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.


Heating: The Next Frontier of Decarbonization?

— April 12, 2018

Low carbon energy is gaining steam in fast-growing technologies like solar PV and battery EVs, but a key lagging sector—heating—may see a pickup in its own decarbonization. Alongside transport, the CEO of E.ON UK recently mentioned heating as a specific area where the company wants to play a larger role, suggesting perhaps that renewable electricity has more sustainable momentum than heating. This agrees with trends Navigant Research has been following and projecting, as outlined in this blog.

Though global data on heating alone is somewhat limited, for example heating and cooling in Europe accounts for 51% of final energy use, the stakes are indeed high. Together, transport, electricity, and heat accounted for about two-thirds of global CO2 emissions in 2015, according to the International Energy Agency.

Multiple Pathways Will Decarbonize Heating

There are several parallel paths to decarbonizing this sector—one that has traditionally relied on burning fossil fuels onsite. Among these paths, fuels can be decarbonized, heat production processes can be made more efficient, and heat sharing business models can be expanded.

Fuel decarbonization is covered in depth in a new report for the Gas for Climate consortium by Ecofys, a Navigant Company. The report concludes that renewable gas—including biomethane and power-to-gas—can help achieve a net-zero carbon energy system in the European Union by 2050, while saving €138 billion annually compared to a scenario without any gas. The report mentions space heating and industrial heating as benefiting from gas especially during the coldest winter snaps, when the fuel can be dispatched in huge bursts for both heat and power.

Heat production can also be made more efficient with the use of heat pumps and a variety of combined heat and power (CHP) technologies such as fuel cells. Heat pumps are broadly adopted for heating and cooling applications and, especially in high adoption places like Europe, look to provide a compelling bridge between clean electricity and heating and cooling. Meanwhile, CHP systems are being embraced in ever-smaller applications, much smaller than traditional multi-megawatt systems. This is enabled in part by improved packaged systems in the 1 kW-100 kW range, which open massively larger markets than before. Navigant Research forecasts significant growth in CHP in microgrids, and smaller package systems such as micro-CHP fuel cells ready to rise in Europe and elsewhere following significant sales in Japan.

Winning Energy Solutions Serve Multiple Sectors

Energy use in most sectors increasingly overlap. Renewable gas usage can be used for transport, electricity generation, and space heating, among other things, and heat pumps also provide a key link between electricity and heating and cooling.

As a final example, consider thermal storage systems such as those at University of California, Irvine (UCI), where 44% of total energy is used for space cooling. On a high PV penetration electrical grid that values flexibility, the cold thermal storage well pays for itself by allowing the campus to shift loads across the day, saving millions of dollars in demand charges while offering an efficient and lower carbon solution.

This type of system works well on large campuses that can share the load across many buildings—in UCI’s case, 8 million SF. But the same basic concept applies to district energy systems that dispense heat and cooling to many facilities and households, especially in certain larger cities. If there is a serious desire to keep this planet from overheating, these types of models should be embraced in ever-smaller, and more flexible, applications.


Microgrid Controllers Emerge at Key Industry Crossroads

— April 10, 2018

To many, the mystery behind the curtain of what is and what is not a good microgrid controller may feel a little like the Wizard of Oz. Often referred to as the “black box” or the “secret sauce” of what makes a microgrid work (or not), the number of companies with automation and control products keeps increasing (though casualties also litter the vendor landscape). But determining how these controllers compare, and what exact hardware and software components make them tick, remains opaque. Is it smart inverters, digital relays, or SCADA systems—or the even more nebulous world of software?

Navigant Research has just published its latest Leaderboard report on microgrid controllers. Among the vendors that ranked in the top five was Siemens, the German industrial giant. A Microgrid Knowledge survey has also shown that, among 21 candidates, Siemens was the most recognized company associated with microgrids.

A Confluence of Energy Storage

The company recently made two important moves designed to increase its microgrid market share. It has formed a new partnership with AES to offer energy storage solutions, creating a new global company called Fluence. Though this partnership is more focused on larger-scale energy storage projects, virtually every microgrid coming online today has some form of energy storage. In fact, Navigant Research expects that the revenue opportunity of energy storage in microgrids will feature a compound annual growth rate of 37.4% over the next decade, reaching an annual implementation spend of $4.5 billion by 2026. Fluence boasts some impressive credentials: 56 energy storage projects either operating or awarded in 15 countries with a total capacity of 485 MW. How this new strategic partnership will influence the microgrid market remains to be seen.

Better To Be Simple

Siemens has also released a new, lower cost microgrid controller product—SICAM Microgrid Controller—which is, in essence, a microgrid in a box for grid-tied applications. The company sees value in offering a simpler control offering for microgrids that are smaller in scale and less focused on sophisticated market exchanges, moving closer to a plug-and-play solution. I have long argued that the microgrid market may grow faster if there is a shift away from complex engineering projects in the 50 MW, 100 MW, or 200 MW range, focusing instead on 1 MW and below projects and allowing cloud-based software systems to aggregate these microgrids into a virtual power plant. Companies such as Spirae have articulated this approach, stripping out excessive engineering costs that can often kill a project’s viability.

The Bronzeville Project

In late March, Siemens announced a new project that shows that—despite its new plug-and-play, lower cost microgrid controller offering—the company also sees a market in its more sophisticated software solutions. After lengthy regulatory and legislative delays, the Bronzeville microgrid on the south side of Chicago is to be rate based by Commonwealth Edison. This project will rely on Siemens’ microgrid solution, its Microgrid Management System software, which will be used to optimize a cluster of two microgrids. The purpose of the project is to use advanced algorithms to implement controls for a microgrid serving over 1,000 customers, including critical facilities such as the Chicago Police Department headquarters, while interacting with the long-standing microgrid at the Illinois Institute of Technology.

A new energy storage powerhouse partnership, a new lower cost control option, and a project demonstrating the ability of its software to manage multiple microgrids show that Siemens is reinventing itself, as are its utility partners.


Flow Batteries Under Fire: What’s Happening?

— April 5, 2018

There has been an uptick in news surrounding flow batteries over the past year. On the positive front, ESS, Inc. recently raised $13 million in funding from investors and announced that it will deliver two of its systems to chemical manufacturer BASF. On the negative front, Vizn Energy scaled back its business, citing the loss of one its leading investors.

Navigant Research expects flow batteries to be a major competitor to lithium ion (Li-ion) for both front-of-the-meter and behind-the-meter applications in the next several years. In fact, Navigant Research expects them to be the fastest growing electrochemical energy storage device over the next 10 years. However, short-term hurdles still exist. In this blog, I’m discussing some of the major issues.

Cost and Use Case

CAPEX of flow battery systems compared to Li-ion batteries is higher. The cost over the lifetime of the storage asset is heavily dependent on the type of applications the device will serve. We see flow batteries being utilized for long duration energy applications (over 4 hours) as opposed to short duration power applications (less than 4 hours). As their discharge duration is directly correlated with the amount of electrolytes stored in the tank, the levelized cost of energy decreases as the discharge duration increases. At present, we generally see advanced energy storage being deployed for use cases less than 4 hours. Consequently, Li-ion batteries can provide the same services that flow can at a lower CAPEX.

Component and material costs are also an issue. Current commercial flow battery chemistries are limited to vanadium-based and zinc-based chemistries. Their redox pairs yield competitive but lower power densities compared to Li-ion. Exploring different chemistries that yield higher power density and are safer, engineering better separator and electrode materials and architectures to improve chemical conversion, and decreasing other balance-of-system costs are key to improving the competitiveness of flow batteries in the current energy storage market.

Project Timelines

From signing letters of intent to the ribbon cutting of the system, Li-ion batteries are deployed on increasingly shorter timelines relative to other advanced battery technologies. This is because they have been studied more by both the public and private sectors and are well understood. Flow battery systems can be a bit bulkier and require special permitting by players across the value chain. Most customers are not as educated on flow systems compared to Li-ion or lead-acid batteries. Consequently, it is difficult to convince flow battery customers (utilities and C&I customers, mostly) to invest when they can purchase a Li-ion system at a lower CAPEX and have the system up and running faster.

Economies of Scale

Most commercial flow battery vendors outsource component manufacturing to other companies and assemble the final product in house. The demand for flow batteries has not yet boomed, and companies have not found a need to scale up production. As medium- to long-duration markets begin to open for flow batteries as they did for other types, manufacturing synergies will be developed and consequently drive the price down.

How Do Companies Plan for Success?

Going forward, it is increasingly important that flow battery companies continue to educate customers on the benefits of deploying these systems while continuing to improve on the issues outlined above. Being able to back up the 20-year warranty that most commercial flow battery vendors offer will be contingent on these improvements. Because of this, we see the players best positioned to deploy these systems in the short term as large companies that have other business units and resources to support their flow battery business. This way, if business slows or fails, the company will not be set back significantly.


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