Navigant Research Blog

Distributed Generation Leads Microgrid Investment Opportunities

— September 18, 2014

Without some form of distributed generation (DG), the vast majority of microgrids would not exist.  So, it should come as no surprise that such assets represent the single most lucrative microgrid enabling technologies (MET) segment today.

A prime mover technology for microgrids is diesel generators, which are widely deployed as back-up emergency power generators thanks to their ability for black start.  However, they are also often legacy assets upon which microgrids are layered and, more often than not, microgrids are specifically designed to reduce diesel fuel consumption.

In Navigant Research’s report, Microgrid Enabling Technologies, the amount of DG being deployed within microgrids is forecast in terms of capacity and of annual vendor revenue.  If one looks at new capacity additions, diesel generators have captured the largest market share, followed closely behind by natural gas generators (which also serve as the basis for combined heat and power applications.)

DG Capacity Market Share in Microgrids: 2014

 

(Source: Navigant Research)

An important caveat on these estimates: Only systems that incorporate some level of renewables are included in the tally for remote microgrids.   If one were to include all diesel generators deployed cumulatively, Navigant Research’s data suggests that they would represent more than 65% of total microgrid DG capacity.

Decline of Diesel

Another key assumption moving forward with microgrids is that new diesel capacity will decline over time, given the high cost of fuel, tightening air quality regulations, and the emergence of new power electronics technologies, lessening the need for a fossil prime mover.

While fossil DG capacity is still expected to exceed that of renewable capacity deployed within microgrids in 2014, the higher capital cost attached to solar PV, wind, hydroelectric, and biomass translates into higher vendor revenue per megawatt.  Fossil fuel DG (diesel and natural gas generators plus fuel cells) is expected to represent 58% of total DG capacity in 2014, according to our forecasts; renewables will most likely capture the other 42% of the DG market.   On a revenue basis, however, renewables are expected to capture 23% of total MET vendor revenue in 2014, compared to only 9% for fossil fuel DG.

Notably, the largest category of revenue in 2014 is technologies not actually included in the forecast, since they cannot be quantified on the basis of generation capacity (i.e. smart meters, smart switches, and other distribution or building infrastructure).  The majority of microgrids being deployed today incorporate significant amounts of legacy DG.  (Most of the community microgrids under development in New York and Connecticut add no or very little DG capacity.)  As a result, large investments into integration hardware – distribution infrastructure that cannot be quantified on the basis of generation capacity – represents a large piece of the overall investment pie for these retrofit microgrid projects. But this category is likely to decline as an overall percentage of total vendor revenues by 2023, as renewables, energy storage, and software increase in market share over time.

 

NRG Goes All In on Distributed Generation

— September 6, 2014

One of the largest independent power producer (IPPs) in the United States, NRG, provides power for the wholesale power markets with more than 50 GW of conventional installed capacity.  More recently, under outspoken CEO David Crane, the company has made a name for itself in renewables, with approximately 2.5 GW of solar PV, concentrated solar thermal, and wind capacity.  NRG also made headlines recently with a reshuffling of its business units: NRG Business (focused on conventional wholesale energy including nuclear, coal, and gas power plants), NRG Renew (focused on large-scale renewables), and NRG Home (focused on distributed generation [DG] and energy services for residential customers).

The company has relied on both organic growth as well as a series of acquisitions to fuel its DG offerings, including Dominion Resources and solar PV provider Rooftop Diagnostics, which expands the company’s customer base – particularly in the Northeast – and its expertise in residential systems.  These acquisitions underscore the growing opportunity presented by DG – systems that provide power onsite or at the distribution level of the grid.

Power in the Wild

What’s more surprising is NRG’s acquisition of Goal Zero, a privately held manufacturer of portable chargers and solar PV consumer products. Based in Utah, Goal Zero supplies unique niches of outdoor/off-grid enthusiasts that need power in the remote, challenging regions in which they travel.  The company effectively markets itself like Red Bull, touting the X-Games: “Zero Apathy, Zero Regrets, and Zero Boundaries is our mission. Goal Zero is our name.”  The company’s numerous ambassadors keep it real by leading expeditions to Kyrgyzstan or photographing surfers in Iceland.  They power their laptops with batteries recharged by the Goal Zero portable charger (the Sherpa Power Pack), and they blog at night with light from the Goal Zero solar lantern.  The portable chargers can be charged via car adapters, a wall outlet, or solar panels provided by Goal Zero.

The company’s products are sold through retail partners such as REI, Cabela’s, other sporting goods stores around the country, and online.  And by all measures, to use the vernacular, they appear to be crushing it. With 100 employees, the company ranked #9 on Inc.’s 500 list of fastest-growing private companies in 2013, with 3-year sales growth of 16,981%.

This is a big move for NRG and takes DG to a whole new level.  The appeal to NRG goes beyond the extreme adventure lifestyle to cell phone charging stations (think airports, stadiums, convention centers, malls, etc.) and potentially to off-grid living in the developing world.  I profiled Goal Zero in my Solar Photovoltaic Consumer Products report, along with Oregon’s Grape Solar, which sells similar products.  There I observed that large corporations have been circling the waters to get into the portable power/off-grid lighting niche through acquisition, but I was mostly thinking Panasonic, Schneider, and other consumer electronics companies – not the third-largest U.S. energy IPP.  NRG just went super DG, and we can expect many more to follow suit.

 

Fuel Cell Vehicles Set to Arrive – with Fueling Stations

— September 5, 2014

Heading into the 2015 launch of commercial fuel cell vehicles (FCVs) from Toyota and Honda (Hyundai’s is already out), California and Japan appear to be leading the race to build infrastructure.  In the past 12 months, the governments in California and Japan have each made a firm commitment to support extensive refueling networks.  Japan set a target of building 100 stations by March 2016.  California has committed to providing up to $20 million annually in support of a 100-station network.

Those timelines are aggressive given that, up to now, hydrogen stations have taken 18 months or more to build.  In California in particular, the timeline for building a hydrogen fueling site has been very lengthy, 24 months and even more.  This is one reason that the state has lost its leading position as a first market for FCVs.  A year ago, it looked like Europe was going to step up, with the United Kingdom announcing its own H2Mobility program to follow on the one that Germany established to develop and execute a hydrogen roadmap.  However, both of these programs are moving rather slowly.  By contrast, California secured a funding commitment from the state of up to $20 million per year in September 2013.  Now, the state is moving forward at a much faster pace.   In May, the California Energy Commission (CEC) announced awards for 28 stations, to be built by November 2015, for a total of around $46 million.

New Entrants

Of course, being first also means being a guinea pig for this market, which still faces a good deal of uncertainty in terms of potential demand.  I’ll be outlining FCVs sales prospects through 2023 in my upcoming report, 2014 Fuel Cell Annual Report.  Participants in the buildout of California’s first nine stations learned some lessons that are now being implemented.  One of the most critical differences is that the CEC is using its funding to provide support for operations and maintenance in addition to station construction.  This represents a tacit admission that the stations will be a cost center for owners and operators for the first years of the market.  The CEC awarded $300,000 to four current stations to support ongoing operations.

Another striking difference with the new 28 stations is that only 3 of the 28 awards are going directly to industrial gas companies (IGCs).  In place of IGCs, new entities have sprung up specifically to build and manage retail hydrogen fueling; these entities were given 23 awards.  Startup FirstElement Fuel received awards to build 19 stations.  The company was launched with funding support from Toyota and IGC Air Products but is open to working with any IGC that wants to use a third party to operate a retail station.  The company plans to become an operator of hydrogen fueling networks, similar to electric vehicle (EV) charging network operators.  FirstElement secures a retail gas station where there is real estate available to add a hydrogen pump and takes responsibility for the station once it’s up and running.  This removes risk from both the gas station owner and from the IGC providing the hydrogen.

Quite a bit of risk remains for the CEC in placing much of the responsibility for stations needed in 2015 on one company.  But the good news for the FCV market is that some early lessons learned are paying off in terms of new ways to tackle the problem of providing fuel to potential FCV drivers.

 

A Comeback for Community Storage

— August 20, 2014

Two years ago, community energy storage (CES) was heralded as the most promising distributed storage market.  The market subsequently stalled when demonstrations failed to take off.  Originally, most utilities in the United States pared back on ambitious pilots due to high transaction cost.  Although the business-to-business model of community-level systems was appealing, North American utilities struggled to secure permission from homeowners to install systems and transaction costs skyrocketed.  System development for distribution transformers in North America was also costly, and this, combined with the high cost of customer engagement, killed all large-scale projects.

Now this model could be staging a comeback.  Toronto Hydro, along with eCAMION Inc., the University of Toronto, and Dow Kokam LLC, recently installed a CES system at the Roding Arena and Community Centre in Toronto, Canada.  The pilot project will allow Toronto Hydro to monitor the technology and will help validate its benefits to Toronto’s electrical grid.  This system uses 250 kWh/500 kW Dow Kokam lithium polymer nickel manganese cobalt cells, along with thermal management and controls from eCAMION.  The University of Toronto is managing the control, protection, and power management.

Small Is Beautiful

Situating storage near the customer provides several benefits.  First, it allows a utility to correct power quality where it matters most – near the customer.  Community storage can also help utilities maintain service during grid outages, at least for a few hours.  Finally, CES gives the utility information about what is happening at the edge of the grid, which is an important management tool.

More interest is developing in Europe, where distribution system operators are experiencing difficulty with behind-the-meter solar PV and instability from intermittent renewables upstream.  The United Kingdom is especially bullish, with several departments funding community storage.

Sharp Laboratories of Europe was awarded a grant of £396,541 ($661,858) from the United Kingdom’s Department of Energy & Climate Change to develop and scale up a new battery technology for residential energy storage and CES systems.  Electrovaya began delivering systems to Scottish and Southern Energy Power Distribution (SSEPD) in the second quarter of 2014 as part of an order for 25 distributed and independent energy storage systems.  The systems range in energy capacity from 12.5 kWh to over 80 kWh.  SSEPD has a separate community storage demonstration with S&C Electric that consists of three 25 kWh lithium ion units on the low-voltage network.

Europe is emerging as a leader in community storage by launching small pilots to test and prove the concept, instead of ambitious 80-unit projects.

 

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