Navigant Research Blog

Solar PV for Healthcare

— October 12, 2015

Navigant Consulting and the U.S. Department of Energy’s (DOE) Better Buildings Alliance recently released an On-Site Commercial Solar PV Decision Guide for the Healthcare Sector to address barriers and solutions to solar PV for healthcare facilities.

Why Healthcare?

More and more, healthcare facilities are looking for ways to reduce energy costs. According to the DOE, hospitals and healthcare facilities consumed more than 8% of the total energy used in U.S. commercial buildings in 2012 and spend more than $8 billion on energy annually. Following the food service industry, healthcare is the second most energy-intensive sector, with energy costs rising an alarming 56% between 2003 and 2008, according to the Healthier Hospitals Initiative. Many hospitals are focusing on energy efficiency, and Navigant Research forecasts the market for healthcare energy management systems will more than double by 2024. Solar PV is a key solution to reduce energy costs.

Some of the benefits of solar PV include:

  • It reduces electricity consumption and helps decrease peak demand, meaning lower operating costs and more resources for patient care.
  • It protects against rising energy costs and price volatility.
  • It generates electricity without any direct emissions.

Barriers to solar PV include:

  • Hospital roofs are crowded with other equipment and there is limited space for a solar array.
  • Staff have limited availability, and many hospitals do not have a dedicated energy manager.
  • Large healthcare systems are often made up of small, autonomous organizations, which complicates ownership models.
  • Nonprofit healthcare organizations and real estate investment trusts cannot take direct advantage of tax benefits.
  • Management sees solar PV as a large investment that may not be financially viable, especially compared to medical equipment.

Solutions and Strategies

Installation type: If the roof is dominated by medical equipment, design a carport or ground-mounted array. A carport array may be more expensive, but it also provides benefits like shading cars from the sun. Ground-mounted arrays put underutilized land to use and usually accommodate larger systems.

Commercial Carport-Mounted PV Array

Jay Blog Picture

(Source: National Renewable Energy Laboratory)

Location: Healthcare facilities other than hospitals often make better hosts and should be considered when siting a PV system. Medical office buildings, laboratories, material management centers, outpatient facilities, and other care centers typically have less rooftop equipment than a hospital.

Financing: Third-party ownership structures often involve a power purchase agreement (PPA), under which the healthcare facility purchases electricity at an agreed upon price. For non-profit organizations that cannot take advantage of tax benefits, a PPA is likely the best financing strategy because the third party will be able to access tax incentives and reflect this in a lower price.

Planning: The PV project should be approved by the Chief Financial Officer and the Facilities Manager/Director of Engineering. It will eventually go to the Board of Directors for approval, and would benefit from having an internal champion—like a Sustainability Manager—see it through the process. Healthcare organizations can also integrate sustainability efforts into the organizational structure.

Organizational Structure

Jay Blog Figure

 (Source: Navigant Consulting)



From Grid to Cloud: A Network of Networks in Search of an Orchestrator

— October 8, 2015

Magnifiers_webIn my blog, “The Impacts of the Evolving Energy Cloud,” I discussed how the power sector is undergoing a fundamental transformation. It is transitioning from a centralized hub-and-spoke grid architecture based on large centralized generation assets toward a more decentralized grid with a bigger role for renewables and distributed energy resources (DER). Navigant calls this new grid the Energy Cloud.

Where networks of networks exist, the business model that Wharton School dubbed the network orchestrator has been found to achieve faster growth, larger profit margins, and higher valuations relative to revenue, compared to three other types of business models (asset builder, service provider, and technology creator). The network orchestrator role will capture value by tailoring electricity supply and demand services for a customer, utility, or grid operator. In Navigant’s latest article in Public Utility Fortnightly, we explore how network orchestrators will emerge from the developing Energy Cloud and who might be candidates for such a role.

The New Uber

This week, in an interview with Energy Post, RWE’s Head of Innovation Inken Braunschmidt talked about the different business models that RWE is pursuing to capture an important position in the future energy system in Europe. She states, “In that energy system, it’s much more about sharing … you go onto a platform and say: I have electricity left over from wind or today I want to order some electricity from wind. It will be like ordering Uber.” This is a good example of how a large utility wants to transform its business and build a network orchestrator business model on top of its traditional business models. Many utilities have recently started new businesses, evaluating and making the initial investment in network orchestrator roles in areas like virtual power plants, building energy management systems, microgrids, storage, and others.

Another example this week was General Electric’s (GE’s) announcement of Current, powered by GE, an energy company that integrates GE’s LED, Solar, Energy Storage, and Electric Vehicle businesses to identify and deliver cost-effective, efficient energy solutions to its customers. This is clearly a move to become more of an orchestrator. The new company combines GE’s products and services in energy efficiency, solar, storage, and onsite power with its digital and analytical capabilities to provide customers—hospitals, universities, retail stores, and cities—with more profitable energy solutions.

Since companies employing the network orchestrator business model outperform other types of companies on several significant dimensions, it may only be a matter of time before pure network orchestrators emerge and establish themselves as key orchestrators within the Energy Cloud. As in other industries, Navigant strongly believes that new players will enter this field to become the network orchestrators of the utility industry.

So with that said: Who will be the Uber of the utilities industry? More to come on this soon.


Carsharing Consolidation and Diversification

— October 7, 2015

When carsharing began in the 1980s and 1990s, it was seen as a sustainable alternative to the dependence on private cars in developed economies like Europe and North America. The concept was viewed—much like carpooling—as appealing to a small niche of environmentally conscious drivers. The market was also pioneered by people committed to the sustainability cause. The carsharing services that sprung up in European and North American cities tended to be local businesses with strong ties to the community. In the 2000s, the market took a leap forward after the launch of Zipcar in the United States. After it rapidly became the biggest carshare company (in terms of membership), Zipcar furthered its reach by merging or acquiring other services—most notably through merging with the other big player in the U.S. market, Flexcar, in 2007.

Today, the carsharing industry is now a major global business, albeit one that is still more popular in North America and Europe. Navigant Research estimates that there will be around 4.7 million carsharing service members worldwide by the end of 2015 and that global membership will grow to almost 24 million by 2024. The market landscape looks quite different than it did in its early days, with more large players like Zipcar accounting for significant shares of global membership. Zipcar is estimated to have around 900,000 members, while Daimler’s car2go service reports having 1 million members. Socar, a service in South Korea, has stated a gain of 600,000 members since opening in 2012, and a Tokyo-based service called Times Car PLUS reports around 430,000 members. Large auto companies have increased their interest in the carsharing market in part because of these numbers. Zipcar was acquired by Avis in 2013; automakers Daimler and BMW are now running carshare programs; Time Car PLUS is run by a large parking lot company; and French conglomerate Bollore launched a successful Parisian carshare service, Autolib’, and has since opened services in London and Indianapolis. Another successful South Korean carshare company, CityCar, is operated by a subsidiary of LG.

Is Bigger Going to Be Better?

Consolidation has been a trend for carsharing recently; Zipcar acquired several smaller companies in Europe and the United States, and rental car company Enterprise acquired the United Kingdom’s largest independent carsharing company, City Car Club. But this market still has plenty of small, local players and will continue to support such services. Small players are more likely to remain in the round-trip carshare service model, however, as the recent trend has been toward more one-way services like car2go and Autolib’. A one-way service requires a larger fleet of vehicles deployed upfront, and thus is more likely to attract larger companies that can afford this investment. Navigant Research also expects to see more large companies acquiring smaller competitors as a means to expand market share. But the market is not likely to move to just a handful of large companies, as small, localized carshare services are banding together to strengthen market position. Although large carshare companies will represent a significant chunk of membership numbers, the market over the next decade will continue to support both large and small operations.


TEP’s Program a Win-Win for Solar Proponents and Utilities

— October 7, 2015

I’ve written extensively about the solar/net metering brouhaha in Arizona over the past 2 years (you can see related blogs here and here). I’ve also previously posited (here, here, and here) that electric utilities worried about solar encroaching on their core business and profitability need to embrace solar, suggesting that if you can’t beat ‘em, join ‘em.

That is exactly what one offering from Tucson Electric Power (TEP) attempts to do. Well, sort of. My analysis indicates that the deal is pretty good for all involved.

In August 2014, TEP proposed a rooftop rental arrangement for customers in its territory whereby TEP would rent its customers rooftops and install solar panels for its own generation needs. In exchange, the utility fixes customers’ monthly bills at their current level for the next 25 years, which TEP considers to be the life of the panels. According to the company website, TEP intends to accept 500 participants in 2015 and was still accepting applicants through September. The plan has been viewed with caution—but not outright hostility—by solar advocates because TEP is subcontracting out the panel installation business rather than creating its own internal, division.

Long-Term Benefits for All

TEP’s proposal could have a substantial positive financial value to customers in its territory. Here’s why: If you run a discounted cash flow analysis, using an 8% cost of capital assumption and a 25-year time horizon, the present value of the savings that TEP customers might enjoy is substantial—assuming that electric prices in Arizona continue to rise at historic rates.

In running my calculations, I assumed a customer would start the program at the beginning of 2015 and that the current $0.12/kW cost rises 3.4% annually through 2040 (this is the average annual increase between 2003 and 2013 in Arizona).

A current $100/month TEP customer is using 852 kWh per month; a $240/month customer is using 2,044 kWh. Keep that usage fixed for 25 years, and the net present value to these customers of the fixed rate versus projected actual monthly bills ranges from more than $6,000 to more than $14,000. The nominal (undiscounted) value of the savings amount to more than $20,000 for the $100/month customer and an eye-popping sum of more than $50,000 for the $240/month customer.

Tucson Electric Power Solar Rooftop Proposal: Potential Net Benefits to Consumers

Richelle Table(Source: Navigant Research)

Even if the rise in electric rates were to fall to half of its historic rate in Arizona (1.7% rather than 3.4%), the savings to TEP rooftop renters would be $2,600 and $6,200 respectively on a present value basis, and the nominal benefits accrue to $9,000 and $21,000 for $100/month and $240/month customers. Considering the heat in Arizona, I’d be willing to bet there are quite a few $300+/month customers for whom this is an even more attractive proposal.

It Takes a Village

Solar installers in Tucson do not view TEP as a competitor because they continue to get the business. Customers do not have to worry about credit scores or qualifying for financing. TEP expands its solar generation capabilities. The deal truly appears to be a win-win-win. In fact, the financial benefits to TEP are probably the lowest on management’s totem pole. The program helps the utility meet renewables requirements and keeps customers happy—and that is worth quite a lot.


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