Navigant Research Blog

The Impacts of the Evolving Energy Cloud

— April 9, 2015

In my July 2014 blog, I discussed how utilities should play both offense and defense as the energy cloud evolves and transforms the energy sector. Navigant Research’s new white paper, authored by Mackinnon Lawrence and Eric Woods, provides an update on the evolution of the energy cloud. To summarize, we foresee the strategic, business model, and operational impacts on incumbent utilities increasing, more so as new entrants play important roles in states like Hawaii, California, Arizona, Colorado, New York, New Jersey, and the Carolinas.

Distributed energy resources (as detailed in Navigant Research’s report, Global Distributed Generation Deployment Forecast) and renewables will continue to grow exponentially over the next 5–10 years globally, driven by expanding customer choices and a rapidly changing technology landscape. This will dramatically affect utilities’ customer relationships and increase the complexity of their operations as distributed, intermittent, renewable energy resources spread and the grid becomes more and more digitized. Below is an overview of the highlights of the themes we see evolving rapidly.

Customer Relationships: The further evolution of distributed generation, energy efficiency, demand-side management, demand response, smart metering, behind-the-meter energy management systems, and social media will drastically change the way utilities interact with their customers—many of whom will generate their own power, sell power back into the grid, and plug in their electric vehicles at night. These increasingly sophisticated energy customers expect increased self-service and new products and services, which in turn will require innovative front- and back-office customer operations. This is likely to lead, in many cases, to a strategic pivot in how utilities proactively engage with customers.

Operations: Increasing the return on capital investments and reducing operating expenditures has historically been a priority for utilities. As the energy cloud revolution spreads, the importance of managing assets and capital will only increase. Utilities must give special consideration to managing assets, particularly procurement and the decommissioning of stranded assets. Additionally, utilities will look to build or acquire distributed energy resources and other disruptive technologies that transform day-to-day grid operations while maintaining security and reliability through climate change and other major shifts.

Regulation: All of this will also have a profound impact on regulatory policy, raising the question: will current deregulated market structures be forced to change? The utility industry is vital for the global economy, and is regulated as such. As the energy cloud matures, the regulatory environment can and must change. For a more detailed examination of likely regulatory shifts, please see this blog by Mackinnon Lawrence.

Ultimately, the objective is to provide a safe, reliable, and affordable service to customers. But a fragmented landscape of players (developers, producers and operators, wholesale and retail) will drive the need for organizational, infrastructural, process and data integration, and coordination across the power value chain and could create significant cost in a highly distributed energy infrastructure environment. It will be very interesting to see how markets will evolve as the energy cloud transformation takes hold. More to come…

Mackinnon Lawrence contributed to this blog.

 

Regulating the Energy Cloud

— April 8, 2015

As discussed previously on the Navigant Research blog (Offense and Defense and Open or Closed?), the electrical grid is evolving toward an energy cloud model in which two-way energy flows support distributed energy resource (DER) integration, transactive energy, and other complex market structures and transactions. Representing a platform on which stakeholders will engage to facilitate greater coordination and sophistication in selling and consuming energy, this network of networks has the potential to be far more flexible, dynamic, and resilient than the traditional grid. These changes are detailed in Navigant Research’s recent white paper, The Energy Cloud.

But ensuring reliable, safe, and cost-effective service—the core focus of utilities—is not guaranteed merely by the energy cloud’s emergence. An enforceable regulatory model will need to emerge that balances innovation and the economic benefits of open market competition with the need to maintain interoperability and coordination across a network made up of many layers of disparate elements.

Avant Garde

Today, we’re witnessing a period of rapid experimentation with respect to regulating utilities of the future in the energy cloud. The dramatic rise of DER on the grid has pressed regulators and utilities alike to respond.

Although many factors will determine how the energy cloud will evolve across different markets, states like New York, Hawaii, and California remain at the vanguard of regulatory experimentation in the United States.  In New York, for example, regulators have proposed initiatives to transform utilities into so-called distributed systems platform providers that would act as the interface between consumers and the bulk power system. Other states (e.g., Massachusetts, Minnesota, and the Carolinas) are beginning to explore alternative models as well, but have yet to challenge the utility’s role as the owner and operator of the distribution system.

The issue of who ultimately owns the distribution grid is at the heart of the energy cloud’s evolution. On one hand, the government and the public want to increase competition to achieve lower cost and additional service for customers. On the other hand, the increased complexity and cost to manage distributed intermittent resources across the grid could drive reregulation and consolidation.

Independent Operator

In the latter case, few challenge the need for a centralized authority to do so. Proponents of this approach, such as former Federal Energy Regulatory Commission (FERC) chairman Jon Wellinghoff, support the creation of an independent distribution system operator to manage the distribution grid even if utilities ultimately own the system.

This trend stands in direct opposition to a historic transition toward deregulation in the United States that is already underway. Deregulated markets are expected to allow for more experimentation with respect to business models, thus creating a competitive market for power generation and allowing retail customers to decide who supplies their electricity. However, a lack of standardization and coordination within these markets could make it much more difficult to ensure reliable, safe, and cost-effective operation due to a high level of market fragmentation. The growing footprint of DER, for example, requires much tighter integration and a stronger coordination of demand and supply across the energy value chain.

While it might seem that over-regulation or reregulation would stifle innovation, with respect to the energy cloud, the opposite may in fact prove true. Regulated markets, it turns out, may provide more stable platforms for a coordinated rollout of energy cloud infrastructure and capabilities.

Jan Vrins contributed to this blog.

 

Automakers Turn to OSs to Add Revenue

— April 8, 2015

Automakers looking to continue their revenue growth are challenged by the diminishing prospects for post-sale revenue from replacement parts. Conventional cars are becoming increasingly reliable and electric vehicles (EVs) need little servicing due to their reliance on electronic rather than mechanical components.

Meanwhile, connected vehicle technologies are enabling automakers to remotely deliver software for entertainment, safety, and performance upgrades. Central to this new revenue stream are vehicle operating systems (OSs) that can receive content from automakers or stream it from mobile phones.

Google’s Android Auto and Apple’s CarPlay software platforms are starting to take over, according to auto executives who spoke on a panel during the recent South by Southwest conference.

A Flat World

“Android and CarPlay have made a flat world” for app developers looking for space inside vehicles, said Nick Sugimoto, senior program director at Honda. Google’s Play Store, a popular service for downloading music, videos, and games, currently is not being used for sales within cars today, added Sugimoto, but Honda is working with the company to define an automotive platform.

Jenny Kim of Hyundai Ventures said that while her company also supports Android and CarPlay, Hyundai has its own offerings for music and mirroring mobile phone applications. Its Blue Link is used to connect to the car to the home and networked home devices. Hyundai subsidiary SoundHound, which provides the platform for the Hyundai Sonata, announced that it can also identify the music being played on wearable devices.

Moving control of popular applications from the mobile phone to the dashboard enhances safety, according to Sugimoto. Instead of looking at the phone on your lap, drivers can be looking forward at the display, he said.

Beyond Honda and Hyundai, Android and CarPlay are becoming the default automotive OS on many other models, such as the recently announced Volkswagen Passat Alltrack that supports both platforms. Conversely, Ford has switched to BlackBerry’s QNX OS for its in-vehicle platform.

In the Air Tonight

Connected vehicle technology is being leveraged most in EVs, which include wireless connectivity so that drivers can monitor the state of the battery charge, find charging stations, and perform other functions. Tesla Motors has been the most aggressive in over-the-air upgrades to vehicles to boost performance or enhance safety remotely rather than having to recall vehicles to be serviced. Tesla recently issued a remote upgrade for the Model S that will alert drivers if they stray out of range of one of the company’s Supercharger stations when driving on a low battery.

“There’s no question, over the air is coming” as a mechanism for issuing fixes and adding new features, said Hyundai’s Kim. Over-the-air distribution costs less and allows automakers to keep up with the advances in software outside of their normal 5-year or more development cycle.

For details on the varied initiatives that car companies are exploring to boost revenue, see Navigant Research’s report, Alternative Revenue Streams for Automakers.

 

Uber Expanding into Electric and Autonomous Vehicles

— April 7, 2015

Since Uber’s creation in 2009, the adoption of the company’s mobile app-based transportation service has exploded and the service is now available in 56 countries and over 200 cities worldwide. In fact, it was recently reported that there are now more Uber cars than yellow cabs in New York City. With nearly $3 billion in total funding raised by 2015, Uber is looking to expand its business into the growing electric vehicle (EV) and autonomous vehicle markets.

Offering local customers emissions-free transportation options, Uber has partnered with BYD to provide electric e6 taxis in Chicago. Uber drivers have the option to rent the e6 taxis from the Green Wheels USA dealership for $200 a week, and Uber customers will be able to choose an EV through the smartphone app when booking a vehicle. This new option gives users added flexibility in their riding choices, and more cities around the United States can expect Uber EVs as an option in the near term.

So Long, Driver

Likely to be more disruptive than the introduction of EVs, autonomous vehicles could have a much more notable impact on Uber’s business. In February 2015, Uber announced that it is setting up a laboratory in Pittsburgh to develop self-driving technology. In partnership with Carnegie Mellon University, the company will reportedly be developing the core autonomous technology, the vehicles, and associated infrastructure at the Pittsburgh facility. Uber CEO Travis Kalanick has stated in the past that he would gladly replace human drivers with a self-driving fleet of vehicles, as Uber drivers reportedly take home about 75% of every fare.

Beyond massive savings on costs for Uber, and potentially its customers, autonomous vehicles would make Uber a much safer service—not just in terms of smoother running vehicles with (likely) fewer accidents, but also in terms of the well-being of the passengers. Uber has come under intense scrutiny as of late, as accusations of assaults on passengers by Uber drivers have come from numerous customers from a variety of countries. While Uber does conduct background checks on its drivers, prosecutors in California are suing the company for alleged exaggeration regarding the rigor of its background checks.

Navigant Research’s report, Autonomous Vehicles, projects that globally, close to half of all new vehicles sold in 2035 will have some form of autonomous driving capability installed. Uber may have autonomous vehicles on the road even sooner, which would go a long way toward ensuring safer driving and safer environments for customers who would no longer have to consider the possibility of a dangerous driver.

 

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