Navigant Research Blog

Signposts Along California’s Distributed Generation Corridor

— March 24, 2015

Driving south on the Interstate 5 corridor from the Oregon border to the San Francisco Bay Area, you can see numerous renewable energy projects off I-5. These projects stand as modern signposts to the maturity of—and transition in—the U.S. clean tech industry. Five years ago, renewable installations were mostly limited to remote, utility-scale wind farms in Tehachapi and along the Altamont Pass. While utility-scale installations continue to grow, there is now also a strong focus on distributed generation: solar, wind, fuel cells, and generator sets located directly onsite or on the distribution grid.

The United States is expected to be a leading market for distributed generation, with more than 250 GW installed cumulatively between 2015 and 2023, according to Navigant Research’s report Global Distributed Energy Deployment Forecast. The sites discussed below are some of the most visible installations along the drive down to the Bay Area. They represent the focus on distributed generation today and in the years to come.

Signposts

As you drive through the city of Red Bluff, you see a 1-MW General Electric (GE) wind turbine installed at the Wal-mart distribution center. Wal-mart is the leading consumer of solar PV among U.S. retailers, with 105 MW of installed capacity, twice as much as the second-leading company, Kohl’s, with 51 MW. Big box retailers have installed more renewable energy than tech companies have and are a coveted prize for installers looking for big customers.

If you take the shortcut from I-5 to 505 South, toward San Francisco, it connects to 80 West in Fairfield/Vacaville, where a 1.1 MW solar PV installation at the North Bay Regional Water Treatment Plant is installed. With large energy consumption, water treatment facilities are costly for cities to operate, leading to attractive payback rates.

Renewa-Beer

When you drive further, the Budweiser plant catches your eye right off the freeway, with 3 MW of wind power located onsite. The plant also uses solar and bio-energy recovery systems. These systems combined produce approximately 30% of the plant’s power onsite. Belgium’s InBev may have offended the cultural sensibilities of some Americans when it acquired Anheuser Busch in 2008, but it used American turbines–GE 1.6-MW units.

One of the other noticeable aspects of the drive through California, particularly in Davis and Sacramento, is tract housing developments, where residential solar PV is increasingly prevalent. The residential solar PV market in California has nearly doubled in each of the last 3 years thanks to growth in the solar lease model.

California is expected to continue to lead the way in distributed generation, with systems increasingly utilizing energy storage. Though these storage systems won’t all be visible along the road, they will help more renewables capacity to come online, making the drive more scenic each year.

 

Investors Driving Energy Access Markets

— March 24, 2015

One of the signs of an industry that’s coming of age is when there are enough investors actually attending a conference that you can put investors in the title. Such was the case for the second annual Energy Access Investor Conference in London. Jim Rogers, former Duke Energy CEO, was the keynote speaker this year, adding some utility industry credit to the event.

When I talk to people about the opportunity for solar lanterns and solar home systems (1 W-200 W) for people making less than $2 a day, I usually receive a combination of blank stares and befuddled looks. But 2014 was a breakout year, and this innovative industry is expected to continue expanding in 2015. According to Navigant Research’s report, Solar Photovoltaic Consumer Products, annual revenues for pico solar and solar home systems are expected to grow from $430 million in 2014 to $1.3 billion in 2024.

2014 Highlights

A couple of highlights from 2014:

  • Public and private investment in off-grid lighting surpassed $80 million.
  • Big names entered the market, including SolarCity, Vulcan, Omidyar Network, Schneider, and DFJ.
  • Platform companies emerged, including d.light, Barefoot Power, Greenlight Planet, and others.
  • Markets such as Bangladesh continued to grow even as incentives continued to wind down.

The Year Ahead

Looking ahead in 2015, I expect to see four major trends. First, consolidation will become more common as the larger players continue to gain market share. Second, existing companies will need to expand into new markets, particularly as Kenya, India, and Bangladesh become increasingly saturated. Third, mobile payment and monitoring systems, such as M-KOPA, will gain traction and increasingly become standard in products. Fourth, direct current consumer products, such as fans, radios, refrigerators, TVs, and other appliances specifically designed for less than 200W solar home systems, will grow in popularity.

With any luck, the fifth major trend will be less befuddled looks on people’s faces when I discuss the innovation and economic opportunity in some of the world’s most remote markets.

 

Spanish Wind Industry Faces Subsidy Cuts

— March 24, 2015

In early 2014, the Spanish government reformed the electricity market by discontinuing the feed-in tariff (FIT) program entirely for all wind plants going forward. The government has also attempted to lower purchase prices retroactively for production from existing wind plants, which essentially means that wind producers who built wind plants counting on tariff-subsidized prices for the next 20 years now abruptly face major revenue shortfalls. A direct result of Europe’s ongoing fiscal crisis in the wake of the 2008 crash, this move is widely considered the most damaging change to renewable incentives in any country globally, and it could result in a permanent wind market collapse across the European Union (EU).

For Spanish wind plant developers, such as Iberdrola or Acciona (ranked as the No. 1 and No. 5 wind operators globally in 2013, respectively), 2014 was a rough year. In its 2014 annual report, Iberdrola announced that it installed only 157.7 MW during 2014. To put that into perspective, the No. 2 company on the list of top 15 global wind operators, Longyuan Power Group in China, installed 1632.7 MW in 2014, and is now likely to surpass Iberdrola as the leading global wind operator. Acciona added 98 MW in 2014, but was forced to sell off 150 MW—thus ending up with less net wind capacity in 2014 than in 2013.

Cash Crunch

The FIT cancellation affected the cash flow of these Spanish companies, as well. Iberdrola’s 2014 profits took a major hit, falling by almost 10% compared to 2013, to hit €2.33 billion ($2.65 billion). In its 2014 annual report, Acciona asserted that, despite the regulatory setback, the company is profitable again and has managed to reduce its debt by €746 million to a still-heavy €5.2 billion ($5.64 billion).

Even if the companies survive this hit, the prospects for domestic development of wind energy in Spain are dire. Companies like Iberdrola and Acciona have the option to go abroad to markets in the United Kingdom, the United States, and Brazil to install wind energy; but for wind development in Spain, there is nothing attractive to investors about joining a market where regulation is uncertain and government support withering. In 2014, Spain installed just 28 MW of wind power, far below the 175 MW installed in 2013. The tariff cut has imperiled the future of clean energy in Spain, unless the government can bring back wind incentives and restart the market.

For a more detailed analysis of Spain’s wind market, as well as the broader global market for wind power, see Navigant Research’s forthcoming World Market Update.

 

Energy Storage Leaders Stumbled, Then Survived

— March 20, 2015

At a time when the major electric industry players were either unwilling or not nimble enough to develop energy storage systems integration expertise, four growing energy storage players with four distinct technologies took a risk to develop this expertise. Over the last few years, each of these companies failed financially and was subsequently acquired, in some cases more than once. In nearly every case, private equity firms stepped in, seeing an opportunity to invest in a maturing technology company with specialized expertise in the market.

Citing Tesla founder Elon Musk’s determination to build a massive Gigafactory to manufacture batteries for his vehicles, E Source Senior Fellow Jay Stein has argued that company failures like these indicate the shortcomings of the overall market. This is a logical fallacy.

Number of Deployed Systems Market Share by Top 10 System Integrators, Excluding Pumped Storage and CAES, World Markets: 1Q 2015

(Source: Navigant Research)

Detours Behind

The chart above is derived from Navigant Research’s Energy Storage Tracker 1Q 15, a global database of energy storage installations that includes 808 projects. This specific graph charts the top 10 systems integrators of energy storage in terms of number of systems deployed globally. Four of the 10 market leaders for systems integration have gone bankrupt and been acquired in the past several years. NEC Energy Solutions, formerly A123 Energy Solutions, was acquired following a bankruptcy filing, and the grid business was subsequently spun off and sold to NEC Corporation for approximately $100 million in 2014. Beacon Power was acquired by a private equity firm following a bankruptcy filing in 2012, and Xtreme Power (now Younicos Inc.) was acquired by Younicos AG in 2014, also after filing for bankruptcy.

All three firms were focused on a core grid storage technology (lithium ion batteries, flywheels, and advanced lead-acid batteries, respectively), but all spent a great deal of resources in the earlier days of the market learning how to integrate complete systems. Ultimately, all three firms developed this expertise, and NEC Energy Solutions and Younicos repositioned themselves as systems integration companies, offering software, controls, and integration expertise as opposed to pure-play battery suppliers. Beacon Power is a market leader in flywheels and flywheel systems integration and has developed a modular flywheel product with built-in power electronics for simpler integration and installation.

Managers, Not Markets

Finally, Coda Energy repositioned itself as an energy storage integration firm in 2013 after filing for bankruptcy. The company rebranded and shifted its product offering to target stationary energy storage using a battery management system, battery thermal management, and a sophisticated power source controller.

Together, these four companies account for 21% of the global market share for the top 10 systems integrators (although part of this market share is attributed to Younicos AG). These companies and others like them are challenging incumbents such as ABB and S&C Electric, demonstrating that their earlier stumbles arose out of flawed management and/or strategy, not failed markets or futile technologies.

Equating a management failure with a market failure ignores the value of the technology. Whether the Gigafactory will be Musk’s Waterloo or Austerlitz has less to do with the technology and much more to do with Tesla’s strategy and execution—and Musk has proven he can accomplish both in the automotive and the financial services worlds.

 

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