Navigant Research Blog

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.

 

Energy Market Participation for DER Continues Taking Shape

— September 12, 2017

Distributed energy resources (DER) are often touted as having the potential to disrupt traditional energy markets by providing both reserve capacity and ancillary services. However, to date, there have been limited actual opportunities for this diverse set of technologies to provide these services. Regulatory efforts and collaborations between utilities and technology providers are actively working to change this dynamic in global markets. Likely one of the more innovative programs to bring DER into wholesale energy markets has been California’s Demand Response Auction Mechanism (DRAM).

DRAM is a pay-as-bid solicitation program through which utilities are seeking monthly demand response (DR) system capacity, local capacity, and flexibility capacity from DER. This innovative program aims to allow multiple DER technologies to compete on a relatively level playing field providing load reduction services on-demand for utilities. Contracts for load reduction through the DRAM have been awarded to companies providing DR from both commercial and industrial and residential customers, EV charging providers, and distributed energy storage/solar PV providers. Last month, the DRAM program closed its latest round of awards, with utilities requesting approval for 200 MW worth of contracts.

Tip of the Iceberg

DR is emerging as the primary entry point for DER to participate in competitive energy markets. Many DER, namely distributed energy storage systems, are highly flexible resources capable of providing a range of services, including DR/load reduction, ancillary services, and the ability to absorb excess energy during periods of low demand. Despite the variety of benefits DER can offer, the markets for providing and being compensated for these services are not yet in place in many areas. While existing DR markets only utilize one of the services that DER can provide, they are likely the most viable point of entry into competitive markets. The required integration with utility systems has been effective for decades, and grid operators are comfortable with these programs.

For most DER providers, a DR-type program is not the end goal for grid integration and energy market participation. However, it is a great opportunity to prove both the value and reliability of DER to help solve grid challenges. With California pioneering new programs, and other opportunities taking shape around the world, the evolution of DER participating in energy markets will evolve quickly.

 

New Demand Response/Energy Storage Partnership Poised to Reduce Customer Deployment Hurdles

— September 12, 2017

In my most recent Navigant Research blog, I highlighted how load management and optimization solutions, which include demand response (DR) and energy storage, fit within the energy as a service (EaaS) framework. The EaaS solutions framework is now positioned to support how corporate commercial and industrial (C&I) energy and sustainability managers apply these new technologies and business model innovations to meet their energy management and sustainability needs.

EaaS Deployment Options

In Navigant Research’s Energy as a Service report on the evolution of EaaS, I highlight how EaaS solutions like load management and optimization will be deployed, which can be summarized as follows:

  • Pure-play EaaS solutions provider: Customers engage with a pure-play EaaS provider such as a solar PV developer or an energy efficiency performance contracting provider that provides just a single financed solution.
  • Bundled EaaS solutions provider: Vendors offer multiple EaaS solutions across a project development/financing platform that meet customer needs while also decreasing their customer acquisition costs.
  • Integrated facilities management plus EaaS solutions: A single vendor manages the customer’s day-to-day building operations and EaaS solutions over longer-term agreements that can enable financing innovation.
  • Managed energy services agreement (MESA): Customers with predictable energy use and spend outsource their entire energy management operations to a comprehensive EaaS provider under long-term agreements to unleash long-term financing innovation.
  • Asset monetization or public-private partnerships: Private and publicly traded C&I companies, universities, or municipalities monetize their energy assets in a sale leaseback arrangement that results in the outsourcing of energy operations.

One significant challenge for the deployment of new load management and optimization EaaS solutions to date from the customer perspective is that the market is populated by pure-play solutions providers. This scenario presents a challenge to C&I customers given the potential interdependence of solutions like DR and energy storage on the overall business case for deploying these technologies.

Potential of DR/Energy Storage Partnership

However, a recent partnership announcement by CPower and Stem will combine Stem’s energy storage capabilities services with CPower’s DR and curtailment services to better manage customer energy load and spend. Given the current contracting and revenue models that each vendor provides, an integrated Stem/CPower offering has the potential for an improved customer savings business case that can exceed the business case of each technology individually, as highlighted below:

  • For existing Stem customers, this partnership can result in an increased bonus payment over their equipment lease payment/demand charge savings scenario given the added DR market participation that CPower can enable. Stem’s existing customers can also benefit from an improved battery use case scenario over time given that additional building controls under CPower DR technology control can be leveraged instead of just the battery energy storage system (BESS).
  • For Stem sales contacts looking to deploy new BESSs, this partnership can result in a better bonus payment scenario given that a potentially smaller BESS could be installed (or one with a lower cost use case scenario over time), thereby potentially lowering the equipment lease subscription price.
  • And for existing CPower customers and sales contacts looking to participate in DR programs, this partnership can result in and improved DR market participation revenue scenario given the added response capabilities that the deployment of a Stem BESS can enable. This can help reduce the over subscription/under commitment challenges that DR aggregators face given the need to keep building occupants comfortable during demand response events.

It will be important to keep an eye on how the CPower/Stem partnership handles the integration of dispatch algorithms and customer dashboards as the partnership matures. But this partnership appears poised to reduce customer barriers for the deployment of integrated DR/energy storage EaaS solutions.

 

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