing Latin American interest in Brazil, Mexico, Columbia, Ecuador, and Chile.

Other topics emphasized at Itron Utility Week included smart city technology and how smart grids and smart cities intersect (including a presentation by Amy Aussieker of Envision Charlotte), as well as Itron’s new managed services offering, Itron Total Services.

 

No Love for Utilities in FCC Spectrum Auctions

— November 26, 2014

As a wireless industry analyst who spent years following the FCC’s monetization of spectrum via competitive auctions, I’ve been struck by the dramatic increase in spectrum values implied by the ongoing Advanced Wireless Services (AWS) Auction in Washington, D.C.  The sale of more than 1,600 licenses nationwide, which began November 13, has now raised more than $38 billion – a tally that has risen by more than $2 billion since I started writing this blog!  That’s 2 to 3 times the total analysts were calling for prior to the sale and implies values of more than $2 per megahertz per population unit (MHz POP) for paired licenses; some large markets are already going for $5 per MHz POP.

(Value per MHz POP is a metric commonly used to compare the values of various spectrum licenses; it is equal to the price of the license divided by the total number of MHz for a given license divided by the population of the licensed market.  Paired licenses come with two swaths of spectrum, one each for uplink and downlink, and are typically more valuable than unpaired licenses, which have only one spectrum swath.  For detail on the licenses currently up for sale, click here.)

To put that in perspective, in the last major spectrum auction, held in 2008, spectrum values leveled off at $1.22 per MHz POP.  And while the bidding is blind – we don’t know which companies currently hold the top slot for which licenses – rest assured that Verizon and AT&T are near the top of that list.  Smartphone penetration and data usage have grown stunningly over the past 6 years, and the top wireless carriers are willing to pay (almost) any price to ensure they can continue to meet demand.  Without adequate spectrum, they simply won’t be able to keep up.

What about the Grid?

In my current role, as a smart grid communications analyst, I can’t help but wonder what happened to the FCC’s oft-discussed plans to allocate spectrum to electric utilities for smart grid connectivity.  Proceeds from the current auction will go to support build out of a nationwide public safety communications network at 700 MHz; public safety organizations were awarded those licenses, free of charge, a few years ago.  The so-called FirstNet initiative is expected to provide interoperable communications for first responders (police, fire, EMTs) – but apparently, the FCC doesn’t consider the electric grid to be critical to public safety.

The Utilities Telecom Council (UTC) has lobbied for years to convince the Commission that the power grid nationwide is critical infrastructure, and that utilities struggling to make upgrades to ensure improved reliability and efficiency are in need of dedicated spectrum to enable the communications between new grid devices.  But it appears the last time the FCC seriously considered such a move was in 2012.  At that time, the Commission was dismayed by the underuse of 4.9 GHz unlicensed spectrum and considered awarding the licenses to utilities.  But in the end, it didn’t.  In 2009, the UTC asked for 30 MHz of dedicated spectrum, also to no avail.

The DIY Option

Some utilities have owned their own spectrum licenses in the past – but that was the exception, not the rule.  San Diego Gas & Electric had plans to build its own communications network using wireless communications services (WCS) spectrum a few years back, but it opted instead to sell the licenses for the San Diego market to AT&T.  Many utilities across the United States have used unlicensed 900 MHz spectrum for their smart meter deployments, and many cooperative utilities own licenses for the 220 MHz band.  Smart grid networking system vendor Tantalus offers a system that leverages that spectrum for connectivity in difficult terrain.

But utilities have been left on the sidelines as the government works to maximize spectrum utilization, promote rural broadband access, and ensure public safety organizations have the communications they need in times of disaster.  But a resilient, reliable, efficient power grid plays a major role in our nation’s ability to respond to natural and man-made disasters.  That would seem to be worthy of dedicated spectrum.

 

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