Navigant Research Blog

US Wind Market Installs 8.2 GW in 2016

— February 22, 2017

The United States had a strong year for wind energy capacity installation, with 6,478 MW commissioned in 4Q 2016. This capped off a total of 8,203 MW total for the year, according to the 4Q 2016 market data recently released by the American Wind Energy Association.

In 2Q 2016, Navigant Research forecast that final 2016 capacity additions were likely to be 8,200 MW, representing its most accurate annual capacity forecast to date. Navigant Research forecasts that there will be 45 GW of total new wind installations between 2017 and 2023, assuming there are no changes to the existing Production Tax Credit (PTC) phaseout timeline.

Key Takeaways of 2016

Total cumulative wind energy capacity installed in the United States now stands at 82,183 MW, with more than 52,000 wind turbines operating in 40 states. Nineteen states commissioned a total of 47 projects during the fourth quarter. Texas led with 1,790 MW, followed by Oklahoma (1,192 MW), Kansas (615 MW), North Dakota (603 MW), and Iowa (551 MW).

Texas continues to lead the nation with 20,321 MW of installed capacity, the first state to pass 20,000 MW. This success is thanks to a combination of energy demand, strong wind resources, a relatively easy development environment, and Texas’s proactive and massive expansion of transmission capacity. In 2016, Oklahoma surpassed California to become the third-ranked state in the nation with over 6,600 MW of installed capacity, and Kansas surpassed Illinois as the fifth-ranked state with more than 4,400 MW.

The United States also commissioned its first offshore wind project during the fourth quarter, the 30 MW Block Island wind project off the coast of Rhode Island. Among other offshore developments was an auction conducted just before the end of the year and won by Norway’s oil giant Statoil with its offer to pay the US Department of the Interior $42.5 million to lease an area of ocean off Long Island, New York. The space could be used to support more than 1 GW of offshore wind, providing validation of offshore wind’s future in the United States.

Market Developments

There are now 10,432 MW under construction and 7,913 MW in advanced development in the US wind market, a combined total of 18,344 MW of wind capacity. The industry also qualified significant additional project capacity for the full value of the PTC at year-end through safe harbor and physical construction without finalizing project capacities. This means substantial wind project capacity has until the end of 2020 to be commissioned.

Out of the 8,203 MW installed in 2016, Vestas (43%) and GE Renewable Energy (42%) led in market share, followed by Siemens (10%), Gamesa (4%), and Nordex USA (1%). Goldwind, Vensys, and Vergnet each composed less than 1% share. This is the first time in history that Denmark-based Vestas surpassed US-based General Electric in a given installation year. One likely reason is Vestas’ major commitment to siting its supply chain in centrally located Colorado, providing potential cost reductions relative to General Electric (which assembles its nacelles in Pensacola, Florida, requiring further transport to the major centrally located state markets).

Project developers signed 816 MW of power purchase agreements (PPAs) during 4Q 2016, contributing to a total of 4,040 MW of PPAs signed during 2016. Utilities and rural electric cooperatives represent 56% of total project capacity contracted (2,266 MW) during 2016. For the year, non-utility purchasers had 39% of the remaining capacity contracted (1,574 MW). Of the 8,203 MW commissioned during 2016, 67% of that capacity has a PPA or Public Utility Regulatory Policies Act contract in place. The remaining capacity is under utility or direct ownership (12%), has a merchant hedge contract in place (12%), or is fully merchant (9%).

 

Plug-and-Play Microgrids Are Building Momentum

— February 17, 2017

GeneratorThe concept of plug-and-play microgrids is picking up momentum. But like the term microgrid itself, plug-and-play means many different things.

To a software company such as Spirae, the plug-and-play concept is all about enabling software (the topic of a recent Navigant Research white paper and webinar). According to Spirae, configurable microgrids and the need for standardized projects of similar scale are necessary for the microgrid market to scale up. The diversity of services a microgrid could provide hinges on flexible software configurations.

In a similar vein, Blue Pillar is marketing itself as an Internet of Things (IoT) solutions provider. It was ranked as the top company globally in terms of identified microgrid deployments in Navigant Research’s Microgrid Deployment Tracker last year. The company claims it can bring a microgrid online in a matter of months thanks to its rich library of data pertaining to different types of distributed energy resources (DER).

Many Different Labels

Interestingly enough, to software companies such as Spirae and Blue Pillar, the term microgrid is too limiting for what they do. For Blue Pillar in particular, its controls platform spans smart buildings to virtual power plants (VPPs) and could also be considered simply a DER management system (DERMS) solution. As Spirae has argued, these different labels—microgrid, IoT, VPP, DERMS—really don’t matter from a software perspective. The key to unlocking value that may be hidden within DER is a shift away from complex customized engineering to a more standardized and modular approach. Think like Uber, but deliver like Comcast.

To ABB, a plug-and-play microgrid is instead a hardware offering in the form of a containerized solution. These microgrids, primarily designed for rugged, off-grid applications, can be put together like Lego blocks and reach a scale of up to 5 MW. Beyond that size, ABB admits the microgrid becomes overly complex, requiring customized engineering.

ABB is fairly unique among the long list of multinationals seeking opportunity in the microgrid space with both a distributed controls approach and a focus on off-grid projects, where the company believes the value proposition is clearest. For example, in Australia or Alaska, the business case for renewables does not depend upon renewable portfolio standards, net metering, or carbon reduction targets.

Increasing Modularity

Taking the concept of modularity in microgrids even further from a hardware perspective is startup ARDA Power, which extolls the virtues of direct current (DC) microgrids. The beauty of DC is that not only does it allow a project design to reduce power conversion devices, which simplifies design and islanding, but it is also much easier just to plug in other DC devices such as solar PV and batteries, two technologies poised to increase as a portion of the microgrid resource mix in the future.

The first company to offer a plug-and-play microgrid was Tecogen with its combined heat and power units. It recently upgraded, with the ability to plug in solar PV or batteries on a DC bus, creating a hybrid alternating current (AC)-DC microgrid. Yet another company touting a plug-and-play microgrid solution is SparkMeter, which offers low-cost but incredibly robust metering solutions for energy access solutions in the developing world. Ironically enough, one can make the argument that metering is even more important in these kilowatt-scale systems, where payment for energy services is vital for business cases.

From hardware to software, AC to DC, combined heating and power to smart meters, the plug-and-play concept appears to be all the rage in the microgrid space.

 

Distributed Energy Storage Deployments Driven by Financing Innovation, Part 2

— February 13, 2017

As highlighted in the previous post in this two-part series, the development of standardized power purchase agreement contracts by the National Renewable Energy Lab’s Solar Access to Public Capital Working Group has contributed to the continued growth of at-scale solar PV financing. Building on those solar PV standardization successes, Navigant Research is witnessing the development of new energy storage business models and financing instruments driven in part by contractual standardization. Navigant Research recently explored these new energy storage financing instruments in a recent research brief, Financing Advanced Batteries in Stationary Energy Storage.

A second type of standardized contract has emerged to help finance behind-the-meter distributed battery energy storage systems (BESSs). This new standardized contract focuses on aggregating BESS assets across multiple sites as a virtual power plant (VPP) to reduce energy demand.

Demand Response Energy Services Agreements

A demand response energy services agreement (DRESA) is typically executed with a local utility responsible for managing load on the distribution system by means of VPP technology. In this case, the utility compensates a third-party VPP owner for system availability (capacity) and actual DR energy storage services provided (performance). With a DRESA, the local utility can utilize the VPP for a defined duration for grid DR. But in most cases, the energy storage system owner or operator also promises to provide demand charge costs savings to hosts by means of a demand charge savings agreement (DCSA).

Advantages and Challenges for DRESAs

Key advantages of financing distributed BESS VPPs using a DRESA include:

  • The ability to deploy reliable DR assets in local power markets without upfront capital expenditures by either the local utility or the commercial and industrial (C&I) host facility
  • The ability for utilities to deploy reliable DR assets to optimize the local distribution system without the need to own and operate new storage assets

Key challenges facing the financing of BESS VPPs using a DRESA include:

  • The ability of BESS VPP software platforms to evaluate historical building load profiles and site-specific tariff requirements across large portfolios of C&I host sites to predict VPP deployment scenarios and project revenue.
  • The hardware/software complexity involved with integrating building load, onsite distributed generation, and building control across large portfolios of C&I host sites into VPP deployment strategies.

Standardized Approach to Quantifying Complexity, Risks, and Revenue

One can only imagine the complexity required to be addressed in these types of standardized agreements and technology deployment scenarios. For example, for a DRESA VPP application, the highest value will often be for the energy storage software system to leverage automated DR building efficiency technology to aid in reducing building load. Quite simply, installing and deploying this technology with some degree of battery energy storage capability will likely have a lower overall installed cost than deploying only larger batteries and inverters to do all the work.

Navigant Research can point to two examples where these issues have been sufficiently addressed, resulting in BESS VPP financing commitments:

As referenced in the previous post in this blog series, Navigant Research anticipates that standardized contracts such as DCSA and DRESAs will lead to the kind of financing innovation necessary to drive the deployment of distributed energy storage technology.

 

Distributed Energy Storage Deployments Driven by Financing Innovation, Part 1

— February 8, 2017

This blog is the first in a two-part series that will focus on innovative financing instruments that are being applied to deploy new distributed battery energy storage applications.

The growth of solar PV has been fueled in part by lower equipment and project development costs, but also by the development of standardized power purchase agreement (PPA) contracts. Without a standardized PPA contract, each new project looked unique to investors. This type of contractual uncertainty made investors’ ability to evaluate and finance projects at scale next to impossible. The introduction of standardized PPA contracts as part of The National Renewable Energy Laboratory’s multi-stakeholder Solar Access to Public Capital Working Group enhanced investor comfort levels by standardizing key contract terms and the approach to project revenue streams. These efforts resulted in the growth of an at-scale financing asset class that continues to drive solar PV technology deployment today.

Markets for the deployment of behind-the-meter (BTM) stationary battery energy storage systems (BESSs) are beginning to grow. Navigant Research recently explored the development of new BTM energy storage business models and financing instruments in its recent research brief, Financing Advanced Batteries in Stationary Energy Storage. Similar to the financing benefits delivered by a standardized solar PV PPA, several new standardized contracts have emerged enabling BESS financing. One such standardized contract focused on tariff-specific demand charge savings at commercial and industrial (C&I) facilities.

Demand Charge Shared Savings Agreements

A demand charge shared savings agreement (DCSA) mimics the contractual approach employed by energy service companies (ESCOs) to finance energy efficiency projects. An ESCO uses the cost savings from energy conservation measures like lighting or heating, ventilating, and air conditioning system upgrades to repay debt and equity partners. With a DCSA, the host and a third-party energy storage system owner or operator agree contractually on how BESS and load management software will be deployed during peak energy use to reduce demand charges. The financing partners depend on a portion of the cost savings from tariff-specific demand charge reductions to be paid by the host to debt and equity partners.

Advantages and Challenges for DCSAs

Key advantages of financing distributed energy storage technology deployments using demand charge savings agreements include:

  • The deployment of a BESS with no money down by the C&I host, thus eliminating the access to capital challenge.
  • The ability to bundle O&M costs for the BESS into a single transaction, eliminating the need for the C&I host to add staff or resources to manage the system.

Key challenges of financing distributed energy storage technology deployments using demand charge savings agreement include:

  • The ability of the BESS software platform to accurately evaluate historical building load profiles and site-specific tariff requirements relative to future load to generate project revenues.
  • The effect of future changes in building load profiles and tariffs on battery deployment assumptions and project revenues.

Quantifying Complexity, Risks, and Revenue

These contractual hurdles are being addressed today, despite the complexity. Navigant Research points to Green Charge Network’s commitment from Ares Capital in early 2016 for non-recourse project finance based debt funding as an example of where these issues have been sufficiently addressed, resulting in DCSA financing commitments.

Now that the ball is rolling on energy storage financing, the roadblocks facing energy storage projects don’t look so difficult. Navigant Research anticipates that these types of standardized contracts will lead to the financing innovation needed to drive the deployment of stationary energy storage technology.

 

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