Navigant Research Blog

Reimagining the Traditional Water Utility Business Model

— May 23, 2016

Plant - WaterUtilities in the water sector are confronted by a number of significant challenges in today’s environment. Aging infrastructure (and the significant cost and complexity of capital improvement programs), the cost and lack of diversity of water supplies, requirements associated with new legislative and regulatory mandates, and customer rate concerns are a few prominent examples. Meanwhile, even for the most resilient utilities, uncertainty around the pace and character of recovery in the broader macroeconomy and the continued impact of water conservation continue to affect customer demand characteristics and expectations regarding near-term financial performance.

Given these factors, decision makers are evaluating methods of enhancing near-term financial performance while considering actions to ensure long-term strategic market positioning. Actions are being taken in the face of cost and revenue results that are not in line with expectations; meanwhile, the long-term dynamics of the water sector continue to be influenced by significant game changers such as climate change, the impact of new and disruptive technologies, aging workforce challenges, and the emergence of new market players.

Objectives of Change

This combination of near-term financial challenges and large-scale structural changes in the sector are driving many water utilities to pursue both near-term cost reduction initiatives as well as programs that reimagine aspects of the traditional water utility business model itself. Importantly, near-term cost reduction initiatives and long-term strategic planning and transformation efforts drive changes to an organization’s service catalog (i.e., what the organization does), its business processes, organizational designs, staffing, and workforce and talent management practices. However, the objectives of change in these areas are distinct and may be at odds with one another depending on the objective.

Change Program Objectives

Water blog table (Source: Navigant)

As reflected in the above table, both cost reduction and strategic repositioning initiatives require transformation across an organization. Navigant’s work with water utility clients confirms that the change management challenge associated with significant transformation increases significantly when near-term cost reduction and long-term strategic change programs are pursued concurrently. In addition to complex program management, actively managing the change—and building and sustaining support across the organization—is critical for utilities that aim to design and deliver a new strategic vision while meeting near-term cost and efficiency objectives. Specifically, our experience working with utilities on both of these initiatives has found that:

  • Near-term cost reduction and strategic innovation planning are often not managed and understood as a comprehensive program.
    • Properly positioning the utility requires a roadmap that connects the dots across business processes and organizational and technology initiatives and which also understands the change management journey across all planning horizons.
  • Insufficient attention is dedicated to continuously monitoring the organizational energy supporting or undermining transformation objectives.
    • Organizations may achieve cost reduction objectives, but they can significantly erode positive energy needed to achieve longer-term, innovative, and strategic change objectives.

Leading significant organizational change can be difficult, even in the best of circumstances. Maintaining a focus on the people and cultural aspect of change (the importance of organizational energy) when delivering business transformation is critical, particularly in times of significant transformation. Considering transformation goals and objectives holistically, and understanding the levers available to delivering change optimally across the entire planning horizon, is central to successfully navigating the current environment.


Australia Leading Solar PV plus Storage Innovation

— May 23, 2016

Rooftop SolarImprovements in technology and cost have allowed solar PV plus storage systems to become an attractive investment in many parts of the world. However, what remains to be determined are the optimal business models to unlock the full value of these systems. Pairing solar PV directly with energy storage holds the potential to dramatically transform the electricity industry and provide customers with cleaner and more secure power at a predictable price. Despite the potential, there has been little consensus in the industry on the best way to deploy these systems on existing grids and on how to overcome the significant barriers that the required upfront investment presents. 

Although solar PV and energy storage systems (ESSs) have been paired up in microgrids and remote settings for decades, their integration into existing electrical grids presents new challenges. Innovative models for the ownership and operation of these systems are being explored around the world, driven in part by the increasing funding flowing into the distributed energy industry. Australia has been at the forefront in the development of distributed energy resources, and two recently announced projects in the country offer different paths forward.

Dueling Approaches

In early adopter markets around the world, two primary models for deploying solar PV plus storage systems are emerging. Many stakeholders in the industry believe the optimal way to deploy these systems is through incumbent utilities and electricity providers that can leverage technical experience and access to financing. The recently developed suburb of Alkimos Beach in Western Australia was seeking a community-scale solution to help manage an increasing number of distributed solar PV systems and limit the need for new infrastructure to serve its growing population. The neighborhood elected to work with local energy provider Synergy to deploy a 1.1 MWh lithium ion ESS that is being fed by over 100 solar PV systems located on rooftops throughout the area. In addition to reducing costs for customers, managing the intermittency of PV generation, and limiting the need for new infrastructure, the project provides Synergy an opportunity to use community engagement as a way of combating the threat of grid defection.

Alkimos Beach is not the only community in Western Australia exploring innovative ways to harness the power of the solar PV plus storage combination. The community of White Gum Valley has chosen a different path toward a sustainable, local energy system both in terms of ownership and technical design. Most homes in the community will have both solar PV and battery ESSs onsite that will be operated in concert. In addition to the physical distribution of energy storage in this model, systems in White Gum Valley will be owned by the company managing most of the community’s apartment buildings. The company will act as a utility by owning assets and retailing energy directly to customers, a rare situation in Australia’s regulated electricity markets.

The Path Ahead

These two projects may provide some unique insights into how solar PV plus storage solutions can be optimally developed. They provide clear examples of some of the major debates in the distributed energy storage industry, such as whether it is better for systems to be centrally located or distributed, or if they should be owned by utilities or by customers. While it may take several years for these projects to illuminate the merits of one approach versus the other, they may be a sign of things to come as the distributed energy industry takes shape.


Fracking Boom Drives Increase in Wastewater Treatment

— May 23, 2016

PipelineHydraulic fracturing (commonly referred to as fracking) has been around for many decades, but only recently has it been at the forefront of oil & gas exploration in the United States. Even with the recent downturn in natural gas prices, producers are continuing to frack. According to Scientific American, hydraulic fracturing consumes up to 9.6 million gallons of water per well, and many wells are located in arid regions like Texas.

There are a number of opinions about the process, both favorable and unfavorable. But one thing is for certain: hydraulic fracturing consumes a large amount of water and produces a great quantity of wastewater. This wastewater can be in the form of flowback (fracturing fluid that flows back to the surface of the well after injection) or produced water (water that was already in the aquifer). These present different challenges to treatment and disposal, as flowback water contains components which make it viscous, and produced water tends to have very high levels of dissolved salts. Treatment of this water is usually overlooked in favor of injecting it deep underground in Class II injection wells. However, with increasing public awareness of fracking and advancing treatment technologies for complex contaminants in water, treatment and recycle of wastewater is becoming more viable.

Increasing Regulations

The United States and Canada are the major players in the fracking waste treatment business today. Despite rumors of the lack of regulation, hydraulic fracturing is heavily regulated, and more stringent regulations are being passed at local, state, and federal levels. Along with heavy regulation on the practice itself comes heavy regulation on the disposal and treatment of associated wastewater. For example, in Pennsylvania, the U.S. Environmental Protection Agency regulates the permitting of Class II underground disposal wells. In many other states, these are the main sink for produced and flowback water. In Pennsylvania, there are only seven active disposal wells for oil & gas use; increasing regulation, as well as changes in the economic conditions, are causing the market for water treatment to expand rapidly.

Navigant Research’s recently published Wastewater Treatment Technologies in Natural Gas Hydraulic Fracturing report analyzes the wastewater treatment market between 2016 and 2025. According to the report, revenue from treating water is expected to surpass revenue from deep well injection of produced water in 2018 and is expected to continue to grow from there. This represents a great opportunity for many of the small companies entering this market. Currently, advanced oxidation, membrane filtration, and reverse osmosis are popular treatment options for flowback and produced water streams. With the rapidly growing available revenue in fracking waste treatment, it will be interesting to see which other treatment technologies are adapted.

Revenue from Hydraulic Fracturing Wastewater Treatment by Disposal Type, United States: 2016-2025

Anne Blog Fracking(Source: Navigant Research)



The Growing Role of Energy Storage in Microgrids

— May 23, 2016

GeneratorEnergy storage systems (ESSs) have an important and diverse role in microgrids. Solar PV and other renewable distributed generation (DG) technologies require a voltage source in order to synchronize. This has typically been done with a backup generator; an ESS provides a similar voltage source but without the emissions of a diesel generator. Recent advances in microgrid automation systems, however, have made ESSs less of a necessity in partially renewable-based microgrids. According to industry leader ABB, microgrids with as much as 50% of load coming from renewable sources do not need an ESS. This is 10% higher than previously believed. Despite this, microgrids without some form of storage are not likely to become the norm, as ESSs provide a number of other advantages aside from being a voltage source. Peak shaving, smoothing power flow, and volt ampere reactive (VAR) support are just a few of the supplemental functions an ESS frequently serves. Islanding and black-start assistance further support the case for storage use in renewable DG microgrid systems.

The most recent update of Navigant Research’s Microgrid Deployment Tracker investigated the use of ESSs in microgrids across the globe. According to the report, of the greater than 15 GW of microgrid capacity accounted for in the Tracker worldwide, almost 25% utilized ESS in some form, up from a reported 17.5% of projects in the previous Tracker update in 4Q 2015. This is a result of ESSs being present in over 40% of new project capacity from the most recent update.

The chart below shows the percentage of ESS utilization by microgrid segment for both the 4Q 2015 and the 2Q 2016 Tracker. While ESS utilization grew across all categories, the commercial and industrial (C&I) and utility distribution segments saw the most significant increase, growing 40% and 23%, respectively. C&I microgrids have traditionally been led by diesel combined heat and power (CHP) systems in the past. The jump in energy storage use among microgrids in this segment likely signals a shift to solar PV and other renewable energy use that has a higher need for ESSs.

ESS Utilization by Microgrid Segment, World Markets: 4Q 2015 and 2Q 2016

Adam Wilson Blog

 (Source: Navigant Research)

This is further supported by the fact that solar PV capacity in microgrids grew by almost 840 MW since the last update of the Tracker, an increase more than 5 times greater than CHP capacity growth. The combination of solar PV and ESS is expected to grow in popularity across most segments and regions of the microgrid market. The declining price points of energy storage and solar PV technologies and an increasing focus on renewable sources are largely responsible for this shift. It has also been suggested that the combination of CHP, solar PV, and lithium ion energy storage represents the ideal mix of technologies for microgrids, particularly in the United States.

The high functionality of storage systems along with the growing presence of renewable generation in the microgrid market bode well for the future of ESS. These systems are expected to remain a core technology in the microgrid industry for the foreseeable future.


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