Navigant Research Blog

Utilities Explore Different Approaches to Residential Energy Storage

— August 31, 2015

Residential energy storage systems are anticipated to see exponential growth over the coming decade. The capacity of annual installations worldwide is expected to grow from 562 MWh in 2015 to 38,525 MWh in 2024, according to Navigant Research’s report, Community, Residential, and Commercial Energy Storage. While numerous storage system developers are lining up to begin selling residential batteries, utilities around the world are struggling to determine how to integrate these new distributed energy resources into their networks.

Utilities can receive numerous benefits from residential storage, including deferring investments in distribution grid upgrades and stabilizing circuits with high penetrations of solar PV. Additionally, the use of residential storage in an aggregated virtual power plant configuration helps utilities manage their financial risk by calling on distributed batteries to supply loads at times of peak demand, thus avoiding purchasing costly wholesale energy. Despite these benefits, many utilities are unsure how residential storage can be integrated into their networks. While much uncertainty remains, two major utilities have recently announced pilot projects employing very different business models.

Different Approaches

In August, Australian utility Ergon Energy announced a program with leading vendors SunPower and Sunverge to deploy residential storage systems tied to solar PV (initially in 33 Queensland homes). Through this program, Ergon will own the battery systems located behind the meter in customer homes. The utility claims these 5 kW/12 kWh lithium ion systems paired with a 4.9 kW PV array will supply around 75% of a home’s electricity needs. Participating customers will pay an $89 monthly fee, and Ergon claims they will save at least $200 per year by purchasing much less grid-supplied electricity. This utility-owned approach to residential storage represents one path, while a very different model is being tested across the Pacific.

California utility San Diego Gas & Electric (SDG&E) recently launched a pilot program to encourage homeowners to install residential storage themselves. In contrast to Ergon’s program, SDG&E would like its customers, or third-party vendors, to own the distributed systems. The utility will offer a tiered system of cash incentives and reduced rates that could, when combined with the state’s other incentives, render the storage free to customers. SDG&E envisions a rate that reflects forecasted system and circuit conditions on a day-ahead basis, and through hourly price signals, will incent both charging and discharging activity. Grid operators will then rely on energy stored in these batteries during peak demand, reducing the need to upgrade their equipment, and avoid utilizing more costly conventional generation sources. This approach can greatly improve the overall efficiency of the grid and help address the duck curve issues that arise from the ramping down of distributed solar PV systems during peak demand. A key feature of this model is that outside of peak demand periods, customers can utilize the battery however they want to maximize their consumption of solar energy, reduce demand charges, and ensure they have power during grid outages.

Potential Paths

The economics of both pilot programs will be determined over the next several years and will likely influence other utilities around the world. SDG&E has also proposed a separate pilot project that will deploy utility-owned batteries under its direct control, and it will compare that project’s performance against the tariff-based systems in terms of cost and effectiveness. Key questions for both utilities revolve around opening the residential storage market to additional participants and ensuring optimal benefits for both customers and grid operators. Despite the uncertainty, these pilot programs demonstrate potential paths forward for what is expected to be a massive global industry.

 

Honda Switches from NGV Civic to Supplying CNG

— August 28, 2015

For more than 16 years, Honda Motor Co. was one of the leading proponents of natural gas as a transportation fuel in North America. From 1998 through 2015, four generations of the compact Civic sedan were available with a factory-installed compressed natural gas (CNG)-fueled powertrain. However, despite being one of the best-selling cars in North America, the CNG Civic never caught on and was discontinued earlier this year. Fortunately, Honda has not given up entirely on CNG and has refocused its efforts as a supplier of CNG to its own parts suppliers.

CNG Refueling Station

Recognizing that the natural gas vehicle (NGV) market in North America consists primarily of fleet and commercial customers rather than individual car owners, Honda recently opened a CNG refueling station at its Marysville, Ohio campus. Marysville is the site of Honda’s first and largest North American automotive assembly plant, as well as the headquarters of Honda R&D America. With a capacity of 440,000 vehicles a year, the Marysville plant is one of the largest in North America, receiving hundreds of deliveries every day. This made Marysville an ideal location for the first CNG refueling station at any of Honda’s North America facilities. The fast-fill CNG refueling station was designed, constructed, and is being operated by Chicago-based Trillium CNG, one of the leading developers of CNG refueling infrastructure.

“We designed the station to accommodate 2.5 million gallons per year,” said Honda spokesman Eric Mauk. “It is currently fueling over 1.0 million gallons per year and that translates to 75-80 fueling events per day. At 2.5 million gallons per year we would expect to see roughly 200 fueling events daily.”

According to Navigant Research’s Natural Gas Refueling Infrastructure report, the total number of CNG refueling stations in North America is projected to grow to only a little more than 1,800 over the next 10 years from 1,560 today, a compound annual growth rate (CAGR) of 1.7%. Globally, the number of stations is projected to grow at 4.0% over the same time period.

Benefits for Fleets

The drop in world prices and corresponding reduction in gasoline and diesel retail prices is expected to suppress interest in natural gas for personal use vehicles for the foreseeable future. However, fleet trucks that frequently accumulate 100,000-plus miles annually can still benefit from a switch to natural gas, something that Honda is hoping to stimulate by offering convenient and fast CNG refueling to its suppliers when they are making deliveries. Honda estimates that more than 100 suppliers in the area could make use of the facility, driving 20 million miles annually on CNG. That would save nearly 20 million pounds of carbon monoxide annually compared to running on diesel. This is particularly beneficial for smaller suppliers that may not have fleets large enough to support the investment in their CNG refueling equipment. The refueling station is also open to the public so that anyone in the Marysville area is welcome to use the facility.

Other companies that receive many deliveries daily could also help stimulate demand for CNG by installing refueling infrastructure for their vendor community. Depending on where they are located, they could even take advantage of landfill gas for further environmental benefits. BMW already uses landfill gas to provide half of the power needs for its Spartanburg, South Carolina factory. If sufficient gas was available, it could be used as transportation fuel as well. Innovative approaches like Honda’s CNG station will be needed to keep advancing natural gas as a transportation fuel.

 

EPA Heads to Court with CPP

— August 28, 2015

The Clean Power Plan (CPP) has been a hot topic in recent months. It is about to get even hotter as 15 states band together in opposition to take the final ruling to court (details of the CPP can be found in the following links: link 1 and link 2).

Early Resistance

The CPP has met resistance since day 1, with federal court challenges filed well before the final rule was released by the Environmental Protection Agency (EPA) on August 3, 2015. Portions of the CPP were even shed in anticipation of a legal fight. The draft CPP rule included four Building Blocks (BBs):

  • BB1: Heat rate reductions
  • BB2: Switching from coal to gas
  • BB3: Renewables
  • BB4: Focused on energy efficiency (EE)

The EPA removed BB4 in order to strengthen the CPP’s legal position since EE is a demand-reducing resource, not a supply resource covered by the Clean Air Act (CAA, the CPP’s core federal law). Dropping BB4 removed a key legal concern cited by many who commented on the proposed CPP rule. However, a large block of states still oppose the CPP and plan to file in federal court to block implementation of the rule. Arguments against the rule range from its potential to substantially alter the power industry and the economic drivers of that business to unemployment and the threat of weakened power reliability.

CAA Battle

The CPP is not the only EPA rule being challenged in the courts. Florida is leading a group of 17 states over EPA startup, shutdown, and malfunction (SSM) rules. These states argue that the CAA gives the federal government the authority to set standards involving harmful pollutants, but it is up to the states to determine how they want to implement those standards.

The CAA is often upheld by the Supreme Court despite vigorously fought cases against the EPA. In the case of Coalition for Responsible Regulation v. EPA (2012), various state and industry group petitioners challenged all four EPA greenhouse gas (GHG) actions, alleging that they are based on improper constructions of the CAA. The Court upheld the GHG actions, supporting the EPA’s interpretation of the CAA in those cases. The Court also upheld provisions of the CAA in the Chamber of Commerce v. EPA (2011) case that permit the EPA to allow California to set its own automobile emissions standards. In this case, the U.S. Chamber of Commerce and National Automobile Dealers Association could not prove that these standards would cause any economic harm.

Primed for an Ongoing Battle

If the CAA’s previous Court success is any indication of the future, states need to prepare now for how they will meet the EPA’s CPP requirements. While numerous states fight the CPP (most recent state count was more than 15), many more are already preparing plans to reduce carbon emissions. In fact, a study conducted by the Union of Concerned Scientists shows that the 31 states that have already made commitments to the CPP will be more than halfway toward meeting their 2022 benchmarks, and 21 of these states will actually surpass it. Georgia, North Carolina, and South Carolina, all of which are suing the EPA, are also on track to exceed their 2022 benchmarks. The ongoing battle between states’ rights and the implementation of federal EPA rules will be on full display once the final CPP is published in the Federal Register (on or about November 3, 2015) and the opposing states file their federal court cases. The outcome of those joint cases will have a great impact on the future of the U.S. power industry.

 

PJM Capacity Auction Livens Up the Dog Days of Summer

— August 24, 2015

A lot of people normally take vacations and start to think about the back-to-school rush in August, but nothing productive gets done. The same cannot be said for 2015, as PJM’s capacity auction, normally held in May, was moved to August this year due to regulatory proceedings. This change has kept people checking their messages from the beach to make sure they don’t miss any important news while working on the perfect tan.

PJM’s 2018-19 Base Residual Auction (BRA) for its Reliability Pricing Model (RPM) capacity market was held last week and it released results late last Friday. This was the first auction to include the new Capacity Performance (CP) requirements, which increase risk to suppliers but also potentially increase revenue. The auction prices for CP fell within expected ranges, elevated over the last auction. Importantly, PJM only procured 80% of its supply need with CP, with the other 20% coming from Base Capacity (BC) resources, which have lower performance requirements and lower risk. The main analyst sentiment going into the auction was that BC would clear at a much lower price than CP due to the risk premium. This did not turn out to be the case, however, as CP only cleared 7%–9% higher in most zones.

What does all this mean for demand response (DR), which was seen as a wild card in the auction outcome? All signs point to a positive prognosis—well above most expectations—with 11,000 MW clearing, about 100 MW more than the year prior. This increase is probably due to the higher prices rather than any DR industry trends. Over 90% of DR cleared in the BC product. Had the BC price ended up much lower, as was widely expected, it would have been interesting to see how much DR would have stayed in the market.

One big question was how much DR would clear in the CP product given the higher risk of penalties. The answer was about 1,500 MW, less than 10% of total DR. There are many ways to interpret this result. First, it rebuffs the notion that little to no DR would take the CP plunge. So some level of DR is here to stay once PJM starts procuring 100% CP in a couple of years. On the other hand, a very small percentage of DR cleared in CP, so it does not look like a mass-market opportunity. However, a third perspective is that because the CP premium over BC was so small, most DR suppliers chose BC for the lower risk; had the premium been much larger, perhaps more DR would have jumped to CP. A lot of those details are hidden in the bidding strategies of the suppliers and are not made public unless willingly volunteered. EnerNOC normally releases a statement soon after the auction announcing its results, but probably not that level of detail.

PJM has stolen the headlines once again, but I’m sure there will be time to discuss other energy developments once I put my surfboard away and school commences. In the meantime, you can read about EnerNOC and other DR providers in Navigant’s recently published Demand Response Leaderboard Report.

 

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