Navigant Research Blog

Utility Customer Choice Coming to the UK Residential Solar PV Plus Energy Storage Market

— July 5, 2017

Two recent announcements foreshadow the emergence of the residential solar PV plus energy storage markets in the United Kingdom. Both E.ON and EDF Energy announced plans to launch solar plus storage programs. My colleague’s recent blog highlights the costs and self-consumption values of these offerings. I focus on how these announcements also exemplify three key drivers for the deployment of distributed solar PV plus energy storage:

  • Energy storage makes solar PV dispatchable. Energy storage addresses the greatest issue associated with solar PV: standalone solar PV systems only generate electricity when the sun is shining. Both E.ON and EDF Energy recognize that energy storage is a unique resource that can function as both generation (when discharging) and load (when charging).
  • Business and finance models are accelerating market adoption. Utility service vendors are now taking lessons from solar PV developers and finding simple, money-saving distributed energy supply and financing models that appeal to customers.
  •  The long-term value proposition for energy storage is strongest behind the customer meter. These offerings portend the possibility that E.ON and EDF Energy could add these solar PV plus energy storage installation to virtual power plant (VPP) software technology in the future to participate in ancillary services markets.

These new announcements, indicative of the drivers outlined above, create value for the utility customers and service vendors in three ways:

  • Residential retail electric choice customers can now access onsite backup power by means of a no-money-down option that can ramp to full capacity much faster than conventional resources for customer backup power.
  • By offering financing for these solar PV plus energy storage systems within the United Kingdom’s residential retail choice market, EDF Energy can now retain customers for a longer term than with traditional short-term, retail choice electricity supply contracts.
  • These types of battery energy storage-enabled distributed energy resources systems can create the potential for a future dispatchable VPPs. VPPs can maximize the grid value of self-generated solar electricity by customers to allow grid operators to minimize carbon-intensive peak energy generation and manage potential grid edge distribution system challenges.

Navigant Research recently highlighted global residential solar PV plus energy storage drivers in detail in our report titled Distributed Solar PV Plus Energy Storage Systems. Given these recent UK market developments, Navigant Research anticipates that more of these types of innovative, customer-focused utility services offerings will come to the marketplace.


Enterprisewide Financing Innovation Needed to Drive Energy as a Service Delivery

— July 5, 2017

In my most recent blog post, I examined how corporate commercial and industrial (C&I) energy and sustainability managers, after years of having no say in how they procure energy, are choosing to apply new technology and business model innovations to meet sustainability needs. Navigant Research anticipates these needs will contribute to the emergence of new energy as a service (EaaS) solution offerings and deployment models underpinned by financing innovation and a desire by customers to avoid spending capital on energy projects. I will highlight how these EaaS solutions and deployment models are brought to the market in an upcoming Navigant Research report titled Energy as a Service.

Currently, C&I customers attempting to implement energy efficiency and/or distributed generation projects are already using EaaS solutions, typically from pure-play solutions providers. For example, solar PV developers use project finance instruments such as solar power purchasing agreements, while energy efficiency implementers can deploy shared cost savings-based energy services performance contracts. Both EaaS financing instruments allow customer to implement projects without deploying their own capital. But until recently, there were fewer options for customers to deploy EaaS using financing innovation on an enterprisewide basis.

Enterprisewide Financing Innovation

One deployment model that is poised to drive the growth of EaaS solutions is called the outsourced managed energy services agreement (MESA). In a MESA, customers with large portfolios of small and medium-sized C&I buildings will look to outsource their entire management operations for a fixed annual payment over an extended period. The MESA concept shown below highlights how this type of EaaS deployment model might work.

Basic MESA Structure

(Source: Wilson Sonsini Goodrich & Rosati)

At the heart of a MESA is a turnkey EaaS provider with deep project development and technology expertise across multiple EaaS disciplines. These vendors will also have the capability to deploy financing innovation to overcome customer simple payback capital deployment hurdles. The MESA concept allows the EaaS provider to assume turnkey responsibility for enterprisewide energy management, including utility bill payment, in exchange for a series of annual creditworthy payments over 10, 15, or more years based on the customer’s historic energy management costs. This approach allows the MESA provider the flexibility to pursue energy retrofits or solar PV deployments under long-term financing arrangements should the customer lack the expertise, risk appetite, time, or capital to do so themselves.

As several of my recent blogs have highlighted, the need for interested EaaS stakeholders to create and apply financing innovation is critical to the deployment of new distributed energy resources. The MESA is a prime example of an innovative financing approach that can be applied on an enterprisewide basis to meet the customer needs to reduce energy spend and lower greenhouse gas emissions while overcoming the capital deployment and technical expertise barriers they face.


How Solar PV Plus Storage Fits into Corporate Energy Management Strategies

— May 12, 2017

The electric power industry is now facing a fundamental shift toward a more decentralized grid, known as the Energy Cloud. As highlighted in a previous two-part blog series, technology and financing innovations sit at the heart of this shift as key enabling factors that are driving business model innovation and customer choice. For years, corporate commercial and industrial (C&I) energy and sustainability managers had no say about the price and type of electricity they used. Now, these same managers are choosing to apply new technology and business model innovations to meet their sustainability needs. These new customer needs can be categorized into the following important trends:

Fortune 500 C&I utility customers are seeking cost-effective, customized, and comprehensive energy solutions that can meet these evolving needs without capital expenditures or impact to their day-to-day operations. And the market is just now beginning to respond in a turnkey, comprehensive way.

Navigant Research will highlight how these solutions are being brought to the marketplace to meet Fortune 500 customer needs in an upcoming report titled Energy as a Service, which is scheduled for release in 2017.

Distributed Solar PV Joins the Solutions Table

Given these evolutions, it is now clear that distributed solar PV plus energy storage is starting to take a seat at the table as an integrated component of the solution set that Fortune 500 C&I customers are seeking. The drivers for the development of distributed solar PV plus energy storage markets are highlighted in Navigant Research’s recently released report titled Distributed Solar PV Plus Energy Storage Systems.

For example, Sharp now offers solar PV plus energy storage financing. And Macy’s recently announced another series of solar PV installations, several of which included integrated solar PV plus energy storage. The advantage that a solar PV plus energy storage installation can provide is twofold: a solar PV system can produce energy for use onsite at a per-kWh rate that is lower than the local utility rate, while an energy storage system can guarantee the type of tariff-specific demand charge savings that solar PV alone cannot deliver. Both the Sharp and Macy’s announcements are key examples of technology and financing innovation being deployed to meet the needs of C&I corporate energy and sustainability managers.


Applying Financing Innovation in Distributed Energy Storage to Make Battery Technology Bankable

— March 20, 2017

In a recent blog, I took a look at the importance of proper evaluation of the total cost of ownership (TCO) of battery energy storage systems (BESSs) from both a power and energy performance standpoint. Such an analysis reveals how extended battery lifetime and other battery performance factors can reduce the ultimate costs BESS owners would pay over the life of the system. This type of revenue and cost predictability is key to unlocking energy storage financing innovation anticipated to drive new technology deployments.

The Bankable Battery Challenge

Today, equity and debt providers and project developers looking to finance BESS have a limited choice of battery technologies. NGK Insulators has a proven sodium sulfur (NaS) battery technology that plays a role in certain long duration, utility-scale energy storage or microgrid applications. For other applications, lithium ion (Li-ion) technology backed by warranties from large, multinational conglomerates like LG Chem, Samsung SDI, BYD, and Panasonic are among the few technologies determined to have bankable BESS technology from a financing standpoint to date. This remains to be the case even though few of these Li-ion BESS installations have been up and running for extended periods of time.

Financing Innovation Enabled by Contracting and Technology Advancements

Many developers, systems integrators, and technology providers are focusing on creative ways to make BESSs bankable from a financing standpoint. Powin Energy is an Oregon-based energy storage systems integrator that recently developed and commissioned a 2 MW, 8 MWh battery energy storage system in Irvine, California under Southern California Edison’s (SCE’s) Alison Canyon emergency procurement. But there is more behind Powin’s efforts than just project development/systems integration.

Powin’s patented Battery Pack Operating System (bp-OS) is designed to enhance the monitoring of battery performance. Its software claims to do this by tracking battery system functions and lifespan at the cell level using its proprietary Battery Odometer and Warranty Tracker products. The Battery Odometer reportedly measures degradation and calculates remaining battery lifetime based on voltage, temperature, state-of-charge, and charge and discharge durations on a cycle by cycle basis. And the Warranty Tracker claims to express that status of battery performance relative to the specific warranty status in real time.

A technology package that truly enhances and simplifies the approach battery warranty monitoring would be compelling. Such clarity and simplicity from a battery performance standpoint could open up opportunities to standardize battery performance warranty insurance coverages across a variety of battery cell technology manufacturers, which would lower costs and provide additional comfort to project finance investors, thereby driving more financing activity.

A Promising Sign for Energy Storage Financers?

A proper turnkey financial TCO analysis should look at the total cost of operation for power and energy. However, projecting the cost of operation of the BESS at year 3 or 4 of a 10-year financing is uncharted waters. Technology such as Powin’s bp-OS coupled with battery performance insurance underwriting merits a careful eye in the journey by project developers to develop and finance BESS projects. As discussed in previous blogs, lower costs coupled with more predictable project revenue feeds the growth financing innovation that will drive the deployment of stationary energy storage technology.


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