Navigant Research Blog

Can Virtual Marketplaces Unlock the Potential of Distributed Energy Resources?

— March 28, 2017

In previous posts, I have explored innovative business models that aim to maximize the value of solar plus energy storage systems in Australia. The country has quickly become a leading market for these technologies—as well as the advanced business models and platforms necessary to unlock their full potential.

Navigant Research tracks the rapidly growing Australian market through its new Energy Storage Projects Data Service, which provides unique insights into the dynamics of markets around the world. As shown below, the majority of storage systems in Australia are being used to integrate new solar projects and maximize their value for both customers and the grid.

While the Australian market for both solar and energy storage has grown exponentially in recent years, these technologies will only be an economical investment for select customers given current business models and regulations. A new program being launched by software provider GreenSync hopes to change this situation by opening new opportunities for customers to benefit from its distributed energy resources (DER).

Navigant Research Data Services

(Source: Navigant Research)

Making Connections

GreenSync’s software-based marketplace, known as the Decentralized Energy Exchange (deX), aims to provide an avenue for distributed solar PV and energy storage system owners to trade their system’s services with local network operators in exchange for payments. Initially, the primary goal of the exchange will be to help operators manage both peak demand and variable solar generation on the grid. The opening launch of the marketplace will focus on trials with two utilities. ActewAGL, in Australia’s Capital Territory, hopes to understand how market-integrated batteries can alleviate constraints in certain parts of the grid, particularly those struggling to handle high levels of solar PV. United Energy in the Melbourne area is piloting the deX marketplace to reduce grid congestion where summer peak demand is straining existing infrastructure.

These utilities join a number of others in Australia that are working to understand how networks of DER can be utilized to provide services for grid operators in addition to the customers who own them. Utilities like AGL Energy, SA Power Networks, and Ergon Energy are working with various vendors to maximize the value inherent in energy storage systems and other flexible DER to improve the efficiency of the grid while allowing for greater amounts of solar PV to be added by customers.

Coordination Is Key

For DER providers to reach the most customers and realize the full potential of their technologies, these types of virtual aggregation platforms will be essential. Without proper coordination, the growing number of DER on the grid can result in significant systemwide inefficiencies, and their benefits may only be accessible to select electricity customers. Collaboration and coordination among DER stakeholders on the grid are key themes explored in Navigant Research’s recent white paper, Navigating the Energy Transformation.

The ability to effectively aggregate and coordinate distributed systems will be crucial for both utilities and vendors to capitalize on all the values these systems can provide. Vendors with a narrow focus on only providing cost savings and backup power for customers will significantly limit their addressable market, as their solutions may be too costly for many customers. They also risk missing out on the opportunity to play a foundational role in the development of the next-generation transactive energy system that will transform the industry.

 

Applying Financing Innovation in Distributed Energy Storage to Make Battery Technology Bankable

— March 20, 2017

In a recent blog, I took a look at the importance of proper evaluation of the total cost of ownership (TCO) of battery energy storage systems (BESSs) from both a power and energy performance standpoint. Such an analysis reveals how extended battery lifetime and other battery performance factors can reduce the ultimate costs BESS owners would pay over the life of the system. This type of revenue and cost predictability is key to unlocking energy storage financing innovation anticipated to drive new technology deployments.

The Bankable Battery Challenge

Today, equity and debt providers and project developers looking to finance BESS have a limited choice of battery technologies. NGK Insulators has a proven sodium sulfur (NaS) battery technology that plays a role in certain long duration, utility-scale energy storage or microgrid applications. For other applications, lithium ion (Li-ion) technology backed by warranties from large, multinational conglomerates like LG Chem, Samsung SDI, BYD, and Panasonic are among the few technologies determined to have bankable BESS technology from a financing standpoint to date. This remains to be the case even though few of these Li-ion BESS installations have been up and running for extended periods of time.

Financing Innovation Enabled by Contracting and Technology Advancements

Many developers, systems integrators, and technology providers are focusing on creative ways to make BESSs bankable from a financing standpoint. Powin Energy is an Oregon-based energy storage systems integrator that recently developed and commissioned a 2 MW, 8 MWh battery energy storage system in Irvine, California under Southern California Edison’s (SCE’s) Alison Canyon emergency procurement. But there is more behind Powin’s efforts than just project development/systems integration.

Powin’s patented Battery Pack Operating System (bp-OS) is designed to enhance the monitoring of battery performance. Its software claims to do this by tracking battery system functions and lifespan at the cell level using its proprietary Battery Odometer and Warranty Tracker products. The Battery Odometer reportedly measures degradation and calculates remaining battery lifetime based on voltage, temperature, state-of-charge, and charge and discharge durations on a cycle by cycle basis. And the Warranty Tracker claims to express that status of battery performance relative to the specific warranty status in real time.

A technology package that truly enhances and simplifies the approach battery warranty monitoring would be compelling. Such clarity and simplicity from a battery performance standpoint could open up opportunities to standardize battery performance warranty insurance coverages across a variety of battery cell technology manufacturers, which would lower costs and provide additional comfort to project finance investors, thereby driving more financing activity.

A Promising Sign for Energy Storage Financers?

A proper turnkey financial TCO analysis should look at the total cost of operation for power and energy. However, projecting the cost of operation of the BESS at year 3 or 4 of a 10-year financing is uncharted waters. Technology such as Powin’s bp-OS coupled with battery performance insurance underwriting merits a careful eye in the journey by project developers to develop and finance BESS projects. As discussed in previous blogs, lower costs coupled with more predictable project revenue feeds the growth financing innovation that will drive the deployment of stationary energy storage technology.

 

Transformative Winds Moving Electric Utility Industry in New Directions

— February 13, 2017

AnalyticsThere is a new wind of transformation blowing through the North American electric utility industry, and this change was palpable during the recent DistribuTECH conference in San Diego.

Evidence of a transformation came during numerous conversations I had with technology vendors and utility representatives at the conference. There has been similar talk of change at past D-Tech events, but this year the words have action and momentum behind them. Granted, the transformation taking place now remains at a relatively early stage in certain domains—microgrids and energy storage, for instance. Furthermore, some of the shifts currently taking place might still be struggling to gain traction 10 years from now. But as whole, changes in the industry are tangible and are moving beyond theoretical talk and pilots.

Among the innovations on display at D-Tech:

  • Microgrids: Schneider Electric and Duke Energy jointly announced the deployment of two advanced microgrids in Montgomery County, Maryland. The two systems will provide service to the county’s public safety headquarters and its jail. The goal is to ensure these facilities have more reliable and efficient power and to improve resiliency in the event of major storms or natural disasters. Perhaps the most unique aspect of this project is its microgrid as a service (MaaS) financing model. This arrangement eliminates many of the upfront costs to the county, making the microgrids more affordable to the municipal entity.
  • Customer-centric grid: Utilities are starting to more fully embrace the concept of customer-centricity. Oracle unveiled its new Network Management System version 2.3, which enables a utility to aggregate data from distributed energy resources (DER) like solar PV, EVs, customer-sited storage systems, and connected home devices. Oracle is not alone in providing tools for a deeper view of these customer energy resources, but the announcement does point to the demand the software vendor is seeing from utilities that recognize the shift taking place and the need to comprehensively manage the two-way data flow from grid-tied customer assets.
  • Demand-side solutions: Companies like Powerley and Tesla used the conference to demonstrate their solutions for enabling utility customers to better control their use of energy. Tesla, for instance, did not showcase its famous EVs, but rather its new Powerwall 2 residential battery system. The Powerwall 2 has 14 kWh of capacity, a significant increase from previous versions, and can enable a four-bedroom home to power lights, plugs, and a refrigerator for a whole day. Powerley’s solution helps utilities integrate the smart grid with smart home technologies, thus enabling residential customers to be more efficient energy users and save money.

Part of the transformation on display at D-Tech is being driven by regulators, which see the new technologies as helpful to a more efficient use of energy. But many of the new technologies on their own are driving the change, having been tested and proven to help solve utility business issues and demonstrate a positive ROI, either in real dollars or in softer benefits (such as increased customer satisfaction scores and greater engagement).

We at Navigant have seen this transformation coming for several years, as noted in our Energy Cloud report. Now those forces of change are closer to reality and catching some new air. The coming years should continue to move the industry forward, though some turbulence is to be expected.

 

The FERC Looks to Bring Down Barriers to Storage and DER

— December 7, 2016

AnalyticsLauren Callaway coauthored this post.

This November, the US Federal Energy Regulatory Commission (FERC) released a notice of proposed rulemaking (NOPR) that could elicit a fundamental step forward for storage and distributed energy resources (DER). The NOPR includes two proposals—one establishing a participation model and market rules for storage resources in wholesale markets, and the other defining DER aggregators as participants in wholesale markets.

Developing a Pathway for Storage

For the first proposal, regional transmission operators (RTOs) would be required to develop participation models for grid-tied storage, which take into account storage’s unique physical and operational qualities. The NOPR requires that participation models include the following five criteria:

  • Storage resources are eligible to provide all capacity, energy, and ancillary services that they are technically able to perform
  • Bidding parameters that account for the above services are established
  • Storage resources are allowed to act as both buyers and sellers, included in establishing the clearing price for electricity
  • RTOs must establish a minimum size requirement for storage that cannot exceed 100 kW
  • Services sold from storage resources to the wholesale market be sold at the wholesale locational marginal price

These criteria are driven by a need to properly recognize the unique operational characteristics of storage systems, enabling storage to act as either load or generation depending on system needs. Essentially, the NOPR proposes to develop a more level playing field within the wholesale markets that will better reflect the cost-effectiveness of storage. Additionally, grid operators will be able to capitalize on storage’s unique abilities to provide black-start service, spinning reserves, renewable ramp control, and output smoothing.

The FERC has previously made efforts to allow for the integration of storage by recognizing its unique value, but those have had limited impact so far. Under FERC Order 755 (2011), RTOs are required to create a fast-regulation service in wholesale power markets, compensating resources for speed and accuracy using a mileage payment—storage is uniquely capable of providing these services. Yet to date, only the PJM region has a well-developed market with fast-regulation prices high enough to make a solid business case for storage. Despite the fact that over 250 MW of storage has been deployed and PJM has decreased the total need for regulation due to the greater accuracy and responsiveness of storage systems, other RTOs have remained slow to adopt the rule. The current NOPR takes into account lessons learned by PJM’s enablement of storage participation.

DER Aggregator Participation

The FERC also proposed to require each RTO/independent system operator (ISO) to revise its tariffs to allow DER aggregators to participate directly in markets by permitting such aggregators to register under the participation model in the RTO/ISO tariff that best accommodates the physical and operational characteristics of their resources. While the specific details and timeline for implementing these proposals are still unclear, this could have a major impact on the national DER market.

To date, only California has allowed aggregated DER (aside from traditional demand response and load control) to bid into an organized statewide capacity market. Furthermore, outside of pilot programs, there have been no aggregated DER allowed to provide ancillary services such as frequency regulation. DER can be a much more effective source of frequency and voltage regulation compared to centralized assets, as the systems are dispersed throughout distribution networks where issues may originate, particularly areas with high penetrations of solar PV generation.

DER providers have been pushing RTOs and the FERC to implement these rules, which can provide new sources of revenue for aggregated storage systems, thereby greatly reducing costs to customers and increasing the value of these systems to grid operators. Additionally, allowing DER to provide these types of services can be part of a post-net metering solution that fairly compensates DER owners based on specific grid needs in a given location at any time. The upholding of FERC Order 745 earlier this year has also set a powerful precedent in terms of allowing participation of behind-the-meter resources into wholesale markets.

 

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