Navigant Research Blog

How Can Regulatory Drivers for DER Realign Utility Business Models?

— May 13, 2016

IT InfrastructureThe movement of the electrical grid toward an Energy Cloud model with expanding distributed energy resources (DER) will require new regulatory rules to ensure both reliability and utility profitability. Creating a platform to generate, distribute, and sell energy closer to where it is consumed (referred to as utility 2.0) will require regulation 2.0 changes. Shifting DER and regulatory changes in world markets shape Navigant Research’s DER perspectives, which were highlighted in its recent market forecast report, Distributed Energy Resources Global Forecast.

Those closely following the development of DER models know that movement toward an altered regulatory framework has a number of requirements. These include roadmaps that balance innovation, the economic benefits of competitive markets, the maintenance of reliability, and the reduction of carbon emissions. The 51st State Initiative, a consortium of well-informed industry stakeholders, has created two sets of roadmaps to highlight the type of regulatory changes needed to strengthen the future of the electric industry along these lines.

Advancing Carbon Initiatives

Parallel to DER is the advancement of carbon reduction initiatives in the United States and around the world, as can be seen with the U.S. Environmental Protection Agency’s Clean Power Plan and renewable energy and carbon reduction requirements in both California and New York. DER is likely to play a central role in these efforts. The following developments highlight several recent key regulatory and policy initiatives that are a part of the DER journey:

  • As part of the New York Reforming the Energy Vision proceedings, the New York Public Service Commission (NYPSC) introduced the Benefit Cost Analysis Order. This order will require the NYPSC to place a value on carbon emissions, consider portfolios of DER that capitalize on the grid benefits of DER aggregation software, and consider tariffs that compensate customers who generate their own electricity.
  • NYPSC recently approved Consolidated Edison’s Brooklyn/Queens Demand Management Program to address the overload of substation feeders with a combination of traditional utility-side solutions and non-traditional customer and utility solutions, including energy efficiency and DER.

An important benefit of DER that also includes energy efficiency is the ability mitigate the carbon impact of fossil fuel-based electricity generation. The ability to utilize battery energy storage systems and innovative DER aggregation software suppliers are expected to make demand response, distributed solar, and energy efficiency larger, more reliable parts of the DER landscape. However, the regulation 2.0 changes currently underway will need to align the financial interests of local utilities and distribution system operators. This journey is certain to bring some uncertainty, but also plenty of opportunity for innovation and new business models.


Partnerships Form to Tackle Behind-the-Meter Storage

— April 11, 2016

Control panelAs highlighted in recent Navigant Research blogs, growth in the battery energy storage system (ESS) sector will be accelerated by standardized contracts and the move to more standardized, modular ESSs being deployed in the marketplace. Further, many interested stakeholders in the ESS sector now strive to develop battery ESS installations that can potentially monetize multiple revenue streams. Navigant Research believes the evolution of these trends will continue to support the growing energy storage market. A recently released Navigant Research white paper examines key ESS trends in greater detail, each of which addresses issues to further enable energy storage to meet its transformative and disruptive potential.

The Clean Energy Group’s Resilient Power Project recently hosted an excellent webinar that highlighted the joint go-to-market approach being undertaken by ViZn’s flow battery technology and Schneider Electric’s distributed energy resource (DER)/microgrid technology stack in the behind-the-meter energy storage sector. The partnership between ViZn and Schneider Electric represents a compelling, turnkey offering, with a financing partnership that highlights the trends referenced above.

Technology Stack

ViZn’s hybrid zinc iron redox flow battery has been designed to provide both long-duration energy and short-term power service in a standard 1 MW/3 MWh module. ViZn uses chemicals such as zinc oxide (commonly used in sunscreen) as the anolyte and yellow prussiate of soda (a table salt anti-caking agent) as the catholyte, along with a sodium and potassium hydroxide solution. The company claims these key chemical components give the battery design a stronger safety profile compared to most advanced batteries.

Schneider Electric, which Navigant Research recently recognized as an industry leader in microgrid controls, is bringing its Demand Side Operation technology coupled with its DER Box and Microgrid Controller technology stack to the projects as shown below:

Schneider Electric Demand Side Operation with Microgrid Controller

Schneider image

 (Source: Schneider Electric)

In addition to the technology stack, the ViZn/Schneider Electric development team plans to provide economic modeling of all potential revenue streams for the customer installation, including energy efficiency savings, resilient backup power, demand charge savings, energy arbitrage, and demand response capacity market participation. The partnership has also developed standardized lease, power purchase agreement, and shared savings agreement options with a third-party (as yet unnamed) financing partner. It appears the proposed technology stack will be able to take advantage of frequency regulation revenue where power market rules are available.

Most of the early project activity in behind-the-meter energy storage by companies like Green Charge Networks, Stem, and others has focused on demand charge savings at smaller commercial and industrial facilities with short-term demand spikes. The ViZn/Schneider Electric offering outlined above should bring a technology offering package to sectors of the energy storage marketplace with higher facility peak demand, variable load profiles, and more complex energy storage needs. This is important for the market because these new sectors represent a portion of the behind-the-meter energy storage space that has not implemented much battery energy storage to date. Navigant Research will be watching closely for more details on project deployments and financing partnerships in the near term from these two companies to see how their strategies play out.


Challenges Abound in the Second-Life PEV Battery Market

— April 4, 2016

Batteries in arrayIn the lead-up to the launch of the first generation of lithium ion (Li-ion) batteries for plug-in hybrid and battery electric vehicles (collectively PEVs) over 6 years ago, industry stakeholders had anticipated that the battery packs in these early models might begin to demonstrate reduced power and energy capacity by now. However, due in part to thorough design and testing protocols, automotive OEMs and Li-ion battery manufacturers now recognize that many of these batteries have shown less degradation and better performance than anticipated. In an exciting example of this trend, a recent HybridCars article highlighted how a 2012 Chevrolet Volt owner recently surpassed 300,000 miles driven without any apparent battery degradation issues.

These developments notwithstanding, stationary energy storage system (ESS) stakeholders remain interested in obtaining used PEV Li-ion batteries for second-life stationary energy storage applications. Furthermore, several automotive OEMs may also be interested in new revenue models that could capitalize on the residual asset value of second-life PEV batteries. Given that battery ESSs remain too expensive for many applications in the near term, reusing end-of-life PEV Li-ion batteries for stationary energy storage applications could help address this problem.

Navigant Research’s recently published Alternative Revenue Models for Advanced Batteries research brief examines the key drivers, challenges, and potential market size for reused PEV Li-ion batteries. Navigant Research estimates that the annual global capacity of PEV Li-ion batteries available for second-life stationary ESS applications is expected to reach 11 GWh by 2035.

Improving Protocols

One of the key challenges for the second-life market for PEV batteries is the development of new battery pack screening, testing, and grading protocols that are relevant to specific customer or utility-sited ESS battery reuse applications. Navigant Research believes that research being conducted by Oak Ridge National Laboratories and by the team at Spiers New Technologies will help close this gap over time.

Once the application-specific grading and testing protocols are developed, there will remain an even more vexing challenge: at what price and performance threshold in the future will stationary ESS project developers and automotive OEMs consider reusing second-life PEV Li-ion batteries over procuring new, fully warranted batteries?

Navigant Research anticipates that automotive OEMs will be uniquely positioned to overcome these and other challenges outlined in our research brief to consider new business models that could include partnering with ESS project developers and financiers to deploy ESSs. Just as automotive OEMs did with development of intellectual property around internal combustion engines over the last century, it will be interesting to see how OEMs capitalize on the expertise they’ve developed with Li-ion batteries.


Leveraging Lean Manufacturing to Drive Storage Markets

— March 4, 2016

Batteries in arrayThe confluence of key technology-level factors is fostering the growth of the energy storage sector for both utility- and customer-sited energy storage system (ESS) projects. Some of these factors include:

  • Lower battery cell, pack, and battery management system costs
  • Improved battery power and energy densities
  • The unique flexibility of battery ESSs to provide multiple grid and customer benefits
  • A better understanding of what battery technologies, balance of system components, and software and controls need to do to meet power market and customer requirements to deliver predictable revenue streams

Given these developments, Navigant Research believes that the energy storage sector will leverage the lessons learned from distributed solar in order to standardize how ESS components should be built and how they should communicate with each other and the grid. This modular evolution will allow project developers, system integrators, and ESS hardware/software suppliers to apply traditional lean manufacturing concepts to rapidly reduce project costs.

Since 2013, the solar industry has focused significant efforts on streamlining processes to reduce costs. In the 2015 Distributed Solar PV report, Navigant Research notes that these efforts have proven fruitful across all global solar markets. For example, initial solar design and solar electricity production estimating software models can now often be credibly developed in just a few short hours. Solar PV projects are easier to develop and finance, and systems are more plug-and-play  ready. The result is reduced design and engineering efforts and costs, as well as improved safety.

Storage Evolution

The evolutions in storage are also expected to result in more modular ESSs with standardized power and energy performance capabilities and lower costs. Navigant Research anticipated that the flexibility of lithium ion batteries to address not only short-term power applications, but also longer duration energy applications of 4 hours or less will be optimized in the near-term. However, we expect that the longer energy duration potential of flow batteries for applications like load shifting and solar and wind grid integration will become more prevalent in the mid-term.

Building on the developments outlined above, a recently released Navigant Research white paper examines five ESS trends in greater detail, each of which addresses key issues that enable the energy storage sector to meet its transformative and disruptive potential. In particular, Navigant Research anticipates that the move to more modular systems will drive the growth of both consumer behind-the-meter and utility ESS markets. It’s also anticipated that advanced battery manufacturers and system integrators will play a key role in the movement toward modularity as storage applications and use cases continue to mature.


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