Navigant Research Blog

Demand Response Prepares for the 2016 Summer Season

— June 24, 2016

??????????????????June has been a much less newsworthy month than May was for the demand-side management industry. But it does represent the traditional start of the summer demand response (DR) season, so we’ll see what Mother Nature has in store for the weather. Will it be a busy DR season or a light one, as the last few years have been?

Drivers of DR Growth

Meanwhile, macro-level factors continue to act as both drivers and barriers for the global growth of DR. California, for example, continues to offer new opportunities for DR participation. The most recent case is the California Public Utilities Commission approving a decision that allows Southern California Edison to spend an additional $8.7 million on DR programs this summer to mitigate potential natural gas shortages stemming from the Aliso Canyon natural gas leak.

Outside of the United States, there are a number of examples of markets becoming more open and attractive for DR resources. From Canada to Europe to Asia, market structures are being reformed to allow DR to compete against generators for revenue. In Ontario, the Independent Electricity System Operator plans to launch a capacity market where DR will be able to compete with generation and other resources. Two of Europe’s largest electricity markets—France and the United Kingdom—plan to open capacity markets by 2017 that would allow DR participation. South Korea now allows DR to compete equally with generators in the electricity market.

And Barriers …

However, specific barriers to DR development still exist due to environmental and reliability concerns. The amount of DR capacity available for this summer was reduced due to the expiration of the U.S. Environmental Protection Agency’s (EPA’s) rules for emergency generators (EGs) for DR purposes. Last year, the U.S. Court of Appeals overturned an EPA rule that allowed 100 hours of EG use for emergency DR programs. It granted the EPA a 1-year stay, which expired on May 1, 2016. The EPA has no plans to make changes to the rule, meaning that the court’s ruling will remain intact, affecting upward of 20% of DR resources in some markets.

The recent PJM capacity auction cleared less DR capacity than the previous year, mostly due to lower prices. But in the longer term, PJM is phasing out its summer DR categories in favor of annual participation requirements. Industrial customers may have fairly flat load profiles throughout the year, but many commercial customers rely on air conditioning (AC) measures to respond to DR events. On a portfolio level, it will come down to a risk/reward calculation. Residential DR that gets bid into the PJM market by utilities running their own DR programs are almost exclusively focused on summer-focused loads like AC and pool pumps. These programs offer virtually no winter DR capability and would not be eligible under the new rules unless they could combine a bid with a winter-type of resource.

All of these dynamics and more are covered in the Navigant Research report, Market Data: Demand Response. I look forward to seeing anyone who will be attending the National Town Meeting on DR in Washington, D.C. in July.

 

Ralph Nader Enters Automotive Hall of Fame: A Legacy

— June 24, 2016

Electric Vehicle 2For more than 5 decades, many in Detroit and other automotive capitals have considered Ralph Nader to be public enemy number one. Despite the strong feelings against Nader throughout much of the auto industry, the lifelong consumer advocate will be inducted into the Automotive Hall of Fame in July 2016. While Nader first came to prominence with the publication of his book Unsafe at Any Speed, the industry would probably not be where it is today without his efforts.

When Nader’s book was published in 1965, there were almost no safety-related automotive regulations. A year later, the U.S. Congress enacted the first Motor Vehicle Safety Act, and the era of automotive regulation began. Within the next few years, emissions and fuel economy were also being regulated and the automobile would never be the same.

Rules Are Good

Over the past 50 years, the industry has fought virtually every new regulation tooth and nail, and in the process, it has seriously eroded consumer trust. While repeatedly claiming that new rules were technically impossible to meet and/or too costly but ultimately managing to meet the rules (for the most part), automakers and suppliers have chipped away at their own credibility.

Thanks to those rules, engineers were forced to convert vehicle systems from mechanical to electronic controls. Beginning with basics such as ignition and later anti-lock brakes, today’s vehicles have up to 100 computers and more than 100 million lines of code. There are already production vehicles on the road from Mercedes-Benz, Volvo, and Tesla with semi-autonomous capabilities. Fully autonomous vehicles aren’t far off.

Despite the animus between them, the efforts of Nader and colleagues like Joan Claybrook and Clarence Ditlow on issues such as airbags have spurred the industry to develop and adopt more capable and affordable sensing and processing systems. Those same systems have become the enablers for the transformation of urban mobility that is projected in Navigant Research’s Transportation Outlook: 2025-2050 white paper.

While there have undoubtedly been backward steps along the way—such as the ongoing Volkswagen diesel emissions scandal—overall, today’s vehicles are safer, more efficient, cleaner, and better performing than at any time in the 130-year history of the automobile. The industry also remains incredibly profitable, with more vehicles being sold than ever. The reality is that regulations have enhanced the transportation industry and personal mobility, rather than killing it.

An Inflection Point

The industry now stands at an inflection point, as mobility is about to be transformed. This is uncharted territory, and there are no rules that govern it. There are countless new players stepping up and hoping to grab a piece of the mobility pie. The potential to make a quantum leap in safety is there if autonomous vehicles are executed properly.

However, many of these new players are coming into vehicle control from a software-based technology space, where “fail fast and iterate” is the model. That’s fine when talking about apps. If they crash, it’s an annoyance. If an autonomous control system fails, lives may be at stake. If autonomous vehicles are executed poorly, it could drastically undermine a half-century of work by Nader and many others.

The time is right for the industry to step up to the plate and work with regulators to develop common-sense rules for autonomous vehicles that don’t stifle innovative ideas. At the same time, they must set standards for system performance and mechanisms to validate that performance.

Ralph Nader upset the apple cart 50 years ago; he deserves a place in the hall of fame. The auto industry needs to embrace that legacy for the future.

 

ZNE Gets a Boost on Two Fronts

— June 24, 2016

Home Energy ManagementThe zero net energy (ZNE) movement has taken steps forward recently in an effort to drive wider adoption of the related technologies. A ZNE building combines energy efficiency and onsite renewable power generation to produce roughly as much energy as it uses during a year. The focal point for much of the ZNE activity in the United States is California, where state regulations call for all new homes to be built as ZNE by 2020 and the same for all new commercial buildings by 2030. It comes as no surprise, then, that the latest ZNE efforts are in the Golden State.

Public Awareness

One step forward to wider adoption was taken by Pacific Gas and Electric (PG&E). The utility has opened a full-sized ZNE display home at its new regional office in Stockton, California. Visitors can see in detail how such a home can work in an effort to drive greater public awareness. The displays have many interactive components, such as an iPad-based augmented reality virtual tour using iBeacon technology that automatically presents relevant content in each room. Interactive components also include a 7-foot, high-resolution touchscreen that compares ZNE conservation methods with those of a typical home built in 2005 and an integrated content management and hardware system that drives the experience.

Virtual Tour of a ZNE Display Home in Stockton, California

ZNE Gets a Boost on Two Fronts_NS Blog

(Sources: Leviathan, Pacific Gas and Electric) 

Industrial Education

Another step to drive greater adoption was the dedication of the United States’ largest net zero plus commercial building retrofit in the Los Angeles area. The 144,000-square-foot Net Zero Plus Electric Training Institute (NZP-ETI) facility serves as a showcase for how commercial ZNE buildings can be designed, constructed, and operated. One of its unique features is its ability to go beyond net zero, generating about 1.25 times more energy than it consumes in a typical year. The excess energy, which is generated from an onsite solar PV array, can be stored in onsite batteries or discharged back to the electric grid. During a grid outage, the stored excess energy can allow the facility to maintain operations for up to 72 hours. The facility also plays an educational role as the training hub for some 1,500 electrical apprentices, journeymen, and contractors who want to stay at the forefront of the electrical industry’s latest technologies.

These incremental yet important steps by PG&E and NZP-ETI represent the cutting edge of the ZNE trend, which was highlighted for the residential market in the recent Navigant Research report, Market Data: Zero Net Energy Homes. These are baby steps toward a time when ZNE buildings become more commonplace. While these are laudable efforts, it will require many more similar moves in other regions before ZNE goes from oddity to ordinary.

 

Consumer Choice in the U.K. Energy Market, Part 2

— June 24, 2016

TabletIn my previous post, I discussed my experience changing energy providers in the United Kingdom and the surge in market share of new players (known as independent providers). This time, I’ll talk about some of the propositions the new players are offering to attract customers.

When I did my research to choose my new energy provider, I was surprised by the number of companies that are now in the market. Back in 2012, the first time I switched providers, there were 14 companies available according to Ofgem, but I can only remember the Big Six and a couple of premium green providers. As of December 2015, Ofgem reports 32 energy providers.

Differentiation through Pricing

Providers are trying to differentiate themselves by using different selling points. The most obvious area to compete in is pricing, and as expected, there are several undifferentiated providers focusing on price alone. Their effect on the average retail price in the United Kingdom is apparent, but some other companies are bringing new ideas to the table.

From variable prices to 3-year fixed prices to different levels of greenness to buy local options like Bristol Energy (a company owned by the city council), companies are trying to stand out from the crowd. Tempus Energy offers a so-called sunshine tariff, which matches prices with peak solar generation for customers in areas with high solar penetration. Others offer smart energy hubs and management tools as a hook for the service. I couldn’t find any that would manage your house for you to reduce consumption, but Tempus Energy does offer some flexible contracts for commercial customers that include time-of-use rates in their tariff structure as well as demand-side management. Most of the new players don’t have generation assets, but others—like Octopus Energy—started as renewable project developers and then moved into retailing.

Better Options Needed to Fit Consumer Needs

It took some time for Ofgem to simplify the switching process enough to make it hassle-free, and a faux pas from the Big Six’s price strategy helped encourage people to take the plunge and make the switch. But now that the process is in place, I can see energy shopping becoming a yearly ritual. It is up to energy providers to develop options that better fit consumers’ needs and tastes.

During my latest switch, I went for a contract of 100% renewables generated by the provider’s solar and biogas projects, which beat most of the competition in price. I also chose a variable rate without any exit fees. For the time being, I don’t see a price spike coming unless the United Kingdom gets a long, cold winter in 2016. But I’ll be happy to switch if something better comes to the market.

 

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