Navigant Research Blog

Oil-Producing Nations Signal a Warning to the Utility Industry

— April 17, 2018

Saudi Arabia seems to be following Norway’s lead as a major oil producer eschewing fossil fuel generation for cleaner alternatives. This nation-state trend is mirrored at a company level, with major oil companies also seeking opportunities in renewable energy. Utilities may ignore it at their own peril.

From Oil Empire to Renewables Powerhouse

In February 2018, Saudi Arabia’s first utility-scale solar auction broke records: ACWA Power won the right to develop a 300 MW solar farm under a 25-year PPA with a tariff of $0.0234 kWh, made possible through unique market conditions. High solar irradiance and declining costs are assisted by low land costs, a favorable licensing regime, and cheap finance.

This is just part of a much wider shift to solar. In March, the Saudi government and Japanese tech giant SoftBank announced an ambitious $200 billion, 200 GW, 12-year solar generation project. If—and it is still a case of if not when—all this planned capacity is installed, Saudi Arabia’s generation capacity will exceed the country’s needs. Part of the King Salman Renewable Energy Initiative, this project could see Saudi Arabia become a net exporter of renewable power.

Saudi Arabia’s Plans Could See It Become the Norway of the Middle East

Despite obvious differences, there are many parallels to be drawn between Saudi Arabia and Norway. Both are net oil exporters, have huge sovereign wealth funds, and are keen to become the renewable energy leaders in their respective regions. Norway’s renewables strategy is somewhat more advanced than Saudi Arabia, and may point to Saudi Arabia’s future.

Rather than self-consume its North Sea reserves, Norway relies on abundant hydropower and 838 MW of wind capacity for its generation, exporting most of its hydrocarbons. With abundant oil reserves, one could expect Norway to be a nation of gas-guzzling vehicles, but the reality is very different. Through a raft of incentives, Norway has become the EV capital of the world. Navigant Research projects Norwegian EV market share could hit 33% in 2017, well ahead of its European neighbors. Finally, the Norwegian transmission systems operator Statnett is deploying interconnectors to help secure Norwegian energy supply and allow its generation companies to export excess generation capacity.

Economics and Environment See Oil-Producing Countries Turn to Renewables

There is an economic argument that underpins Norway and Saudi Arabia’s domestic energy policy: with abundant and cheap renewables, neither country relies on hydrocarbon generation, which can be exported to other countries. With further reductions in the cost of Saudi solar, the Kingdom could rapidly follow Norway’s lead. It is not difficult to imagine a future where Saudis increasingly rely on renewable generation for internal electricity consumption and drive more and more EVs.

Utilities Beware: Oil Majors Are Following Similar Paths

There are other parallels to be drawn, however. Two of the largest and cash-rich oil producing countries are making their marks in renewable energy. So are the oil majors, making increasing investments into downstream renewable energy. Which brings me back to a subject close to my heart: a distributed and renewable energy future will also be fiercely competitive. There is no room for monopoly market thinking at incumbent utilities. Oil majors and auto manufacturers are betting heavily on an electrified, distributed, and renewable future. There may be no room at the table for old-school utilities fixed on a centralized business model.


What Will the Microgrid of the Future Look Like?

— March 6, 2018

Microgrids have been around for a long time. In the past, the majority were powered up by diesel fuel and often were not connected to a traditional utility power grid. But what will the microgrid of the future look like?

As reported in the last update to the Microgrid Deployment Tracker published in 4Q 2017, the remote microgrid market share for total identified cumulative capacity declined from 45% to 39% in the 2Q 2017 update. This trend is more of a reflection of the grid-tied market picking up momentum than a lack of interest in remote off-grid applications. For comparison purposes, the next largest microgrid market segment in the update is the commercial and industrial segment, which has witnessed a recent surge and which Navigant Research estimates will be the fastest-growing market segment over the next decade.

Primary DER in Microgrids Are Going to Change

Rather than focusing on market segments, what about the types of distributed energy resources (DER) being deployed within microgrids? It should come as no surprise that diesel and natural gas generation still lead the resource mix. Looking into the future, a far different picture emerges.

In the Microgrid Enabling Technologies report published this January, combined heat and power was the leading DER choice in terms of capacity for microgrids on a global basis in 2017, with 655 MW deployed, followed by solar PV (392 MW) and then diesel (385 MW). By 2026, however, the DER landscape shifts, with solar PV jumping to a commanding lead with 3,786 MW annually, followed by energy storage with 3,292 MW. Energy storage boasts the most aggressive compound annual growth rate (CAGR) with 37.4%; solar PV follows at a CAGR of 28.7%.

Investment Spending Predicted to Rise

Implementation spending tracks this capacity growth. All eight DER were profiled in the recent report (which also includes biomass, diesel, hydro, and wind power). This market forecast represented just over $4 billion in investment in 2017. That annual spending increases to nearly $23.6 billion by 2026, a 21.7% CAGR. Solar PV ranks as the top DER investment target for microgrids, with annual spending reaching virtually half of all DER investment by 2026 at $6.7 billion. Energy storage spending follows at $4.5 billion annually in 2026.

Collaboration Expected as Power Sources Diversify

In short, solar PV and energy storage will be the most popular MET options for future microgrids. Yet, the more interesting question revolves around the potential role of fossil generators. One clue comes from companies such as Fairbanks Morse, which now offers a power reliability as a service platform. Rather than view solar and storage as a threat, it is investigating how to collaborate with the industry’s overall shift to the Energy Cloud.

Fairbanks Morse is not the only company exploring how the energy as a service model applies to microgrids. Perhaps the biggest single headline for microgrids in 2018 is the partnership between Schneider Electric, Dynamic Energy Networks, and the Carlyle Group, looking to deploy $500 million in microgrids under a microgrids as a service business model.

Microgrid Evolution Is Just Getting Started

Of course, the energy service approach to microgrids is still in incubation. The key to making this approach work are controllers, the magic sauce, if you will. As DER portfolios become commoditized, the innovation shifts to automation, controls, and software. Who are the leaders in this space? Look for my forthcoming report ranking control providers later this month.

Getting back to my opening question, the microgrid of the future will be more sustainable, ultra-resilient, plug-and-play, financed under an energy as a service business model with private capital, and will include both solar and energy storage.


Postcard from Australia: Audrey Zibelman Interview

— February 27, 2018

As noted in a previous blog, the hiring of Audrey Zibelman, former head of the New York Public Service Commission, as the new CEO of the Australian National Energy Market (AEMO) helped shine a spotlight on innovation occurring down under.

A recent report suggests Australian network operators will pay prosumers $2.5 billion annually for grid services by 2050—if customers stay connected to power grids and policy recommendations are implemented in an integrated fashion.

The following is my interview with Zibelman; look for a new report from Navigant Research on integrated DER in Australia this spring.

Can you compare the status of the market for DER innovation in Australia and New York?

“Australia can lead the world in the innovative integration of distributed energy resources (DER). New York, while having a DER strategy in place as part of the Reforming the Energy Vision initiative, has a different objective to its DER vision—at least in the short to medium term. New York developed its strategy based on market incentives to encourage the uptake of DER. Australia, like California and Hawaii, already has a large proportion of DER, mostly in the form of rooftop PV, so using innovative technologies, concepts, and business models are critical to maintaining secure and reliable power while also empowering consumers.

Australia is at the stage where its had excess rooftop PV generation meet up to 48%, 30%, and 20% of demand in South Australia, the Wholesale Electricity Market (WEM) in Western Australia, and Queensland, respectively, during some periods. This is unprecedented. All three locations provide immediate opportunities to demonstrate DER capabilities. This is something AEMO is planning to take an active role in leading.”

Why should global vendors active in DER management care about Australia?

“There is no shortage of opportunities. AEMO is focused on the effective and efficient integration of DER, and innovative vendors play a key role in this.”

Are there unique challenges in specific regions of Australia?

“We need to have the ability to coordinate DER in aggregate (not just PV) to address system needs. There will be opportunities for businesses to exploit greater periods of negative or near-negative pricing. The WEM in southwestern Australia has the added challenge of being islanded. Queensland has a lot of microgrid opportunities, which are still relatively new in formation.”

Is integration of retail and wholesale markets picking up momentum?

“From a wholesale perspective, we believe resources need to be valued based on their service to the market. We have been public in our view on the need for more flexible, dispatchable resources, and these resources need to be priced accordingly.”

What do you see as the necessary next steps?

“We need effective coordination of DER. We also need to assess efficacy of emergency mechanisms (such as under- and over-frequency load shedding schemes) in systems with high DER. Effective coordination of DER should see a reduction in network fees as DER can offset the need for network augmentation.”

Are there lessons learned from Australia’s remote microgrids that are transferable to where consumers are interconnected to a utility grid?

“We are always keen to learn from what others are doing, and we have been in discussion with Horizon Power about its work. The important thing to remember is that grids are unique—their size, constituents etc. So, we need to be mindful that solutions in one grid won’t necessarily be transferable to another. This is particularly true of utility scale grids. However, microgrids can be of benefit for technical demonstration, and provide useful learning that can be applied to utility scale solutions.”


Five Bold Predictions on the Frontier of Energy for 2018

— January 11, 2018

It is that time of the year again, when pundits pontificate about what the future holds, and citizens and corporations alike set goals for the coming year. I’d like to make five predictions for 2018 that underscore why a forecast increase in distributed energy resources (DER) over centralized generation will transform the global economy in sometimes surprising ways.

1. DER Innovation Will Abound

The spotlight continues to shine brightly on solar and energy storage technologies. Yet other forms of DER, especially generators driven by fossil fuels, will push the envelope on new business models in surprising ways. For example, Fairbanks Morse recently announced a new offering it is calling power reliability as a service, allowing remote villages in Latin America to access reliable electricity in locations not accessible by road or even airplane. These generators are forging new partnerships/acquisitions while also integrating upgrades revolving around novel hardware designs: Innovus Power (featuring variable speed generators) and the 360 Power Group (extensively patented modular generators that dramatically reduce fuel consumption and improve reliability), are just two examples.

2. One Microgrid Vendor to Lead Them

A US company will emerge as the leading microgrids controls vendor based on validated performance, offering a controls solution priced below $2,000 for a kilowatt-scale microgrid. The company has wowed US government officials with the performance of its controls solution. The question is: can it effectively market its solution as the go-to platform in a market not quite mature enough for a true plug-and-play solution?

3. Policies to Net Positive Results for DER

Trump administration tax reform and new policy directives at the US Environmental Protection Agency will accelerate smart energy investments by a factor of three. While some of these regulatory tweaks will reduce public government support for renewables such as solar PV, the net results will be positive for DER. A combination of public policy reforms at the state level in the US and actions by the private sector will demonstrate that the transition to key elements included under the Energy Cloud future is unstoppable.

4. Asia Pacific Takes Over Innovation

The center of innovation on the DER front will shift away from North America and toward Asia Pacific, focusing on four countries: Australia, China, India, and Japan. Each of these countries offers a landscape fostering DER opportunities. One could argue that Australia is where the most diverse opportunity exists in terms of DER integration with microgrids and virtual power plants. Australia is also home to Power Ledger experiments with transactive energy.

5. Energy-Water Connection Creates Opportunities

New solution offerings focused on the energy-water nexus will come to the fore in 2018. In California, Advanced Microgrid Solutions is one company to recognize this linkage with innovative grid-connected battery systems supporting public water agencies: Inland Empire Utility Agency, Irvine Ranch Water District, and the Long Beach Water Department. Of course, water is a necessity for life. An even more urgent need for energy-water nexus solutions is in developing world locations such as India, where 1 billion people need access to safe and clean drinking water (and as many as 300 million lack access to electricity). Linking solutions for both water and power through DER-based solutions creates synergy and opportunities, both for do-gooders and for entrepreneurs seeking profit.

A Distributed and Resilient Future

These five trends are not the only things I see in my crystal ball. Yet I believe they will help define 2018 as the world makes the transition from costly centralized power infrastructure to a nimble, flexible, and more resilient paradigm. We are in a historic transformation toward a clean, distributed, intelligent, and mobile grid. Do you agree?


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