Navigant Research Blog

Tracking Blackouts: Validation That C&I Microgrids Are the Next Big Thing?

— April 10, 2018

A number of reports tracking power outages in the US have been released this year. These reports underscore why this country continues to be the global leader on grid-tied microgrid capacity, according to Navigant Research’s Microgrid Deployment Tracker. These statistics also show why commercial and industrial (C&I) customers have emerged as the fastest growing microgrid market segment globally.

Eaton Blackout Tracker Results

Eaton, a leading microgrid solutions provider, releases its annual Blackout Tracker every year. The data for 2017 revealed a few surprises. The US sustained 3,526 blackouts in 2017 that interrupted grid delivery of power services to an aggregate population of 36.7 million. The average power outage averaged 81 minutes of down time. While the total number of overall outages in 2017 was 9% less than in 2016, the number of people affected by these blackouts more than doubled. This seeming dichotomy can be explained by the longer term and wider geography of major blackouts occurring last year due to extreme weather hitting Florida, Texas, and Puerto Rico (along with wildfires hitting California).

As noted in a previous blog, the state that features the most power outages is California. No doubt, part of this is due to sheer size. Nonetheless, the state has had the dubious distinction of taking top honors for blackouts for the ninth year in a row. Top identifiable causes were weather and falling trees followed by failing equipment and human error. All 50 states were affected by power outages, with the average cost at $100,000 per hour. One of the most expensive costs incurred by a single C&I customer was Delta Airlines, which lost $50 million due to an outage at the Atlanta, Georgia airport.

Ranking All 50 US States by Number of Blackouts: 2017

(Source: Eaton Blackout Tracker)

S&C Electric Results

S&C Electric, a leading company active in utility distribution microgrids, released its own analysis focusing explicitly on C&I customer blackouts in the US. Some 251 companies representing operations including manufacturing, data centers, and healthcare, among others, responded to this survey conducted in 4Q 2017. Here are some of the highlights rendered from this research:

  • 41% of respondents claimed the average power outage was up to one hour of time, while 26% said one hour or more.
  • In terms of frequency, just under half (49%) said they experienced one or more power outages every year; 21% said once a month or more (see the figure below).
  • In the past 12 months, 84% of respondents recalled some form of power outage.
  • Longest duration power outages were reported in the manufacturing sector with 58% reporting outages of an hour or greater.
  • Productivity loss was the main impact upon C&I customers experiencing power outages (76%).
  • On a regional basis, the longest power outages occur in the South, with 62% of respondents being affected by a power outage lasting more than 1 hour.

US C&I Outage Frequency by Region: 2017

(Source: S&C Electric)

What Does This Mean?

What basic insights can one glean from this analysis? While initially laggards, C&I microgrids are now picking up momentum and will continue to grow at a fast pace not only in the US, but globally. The S&C Electric report supports this view as 71% of respondents say they own or plan to develop alternative energy sources to supplementing their utility power supplies. From a microgrid market perspective, even more important is that 70% see power reliability as an existing cause for concern, and 40% would pay a premium to improve it.

 

America Movil Enters the Residential Solar Market

— March 20, 2018

On February 26, Mexico-based America Movil, one of the world’s largest telecom companies, announced the launch of a solar product in Mexico, becoming the first leading telecom company to fully embrace distributed energy resources (DER). America Movil currently serves 363.5 million access lines, including 280.6 million mobile subscribers in Latin America and Central and Southeast Europe.

Its fixed-line subsidiary, Telmex, will provide the service to customers who own a roof. Telmex will install the modules and file all its customers’ paperwork. A 3.3 kW system will cost MXN 166,844 (US$8,957 or US$2.7/W) paid in cash or up to MXN 236,000 (US$12,600 or US$3.8/W) when financed. Payments will be made through an existing Telmex invoice.

Telmex will target high consumption residential customers currently paying the regulated domestic high consumption (DAC) tariff, which in February 2018 was US$0.24/kWh. A user pays this tariff if they consume more than 250 kWh per month in temperate regions or up to 2,500 kWh in the hottest areas.

A Need to Diversify

America Movil already offers mobile, fixed-line, broadband, Internet of Things, and television services in Mexico, but its 61% market share is at the limit of what regulators allow. In addition, after regulatory reform in 2014, Mexican mobile competition increased significantly, cutting margins at America Movil’s cash cow. In April 2017, Mexico’s telecoms regulator put America Movil on notice to legally separate its Telmex fixed-line division from its cellular and retail divisions, putting even more pressure on the company’s finances.

DER: A Tool to Capture the Energy Market

With no room to expand in the telecoms sector, America Movil needs new markets where it can leverage its infrastructure and large customer base. Residential solar fits this description perfectly. Telmex must create new solar installation teams, but other infrastructure already exists: sales, retail partners (Carlos Slim, America Movil’s majority shareholder, owns a large Mexican retail empire), finance (Slim also owns a local bank), customer service centres, billing, etc.

Both Telmex and customers will benefit. Solar improves customer stickiness (finance contracts run for up to 6 years), while reducing electricity costs for its customers.

The America Movil Case Is Unique, but Some Drivers Are Global

America Movil’s situation is unique. Few telecoms are permitted a 61% market share, or have an owner that also owns a bank and a retail empire, or are entering a market with one player not used to competing. But other drivers are global. All telecoms have a large customer base and the infrastructure to serve and bill them once DER is installed. Many also operate in regions with regulated electricity tariffs and abundant sunshine.

Other telecoms are already exploring DER. Last year in the US, Sunrun and Comcast partnered to offer Comcast customers Sunrun’s DER services. In Europe, O2 Telefonica has tip-toed into DER through smart home energy devices like smart thermostats, albeit with mixed results.

 

The US ITC Was Reinstated for Fuel Cells: Is It Enough to Recharge the Industry?

— March 20, 2018

In an 11th hour move, the US federal Investment Tax Credit (ITC) was reinstated for certain orphaned generating technologies in February’s congressional tax bill. Among the technologies extended, fuel cells have the highest incentive: as much as 30% of the system cost can be taken as a tax credit. For stationary systems made by the likes of Bloom Energy, Fuel Cell Energy, and Doosan, the credit can be worth around $0.02/kWh on a levelized cost basis—a significant amount that can decide whether a project gets built.

Will it be enough to reignite an industry that largely treaded water in the US in 2017? That depends on whether industry players can address certain key issues.

Capital Costs Must Be Lowered

The high capital costs of fuel cells remain the biggest hurdle to mass adoption. Installed capital costs vary widely but typically range from about $4,000/kW to $8,000/kW. By contrast, turbines, microturbines, and reciprocating gensets are significantly cheaper per kilowatt—as low as $1,000 or less for certain gensets and turbines. Fuel cells make up for this with high efficiency, but that advantage is hobbled in a world of low natural gas prices. Cost declines in recent years have been promising, but more must be done. Incentive certainty should help drive investment, volume, and thus economies of scale, but more must be done with manufacturing process improvement and the use of lower cost assemblies and materials.

Flexibility and Load Following Must Be Improved

The US electrical grid is experiencing increasing volatility thanks in part to fast growth among intermittent renewables. This has led to demand for flexible, dispatchable technologies like battery storage. The higher temperature fuel cells popular in the +500 kW range tend not to follow load well. This is a disadvantage, especially for applications like microgrids that value islanding from the grid. Pairing the fuel cell with battery storage (a la Bloom Energy) can help overcome this lack of flexibility

Carbon Emissions Still Represent a Liability

Despite super-low levels of criteria pollutant emissions, fuel cells using natural gas still emit carbon dioxide. This can be a significant liability when compared with, for example, the emissions-free PV-plus-storage systems that continue to fall in price. Though fuel cell emissions per megawatt-hour tend to be lower than most electrical grids right now, those grids are focused on decarbonizing. This is of special interest among corporate buyers thinking increasingly about sustainability. Low carbon fuels like biogas are a key decarbonizing pathway. Some programs, like California’s SGIP, encourage biogas market transformation by requiring increasing amounts of biogas in covered systems. Using biogas as a fuel is a strategy for fuel cells to compete better on system carbon emissions.

Fuel Cell Technology Needs More than Just the ITC

The reinstatement of the ITC gives a welcome boost to the stationary fuel cell industry in the US. It lowers both uncertainty and costs to the end user, and enhances economies of scale. But more yet is needed to truly scale the industry. Cost cuts have been aggressive in recent years but must continue. The ITC is scheduled to phase out over 5 years, dropping to 22% before ending in 2022, giving fuel cell companies a clear timeline for hitting lower cost targets. Pairing up with other dispatchable technologies like batteries may help fill the gaps in load following capability. And to limit carbon emissions, alternative fuels like biogas and green hydrogen will become increasingly important fuels. Fuel cell technology still shows great promise, but there is much yet to be done.

 

Regulated Utilities Deliver Innovative Home Construction Solutions

— March 15, 2018

In a recent blog, I discussed how a new virtual net metering product is saving residential customers money by going solar with no money down while also retaining customers and reducing sales overhead for the energy service provider. This kind of creative, customer-focused solution is the focus of my new Utility Customer Solutions Research Service.

Utilities Are Rolling out Creative Solutions

The announcement of the Southern Company Smart Neighborhoods initiatives with Alabama Power and Georgia Power is showing that creative customer solutions can have utility benefits within a regulated utility jurisdiction as well. These Smart Neighborhood initiatives are featured, among others, in my recently released Navigant Research Strategy Insight report on these solutions.

In Birmingham, Alabama Power is now providing distributed energy resources (DER) including solar PV and battery energy storage, as well as smart home appliances and technologies as part of a new home construction development. This initiative will also aggregate renewable generation and distributed energy storage at the neighborhood level through community scale storage, solar PV, and emergency distributed generation to optimize the local grid and improve resiliency.

In Atlanta, Georgia Power is also providing DER (rooftop solar PV and battery energy storage), enhanced home insulation, advanced HVAC units, and LED lighting, as well as home automation systems with smart thermostats, smart locks, and voice control technology as part of a new home construction development. The Georgia Power program will collect data from the DER, HVAC systems, heat pump water heaters, and other technologies to inform grid optimization and new services for customers.

What Should We Expect in the Evolving Market?

Navigant Research anticipates that both regulated utilities and deregulated energy service companies will be increasingly more focused on these new solutions and business models to meet new utility customer expectations. For deregulated energy services companies, the reason is quite simple—the sale of electricity in retail choice is being commoditized, which reduces margins. Therefore, the drive to deliver new services without customer expenditures under longer contracts and recurring revenue is obvious. And there are few regulatory barriers to doing so.

But regulated utilities face regulatory constraints on what the utility can do beside operate the grid and sell electricity to customers, making the path to new business models more difficult. However, these two Southern Company Smart Neighborhood initiatives are extending the role a home can play in transitioning the grid from traditional centralized generation to part of an Energy Cloud platform while also creating new residential customer solutions.

 

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