Navigant Research Blog

Don’t Call It a Comeback: DR Rebounds in Latest PJM Capacity Auction

— June 5, 2018

Last year at this time, the big question was whether PJM’s new Capacity Performance (CP) construct was going to kill demand response (DR) in the reliability pricing model capacity auction. While it took a hit, it was merely a flesh wound. In 2018, there has been uncertainty about where prices would end up and if DR bidders would feel more comfortable with CP the second time around. All signs point to a healthy DR rebound based on recently released auction results for the 2021-2022 delivery year.

Is 2018 the Year for DR?

Stu Bresler, PJM’s senior vice president of operations and markets, stated that based on this auction, “the death of coal has been greatly exaggerated.” The same can be said for DR. Cleared DR grew from 7,820 MW in the 2020/2021 auction last year to 11,126 MW this year. Every utility zone but one (Duquesne) saw increases, with the biggest changes coming in AEP, Dominion, and ComEd. The 2018 auction had 2,000 MW more DR bid versus 2017’s (11,887 vs. 9,847), and that may be a sign that bidders felt more comfortable after seeing how the first year with CP shook out. For comparison, in 2016, prior to 100% CP, there were 11,818 MW of DR bid, so this year was back to the normal range.

Why the 40% increase? First, the fact that the price nearly doubled from $28,000/MW/year to $51,000 for most of the PJM region could only entice many DR resources that sat out last year to get back in the game. One way to measure the price effect is to see that out of 9,800 MW DR bid last year, 80% cleared, while this year, 94% cleared. Clearly there were a lot of price-sensitive bids last year that could have cleared if the prices ended up higher like this year.

How Important Are the Seasons?

Another major concern was how much DR would bid in as annual resources versus summer-only resources. Only 4% of cleared DR was summer-only, showing that most bidders felt comfortable with the annual CP requirements. Bresler noted that the results seem to counter fears from DR providers on how the seasonal split would affect their competitiveness. He commented, “I was a bit surprised…I question whether we really have a seasonal issue here.”

What Do Providers Have to Say?

Enel X, through its subsidiary EnerNOC, the largest DR provider in PJM, did not publicly provide the megawatts that it cleared, but it did report that it secured more than $180 million in annual capacity payments through the auction, driven by higher capacity prices and an 18% year-over-year growth in MW. “The results are good news for all PJM ratepayers and for commercial and industrial customers who get paid to reduce their energy consumption during times of grid stress to help ensure a clean and reliable grid at least cost to ratepayers,” said Christian Weeks, Head of Flexibility Solutions for Enel X in North America.

CPower, the second biggest PJM DR provider, stated “This result increases the opportunity for DR-capable customers and also prevents even higher price increases for consumers.”

Voltus, a newer DR player, said “The uptick in pricing is exactly what the generators wanted to get out of moving to CP. The uptick in DR is possibly DR, nimble as ever, adopting its offer behavior to price in these new requirements, doing things like teaming up with generators and other resources that have excess winter supply. None of this, however, represents efficient market design and the losers are the ratepayers.”

This isn’t to say that DR in PJM is growing, since it is basically flat from the 2 years prior to CP. But we can certainly say that reports of its death were premature.

 

How Many Ways Can We Control a Microgrid?

— April 17, 2018

How to control a microgrid? Let me count the ways. In the Navigant Research Leaderboard: Microgrid Controls report, all energy storage and smart inverter companies were excluded. This was done to have an apples-to-apples comparison since controls encompass many different technologies. Among the available solutions, microgrids are controlled with digital relays, smart switches, traditional automation products, and increasingly, new sophisticated software algorithms.

This blog traces the evolution of one battery vendor—EnSync Energy—and acknowledges how key microgrid control innovation has flowed from the energy storage community. The story illustrates how battery vendors have evolved over time, turning many early assumptions about microgrids upside down. Whereas in the past microgrids were designed to minimize or eliminate the need for battery storage due to cost, today the vast majority of microgrids include some form of energy storage, especially systems that incorporate renewables.

The roots of what is now EnSync focused first and foremost on a unique flow battery chemistry, with its control architecture as a secondary feature. “The original company had significant intellectual property in power controls. That was one of the key reasons I joined the company,” said Dan Nordloh, executive vice president. “I believed there was peril ahead in remaining a flow battery supplier,” he noted, referencing the recent bankruptcy of ViZn Energy in validation of his concerns.

In contrast, EnSync is no longer focused on flow batteries and has an agnostic approach to battery type. It now boasts over 22 current projects in Hawaii alone, and these represent $35 million in electricity sales over the term of the power purchase agreements (PPAs). The company is deploying a modular, scaleable, off-grid system in East Africa that will likely link up with a larger village nearby. EnSync has also added to its list of partnerships by entering into a strategic relationship with Schneider Electric.

Is Plug and Play the Way to Go?

The key to EnSync’s success? “We decided to move away from single application cul-de-sac designs and instead shift[ed] to a more modular, rack-mounted plug-and-play approach, which future-proofs microgrids. Adding a new resource? Just slide a new drawer in,” said Nordloh. Picking up on a trend also evident among energy storage vendors such as Greensmith, companies that started out with a focus on battery optimization have expanded their reach to generation and loads. In short, they now offer microgrid controllers.

“I like using the analogy of Lego blocks. Remember, a small microgrid is just as complex as a large microgrid. But with our direct current (DC) bus as a backbone, it is easier to add to the microgrid over time, reducing the need to re-engineer the microgrid every time you want to expand the distributed energy resources (DER) mix. And with their integrated cloud-based DER Flex controls package, microgrids can be changed to enable export of grid services with a simple software adjustment,” continued Nordloh. He pointed to the Palama Holdings meat processing plant on Oahu that is installing a microgrid under a self-financed PPA. At present, the microgrid reduces costs by enabling demand charge abatement strategies. Yet state regulators are considering creating markets for grid services. This microgrid could provide demand response and frequency regulation through EnSync’s DER Flex controller with a simple software switch.

An advantage of EnSync’s DC-centric approach is that users do not need to control variable solar PV. Instead, voltage algorithms keep the microgrid in balance. This approach is the corollary to the droop in frequency of the alternating current controls approach known as CERTS. Both control schemes shy away from the common master/slave control protocol, moving the market closer to plug and play.

 

Storage in the Northwest: Overview of Threats and Opportunities

— October 10, 2017

Last week I had the opportunity to open up day 2 of the Northwest Demand Response + Energy Storage Summit. I gave an overview of what is happening with energy storage in the Pacific Northwest.

What Is the Current Market?

The region has a long history with pumped and dispatchable hydropower, so energy storage is not a new concept. However, battery powered systems are relatively new. Since 2010, many utilities have deployed 22 MW worth of projects for research, development, and pilots. Some of the larger projects include Portland General Electric’s Salem Smart Power Center and Puget Sound Energy’s Glacier Project. In the near term, the region’s pipeline for non-hydro project is small, but several drivers are quickly changing that.

Energy Storage Tracker for Oregon, Washington, Idaho, British Columbia, and Montana

(Source: Navigant)

What Is Driving Growth?

Key drivers for new storage developments include resilience needs, evolving business models, renewables integration, and greater access to financing, but the largest drivers are the following:

  • Policy: In Oregon, House Bill 2193 is requiring all investor-owned utilities (IOUs) to procure at least 5 MWh (but up to 1% of 2014 peak load) worth of energy storage. In Washington, the Clean Energy Fund has sponsored many storage demonstrations and the Utilities and Transportation Commission has directed all IOUs to include energy storage in their integrated resource plans.
  • Improving project economics: Energy storage costs continue to fall and we expect that to continue. Falling costs make energy storage competitive in more and more applications.
  • Customer interest: Customers of all types—from residential to large industrial—are getting interested in energy storage to help manage energy costs, provide resilience, and support sustainability.

What Barriers Does Storage Face in the Region?

Potential barriers that could slow down storage deployment in the region include the following:

  • Business models: Not finding the right regulatory and business models that allow a range of values to be captured for individual projects.
  • Pilots and projects: Poorly executed and evaluated pilots and early projects.
  • Technology issues: Technology—including communications, data gathering and management, and operations—that is not ready for energy storage.

Click here for a copy of my presentation.

 

As Summer Winds Down, a Look at Residential Demand Response Leaders

— September 19, 2017

Summer 2017 was relatively light from a demand response (DR) perspective in North America—aside from California, which saw extreme heat waves. There were not a lot of opportunities to test the capabilities of DR resources that utilities, regional transmission organizations, and retail electric providers had stockpiled to prepare for high load levels or energy prices. However, there was still plenty of merger and acquisition (M&A), technology development and new program design activity taking place.

Navigant Research took this opportunity to compile a Leaderboard that examines the current vendor landscape for residential DR (RDR). The report analyzes the strengths and weaknesses of the key players in this global industry and displays those rankings visually in the Navigant Research Leaderboard Grid. This Leaderboard utilized broad guidelines to determine which market participants should be included to allow for companies that offer hardware and/or software and focus on technology or include program implementation services.

The Navigant Research Leaderboard Grid

(Source: Navigant Research)

This Leaderboard evaluated 15 companies based on 10 criteria to determine which competitors are Leaders, Contenders, Challengers, or Followers in the market. As the global RDR market has heated up in recent years, leading companies have invested heavily to develop their capabilities and strategy. There are a number of companies focused on other aspects of the smart grid arena now beginning to tackle the DR space, as well as many startup companies with new hardware and software offerings that take advantage of the plethora of available energy data and communication options for devices and customer messaging. Some of the incumbent RDR vendors are finding that they need to partner with these new players to keep pace with the changing marketplace.

The RDR industry is still maturing relative to the energy industry in general, but great strides have been made in turning DR into an operational resource for grid operators. In addition, this report combines both software and hardware offerings, as well as technology providers and program implementation services, which are all different segments that require diverse skill sets. Few companies attempt to serve all sides, thereby offering a complete solution.

As Navigant Research has published a series of DR-related Leaderboards over the past few years, it has been interesting to see the high level of new players and new technologies that enter the market on a regular basis. By the time the next is published, I expect to see more companies come on to the radar screen and disrupt the market, along with more M&As as successful startups are swallowed up by large energy players looking to expand their reach in the space.

 

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