Navigant Research Blog

Distributed Energy Storage Poised to Support UPS Service Needs

— February 6, 2018

In a previous blog, I highlighted how corporate commercial and industrial (C&I) energy, facilities, and sustainability managers have new choices to manage their energy management and sustainability needs, giving rise to the growth of Energy as a Service (EaaS) solutions. Within Navigant Research’s EaaS framework, distributed energy storage systems (DESS) is a key component of the load management and optimization solution given its unique ability to control load and support resiliency needs alongside onsite distributed generation like solar PV.

Are New Solutions Worth the Expense?

The value of onsite resiliency creates much debate within the industry. There is little choice but to deploy uninterruptible power supply (UPS) systems to provide continuous electrical service with high power quality to support resiliency needs for mission critical operations such as data centers, telecom operations, financial services centers, and hospitals. These mission critical UPS systems use complex, valve-regulated lead-acid battery systems. And given critical needs for continuous electrical service, these customers have been slow to adopt new or untested UPS systems using standalone lithium ion, even if these new solutions could improve the total cost of operation.

Due to the high costs associated with these systems, many C&I facilities without mission critical operations have been slow to deploy UPS systems to address electrical service outages. These non-mission critical facilities currently view electrical service outages—and the resulting financial impacts of the associated downtime—as an unmanageable cost of doing business. A recently released Navigant Research report, Advanced Energy Storage for UPS Applications, focuses on the drivers, barriers, technology issues, and market forecasts for this new non-mission critical UPS service segment.

UPS and DESS Go Hand in Hand

In this report, Navigant Research anticipates the emergence of a new UPS service option that will leverage DESS technology to provide resiliency support for certain non-mission critical C&I operations. Specifically, it’s expected that these DESS will be designed to provide demand charge reduction, enhanced demand response market participation, UPS service, and/or grid ancillary services to utilities and competitive markets where applicable. Further, DESS systems integrators and project developers are expected to leverage the energy storage financing innovation in the marketplace to provide UPS as a service without CAPEX to non-mission critical facilities to meet their unmet resiliency need.

In the near term, it will take some time for the regulatory frameworks to mature to allow DESS to efficiently provide ancillary services to the grid and add that project revenue stream. Further, ESS integrators and project developers will need to work on a cost-effective software/hardware technology for this new UPS service application. And while there are already systems integrators and project developers, like Sharp SmartStorage®, now pursing this segment, Navigant Research will continue to watch how these factors come together to grow this DESS market segment.

 

A Sign That Large-Scale, Offsite Renewable Energy Procurement Is Becoming Mainstream

— February 1, 2018

In an August 2017 blog, I highlighted how corporate commercial and industrial (C&I) energy facilities and sustainability managers have new options to address their energy management and procurement needs. These managers now hold the keys driving the growth of energy as a service (EaaS) solutions. The move by large C&I energy users to procure renewable energy from large, offsite renewable energy project sits within Navigant Research’s EaaS framework as part of the Offsite Energy Supply solution.

EaaS Delivery Models

The delivery models for this new EaaS solution in the US have been developing over the last few years, due in part to the market capacity development efforts of the Rocky Mountain Institute’s Business Renewable Center (BRC). While not all US projects are direct procurements, as of the end of 2017, a total of 8 GW of corporate renewable energy deals have been signed in the US and Mexico alone per the BRC.

The early stages of the market for this EaaS solution in the US was driven by pioneers like Google and Microsoft. These companies were primarily interested in putting their money where their mouth is in terms of their innovation and sustainability commitments. But these companies were also focused on how these deals could help mitigate their long-term energy price risk. Given the impact of shale gas on natural gas pricing and low wholesale electricity prices in the US, using this type of procurement solution as a legitimate energy price risk hedging tool has been met with mixed results.

Rocky Mountain Institute Corporate Renewables Data

(Source: Rocky Mountain Institute)

Ready for Risk Mitigation Challenges

However, a recent announcement on a European procurement deal may signal otherwise. In late 2017, Norsk Hydro, a leading European aluminum manufacturer, announced an agreement to purchase wind power from a 650 MW wind farm for 19 years in Sweden starting in 2021. While Norsk Hydro has been previously recognized for its sustainability performance, this announcement indicates that the purchase of large-scale offsite renewable energy is now posed to meet the complex energy price risk mitigation needs of energy-intensive manufacturers that have spent years trying to lower the cost of the energy they use.

Stay Tuned for Research

Later this year, Navigant Research will prepare a comprehensive global research report on the drivers, barriers, transaction models, and market forecasts for these new large-scale, offsite renewable energy procurements as part of the new Utility Customers Solutions research service. Meanwhile, Navigant Research will be closely watching for deals that show this type of energy procurement strategy is moving past a nice-to-have sustainability commitment toward a legitimate component of an enterprisewide energy price hedge strategy.

 

New Demand Response/Energy Storage Partnership Poised to Reduce Customer Deployment Hurdles

— September 12, 2017

In my most recent Navigant Research blog, I highlighted how load management and optimization solutions, which include demand response (DR) and energy storage, fit within the energy as a service (EaaS) framework. The EaaS solutions framework is now positioned to support how corporate commercial and industrial (C&I) energy and sustainability managers apply these new technologies and business model innovations to meet their energy management and sustainability needs.

EaaS Deployment Options

In Navigant Research’s Energy as a Service report on the evolution of EaaS, I highlight how EaaS solutions like load management and optimization will be deployed, which can be summarized as follows:

  • Pure-play EaaS solutions provider: Customers engage with a pure-play EaaS provider such as a solar PV developer or an energy efficiency performance contracting provider that provides just a single financed solution.
  • Bundled EaaS solutions provider: Vendors offer multiple EaaS solutions across a project development/financing platform that meet customer needs while also decreasing their customer acquisition costs.
  • Integrated facilities management plus EaaS solutions: A single vendor manages the customer’s day-to-day building operations and EaaS solutions over longer-term agreements that can enable financing innovation.
  • Managed energy services agreement (MESA): Customers with predictable energy use and spend outsource their entire energy management operations to a comprehensive EaaS provider under long-term agreements to unleash long-term financing innovation.
  • Asset monetization or public-private partnerships: Private and publicly traded C&I companies, universities, or municipalities monetize their energy assets in a sale leaseback arrangement that results in the outsourcing of energy operations.

One significant challenge for the deployment of new load management and optimization EaaS solutions to date from the customer perspective is that the market is populated by pure-play solutions providers. This scenario presents a challenge to C&I customers given the potential interdependence of solutions like DR and energy storage on the overall business case for deploying these technologies.

Potential of DR/Energy Storage Partnership

However, a recent partnership announcement by CPower and Stem will combine Stem’s energy storage capabilities services with CPower’s DR and curtailment services to better manage customer energy load and spend. Given the current contracting and revenue models that each vendor provides, an integrated Stem/CPower offering has the potential for an improved customer savings business case that can exceed the business case of each technology individually, as highlighted below:

  • For existing Stem customers, this partnership can result in an increased bonus payment over their equipment lease payment/demand charge savings scenario given the added DR market participation that CPower can enable. Stem’s existing customers can also benefit from an improved battery use case scenario over time given that additional building controls under CPower DR technology control can be leveraged instead of just the battery energy storage system (BESS).
  • For Stem sales contacts looking to deploy new BESSs, this partnership can result in a better bonus payment scenario given that a potentially smaller BESS could be installed (or one with a lower cost use case scenario over time), thereby potentially lowering the equipment lease subscription price.
  • And for existing CPower customers and sales contacts looking to participate in DR programs, this partnership can result in and improved DR market participation revenue scenario given the added response capabilities that the deployment of a Stem BESS can enable. This can help reduce the over subscription/under commitment challenges that DR aggregators face given the need to keep building occupants comfortable during demand response events.

It will be important to keep an eye on how the CPower/Stem partnership handles the integration of dispatch algorithms and customer dashboards as the partnership matures. But this partnership appears poised to reduce customer barriers for the deployment of integrated DR/energy storage EaaS solutions.

 

Customers Hold Keys to Growth of Turnkey Energy as a Service Solution Providers

— August 15, 2017

A recent Navigant Research blog highlights how corporate commercial and industrial (C&I) energy and sustainability managers are choosing to apply new technology and business model innovations to meet their energy management and sustainability needs. These new customer choices are giving rise to the growth of energy as a service (EaaS) solutions. Navigant Research’s recently released report on the evolution of EaaS defines specific solutions that make up a comprehensive EaaS solution offering:

  • Energy portfolio advisory solutions: Comprehensive, enterprisewide strategic guidance to help customers navigate their unique procurement, energy management, financing, business model, and technology opportunities across all energy management and sustainability needs
  • Onsite energy supply: Distributed generation solutions like solar PV, combined heat and power, diesel and natural gas gensets, microturbines, and fuel cells that improve energy supply
  • Offsite energy supply: Including electricity procurement options from offsite sources in retail choice deregulated electricity and gas markets and from emerging large-scale, offsite renewable energy procurement business models
  • Energy efficiency and building optimization solutions: Comprehensive energy efficiency assessment, business case analysis, financing, implementation, monitoring and verification, and building commissioning services to reduce energy spend and use
  • Load management and optimization solutions: Comprehensive, end-to-end energy management solutions to optimize energy supply, demand, and load at the site and enterprisewide, including demand response (DR), distributed energy storage, microgrid controls, electric vehicle charging equipment, and building energy management and building automation systems and software controls

Turnkey Solutions to Drive Growth

C&I customers that begin to take advantage of these new solutions will increasingly look to turnkey solutions providers that can provide not only strategic advice across their property portfolios, but execution expertise as well. The key driver to enabling the growth of turnkey EaaS solutions vendors will be the ability to deliver comprehensive financing solutions to help customers avoid spending capital on energy projects. However, there are two additional drivers that vendors who are considering creating and delivering turnkey EaaS solutions will need to consider:

  • Historically, C&I customers have needed multiple regional partners to manage even a portion of their energy management needs. Turnkey EaaS vendors seeking to address C&I customers’ portfolio-wide needs for EaaS will require widely trained and deeply experienced advisory capabilities to address their customers’ complex energy procurement, financing, and technology deployment needs. For example, in the United States, a turnkey provider will need to have the depth of regional expertise under one roof necessary to address customer strategic needs in diverse energy markets and climate zones like Texas, California, New York, the Southeast, or the Midwest.
  • Experienced C&I energy and sustainability managers have endured years of disappointment from energy use and cost reduction claims that never materialized. Moreover, many of these managers have still not yet even tried to reduce energy spend. What C&I customers truly want is guaranteed lower energy costs, whether from solar PV, energy storage, energy efficiency, or DR. Vendors that blend execution expertise across all EaaS solutions with financing tools to guarantee cost savings through a single point of sale will be best positioned.

To date, with customer-sited distributed energy resources, too much emphasis has been placed on trying to figure out where to sell technology outside of a focus on solving customer problems. For turnkey EaaS vendors, market growth will not necessarily be led on a technology-first basis. For at-scale revenue generation, these vendors should start with the customer experience and work backwards to the technology. Navigant Research anticipates that vendors that place a keen eye on how to bring turnkey, customer-focused EaaS solutions into the market through a trusted, single point of contact with a financed savings guarantee will be at a competitive advantage.

 

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