Navigant Research Blog

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.

 

Why VPP Software Vendors Are Vital to the Success of the Emerging Energy Cloud

— November 30, 2016

Ethernet CablesThe concept of a virtual power plant (VPP) means different things to different people. It’s really just a creative way to imagine the variety of grid services that can be harvested from the plethora of distributed energy resources (DER) that are rapidly populating power grids worldwide.

A VPP is the epitome of the changes transforming relationships between utilities, customers, and a host of other market participants that are building real solutions to the pressing energy and environmental challenges facing the world today. Navigant has coined the term the Energy Cloud to describe the evolution of our collective energy future. VPPs are just one aspect of this shift toward smarter, cleaner, and smaller power sources being aggregated into real-time solutions that benefit individual asset owners while contributing to the sustainability of existing infrastructure.

The Value of Software

Now that hardware assets such as solar PV panels, batteries, and other DER are becoming commoditized due to increased market penetrations and creative business models, the key to unlocking greater value from both new and existing DER is software—the fundamental technology driver underlying the VPP market.

Software is a broad category. It includes systems that connect DER in order to optimize synergies between like and unlike resources, in addition to the interface mechanics of interacting with utilities and wholesale markets for ancillary services. IT and related software is where the money is being made in the VPP market; according to Navigant Research’s Virtual Power Plant Enabling Technologies report, software spending is expected to represent nearly 90% of total VPP implementation spending by 2025. The same report also provides an analysis of the energy storage systems being wrapped into VPPs.

A sudden surge in energy storage deployments being aggregated into VPPs is tilting the market in dramatically new directions. How utilities and wholesale transmission grid operators treat energy storage as an asset may be the most important technology-related development affecting near-term commercial VPP deployments.

Ranking Vendors

Navigant also recently published a Leaderboard Report ranking VPP software vendors. There is always an apples-to-apples comparison challenge with the Leaderboard format, but by stepping back and focusing on the overall trends in the market, insights bubble up to the surface.

Ranking software vendors active in the mixed asset VPP market is even more problematic than microgrid controls vendors given the lack of available transparent data on performance of software products. The lack of a universal definition for a VPP only adds another layer of issues in developing a ranking. These caveats aside, the rankings do reveal some market insights.

Some vendors claim vertically integrated utilities are the best near-term market for VPPs, since all ancillary services required to keep the grid physically in balance are purchased by one single entity. Others argue that deregulated markets open doors to new ways of monetizing value and harness the value of diversity and competition. I believe both opportunities will help build the VPPs of the future. It will be mix of pure-play software vendors, energy storage innovators, and large global technology companies that show the way.

 

Recognizing the True Value of Storage and Facing Cybersecurity Threats

— October 28, 2016

AnalyticsEnergy storage has historically been too expensive to integrate with distributed energy resources (DER), but prices have fallen significantly across several portions of the value chain in the past few years. To continue to improve the economics of the technology, it’s important for new and existing energy storage systems (ESSs) to provide multiple services to customers. This will open up a larger market for aggregated systems that can help realize the true value of storage. Software platforms that can analyze, operate, and optimize battery energy storage-enabled virtual power plants (VPPs) will be critical to capitalize on value stacking.

Aggregated Energy Storage Systems

Powershift

(Source: PowerShift Atlantic)

For instance, energy storage service provider Greensmith Energy was chosen to provide its software and integration services for several recent projects. In September, investor-owned utility American Electric Power (AEP) chose Greensmith’s GEMS platform to manage its 2 MW/14M MWh ESS in West Virginia. AEP plans to leverage the software’s functionality to expand the use of the system into a revenue-generating asset rather than solely a backup system for its distribution network. Several other companies like Sunverge, Demand Energy, and Green Charge Networks have also recently partnered with utilities where smart software will be used for flexible ESSs.

Energy storage software is increasingly becoming a vital part of determining the bankability of a project. Software modules optimized for different grid-level or customer-level applications create value for both utility-scale and behind-the-meter (BTM) users. Particularly for residential and/or commercial customers, the software module can create viable revenue streams by:

  • Optimizing self-consumption in real-time across multiple variables (e.g., demand charges, utility tariff data, etc.)
  • Participating in utility-sponsored demand response and resource adequacy programs
  • Providing long-duration backup power and islanding capabilities

A noteworthy development in the residential ESS software market is a recent partnership announced by energy Internet provider AutoGrid and distributed ESS manufacturer sonnen. The two companies partnered to fully integrate AutoGrid’s flexibility management suite with sonnen’s residential and commercial battery solutions. AutoGrid and sonnen will help energy project developers, utilities, and other energy service providers better manage, optimize, and aggregate sonnen ESS systems and other DER. Both companies believe that the partnership will help maximize project return on investment (ROI), reduce project delivery times, and unlock new revenue streams for several value chain players.

Need for Cybersecurity

With the increased automation of energy storage and DER in general, it will be important to consider the cybersecurity threats that could occur. These attacks can disrupt general system functionality or cause targeted damage to intellectual property, critical infrastructure, and physical assets. Incidents of cybercrime and associated costs can be substantial; companies must prepare for the worst-case scenario. This is not only important to protect against threats, but also to aid in how businesses continue to operate during an attack, as well as how they adapt and recover after. So what does this mean for DER businesses and stakeholders?

  • Utilities have the ability to drive the storage market forward, enabling ESSs to achieve profitability under several business cases like VPPs.
  • DER software companies should focus on developing controls that can optimize multiple use cases to maximize the value of projects.
  • ESS and other DER software developers must ensure they are adequately protected from cyber threats, including developing strong compliance programs, having advanced functionality to mitigate against vulnerabilities, and ensuring systems are in place to immediately alert stakeholders of breaches.
 

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