Navigant Research Blog

Innovative Energy Storage Technologies Gain Ground

— October 18, 2014

According to the Navigant Research Energy Storage Tracker 3Q14, the 2007 to 2013 period has seen the commercialization of a number of key technologies in energy storage, including several advanced battery chemistries, flywheels, and power-to-gas.

The Energy Storage Tracker is a database of energy storage projects that tracks announcements and deployments of energy storage across a range of technologies in an effort to identify industry trends.  The chart below shows the deployed power capacity for six advanced storage technologies in utility-scale applications.  There was a peak in installed capacity across most of these technologies in 2011 and 2012 in response to stimulus funding under the American Recovery and Reinvestment Act.  The purpose of this funding was to jumpstart the energy storage market, and while 2013 was a slow year for most battery technologies, preliminary 2014 data (not shown) indicates improved numbers over 2013 levels.  In contrast to advanced batteries, flywheels and power-to-gas saw an uptick in deployed capacity from 2012 to 2013.

Utility-Scale Energy Storage Power Capacity by Technology, World Markets: 2007-2013

(Source: Navigant Research)

Playing Catch-Up

Although no single technology is a clear winner in the global stationary energy storage market, lithium ion (Li-ion) has arguably established itself as a key frontrunner going forward.  Over the past 13 years, sodium sulfur (NaS) batteries, manufactured solely by Japanese power infrastructure giant NGK, have established themselves as the clear leader in terms of installed power capacity in the stationary energy storage space, with 243.7 MW from 2007 to 2013.  However, publicly announced deployments are typically large orders in the tens of MWs, which results in peaks and troughs in NGK’s market activity.

Li-ion sits in second during the same time period, with 231.9 MW aggregated over all its subchemistries.  In 2013, Li-ion had the highest number of MW installed and managed to keep output steady with 2012.  Of this 231.9 MW, lithium iron phosphate (manufactured by A123 Systems, now NEC Energy Solutions and BYD) accounts for at least 114.8 MW, lithium titanate (manufactured by Altairnano and Toshiba) accounts for at least 10.6 MW, and lithium manganese spinel (manufactured by Samsung SDI and LG Chem) accounts for at least 16 MW.

Peaks and Valleys

Other technologies that have seen significant deployments from 2007 to 2013 include advanced lead-acid batteries (71.4 MW), the vast majority provided by Xtreme Power (now a part of Younicos).   More than 58 MW worth of advanced flow batteries were deployed, primarily by ZBB and Premium Power, during the same time period.  In addition, 50.9 MW worth of flywheels were deployed, with 45 MW of that capacity coming from Beacon Power (though 4 MW of Beacon’s installations have since been decommissioned).   Lastly, 11.1 MW of power-to-gas storage capacity was deployed between 2007 and 2013, primarily by ETOGAS and Hydrogenics.

In the early period of commercialization, it’s not unexpected to see strong years and weak years for technology deployment.  Li-ion is maturing and is showing signs of being a fully commercial technology, similar to NaS batteries.  Advanced lead-acid, flywheels, and flow batteries will continue to grow, but in some cases will be limited due to the small number of suppliers in the market.  Power-to-gas is in the very early stages of commercialization, and will likely see growth and decline in deployed capacity in the demonstration stages before commercializing, similar to Li-ion.

 

Contrary to Trends, Constellation Spins Off Its Demand Response Unit

— October 7, 2014

The recent action in the demand response (DR) industry has been in the direction of consolidation.  Constellation (a unit of Exelon) bought CPower; Johnson Controls bought Energy Connect; NRG bought Energy Curtailment Specialists; and in Europe, Schneider Electric bought Energy Pool.  Only EnerNOC and Comverge are left as major independent DR providers.  The acquiring companies in these cases are large corporations that own generation, electric supply business, and/or energy management systems, intent on diversifying their product offerings and capturing more of the financial and customer value chain that DR provides.  These companies are also expanding into tools like distributed generation, solar, and energy storage to act as a one-stop energy shop for commercial and industrial customers.

Comverge’s just announced merger with Constellation’s Commercial and Industrial DR business is an exception to that trend.  The new entity will be an independent company, owned by Comverge’s parent company HIG Capital, with Constellation holding a minority stake.  In effect, Constellation is spinning off its DR business.  Is this just an anomaly, or is it a signal of a strategy shift across the industry?

Priority: Generation

I think that the Comverge-Constellation deal is a standalone case, due to circumstances specific to these companies.  Exelon values its large generation portfolio.  Services like energy efficiency and distributed generation, which mainly play on the retail side of the market, are not direct threats to the company’s wholesale generation revenues.  They can be incorporated into the retail supply business as value adders without negatively affecting the corporation’s main assets – its large generation facilities.

But DR for the commercial and industrial market is primarily a wholesale market product in the territories where Exelon has generation, such as PJM, ERCOT, ISO-New England, and NYISO.  In these environments, DR competes directly against generation: every megawatt that DR gets takes away from generation, and every cent the price of energy goes down thanks to DR comes out of generation’s coffers as well.  For Exelon, being a major operator of power plants while also running one of the largest national DR portfolios may have become too much of a conflict.  So, perhaps the company decided to break off the DR business and unify its wholesale market strategy.

Progress and Profits

Exelon’s distribution utilities run some of the most progressive DR programs in the country.  Baltimore Gas and Electric has the first default peak time rebate program in the country.  Commonwealth Edison recently announced a similar initiative.  PECO is piloting a dynamic pricing program.  Ironically, if Federal Energy Regulatory Commission (FERC) Order 745 on DR compensation gets overturned by the court system and DR becomes a purely retail product, Exelon may rethink its strategy and get back in the commercial and industrial DR game.  Then it might just be another customer product offering with less direct impact on wholesale markets.  From Comverge’s perspective, it saw an opportunity to substantially add to its commercial and industrial DR book.  The wholesale DR markets are all about scale these days, with players that can afford the credit requirements and aggregate large portfolios together to manage risk.  There are not big incremental costs to operate a bigger DR business – so the move should improve the company’s profitability.

 

In Colorado, a New Solar Model Takes Root

— September 26, 2014

A few years ago the Yampa Valley Electric Association, the rural cooperative that serves communities across northwest Colorado, including the Steamboat Springs ski resort, signed an agreement with a company called Clean Energy Collective to build a community solar garden in the valley.

Headquartered in Carbondale, Colorado, Clean Energy Collective (CEC) has helped pioneer the community solar model, in which individuals and businesses can buy shares in solar power generation facilities rather than owning or leasing the solar panels themselves.  Paul Spencer, the founder and CEO of the company, calls it “solar for the masses.”

CEC signs a power purchase agreement (PPA) with the incumbent utility then pre-sells solar generation capacity in the form of subscriptions and finances construction using the PPA and the subscriptions, essentially, as collateral.  Subscribers don’t necessarily get the actual power flowing from the solar array; those electrons go onto the local power grid and appear as renewable energy credits on the customers’ bills. CEC makes money by charging subscribers a slight mark-up over the cost of producing the power.

Under the Smokestacks

As a way of shifting away from the antiquated, centralized, and coal-dependent power grid, community is a powerful model.  Founded in 2010, CEC now has 45 facilities spread across 19 utilities in 9 states. Spencer expects the number of facilities to double by the end of 2015.

In the Yampa Valley, though, CEC had a problem.

Craig, about 40 miles west of Steamboat in the mesa country of far west Colorado, has always been a coal town.  Most of the solar customers would certainly be in Steamboat, at the eastern end of the valley. But land in Steamboat is not cheap, and CECs business model is based, in part, on building solar arrays without paying too much for the land. Proximity to customers was a lesser concern.

As it turned out, there was an ideal site in Craig – literally in the shadows of the Craig power station’s smokestacks. CEC quickly signed up enough people to take 30% of the solar power the garden would produce. That’s when the problem arose.

The land the solar garden was on was owned by the city of Craig, but the mineral rights were held by Tri-State Generation & Transmission, the operator of the Trapper Mine outside town.  Tri-State officials said the rights were unlikely to be exercised — but they declined to formally cede them.  What’s more, some city council members were against the idea in principle, believing that it was harmful to the interests of the coal industry.  Spooked by the mineral rights issue, the title company on the land deal washed its hands of the deal. For a time, it appeared that the solar garden was dead.

Bridging the Divide

Paul Spencer and Terry Carwile, the mayor of Craig, weren’t ready to give up. “We begged, borrowed, and stole,” Spencer told me, chuckling. “We had to find a way to work around the mineral rights issue, and the town helped us do that.”

By the fall of 2014, a new, more amenable title company had been found, the deal was back in place, and CEC had resumed signing up customers.  In coal country, a truce had set in.

“Solar is not the replacement for coal,” said Spencer. “It’s another power solution that helps build a low-carbon future. In some small way, this project is an initial way to bridge the divide between Craig and Steamboat – between the coal-producing world and the renewable energies of the future.”

 

In Slowing Market, Echelon Exits Smart Grids

— September 16, 2014

The market for smart grid technology is still growing — in fact, Navigant Research expects it to grow from $44 billion this year to more than $70 billion in 2023 — but that doesn’t mean it offers easy money for vendors.  In fact, among smart meter vendors in particular, the recent slowdown in demand following the boom years under American Recovery and Reinvestment Act (ARRA) stimulus funding in the United States and several large European deployments is prompting consolidation along with speculation that there is more to come.

San Jose, California-based Echelon announced on August 21 that it is exiting the smart grid market to focus on its Industrial Internet of Things (IIoT) division.  Linz, Austria-based S&T AG will acquire Echelon’s smart grid division for modest consideration — according to SEC filings from Echelon, it will receive in the neighborhood of $5 million before expenses related to the deal; debts associated with the division will also be assumed by S&T.

From S&T’s point of view, the deal is attractive in both financial and strategic terms.  S&T will form a new company, along with unnamed financial investors, and spend approximately $3.3 million (€2.5 million) for 40% of the company, implying an enterprise value of just more than $8 million, or about 0.3 times run-rate revenue for the division.  That low multiple reflects the 52.7% decline in smart grid revenue that Echelon suffered in 2013 versus 2012 and its reliance upon a small number of customers.

In contrast, publicly traded Itron, which has also been the subject of recent deal speculation, is valued by the market at 1 times run-rate revenue.  Considering typical acquisition premiums for technology businesses (typically 25%-50%), one could argue that Itron’s value in a sale would be north of $2.5 billion, or between 1.3 and 1.5 times run-rate revenue.

Head East  

A large IT solutions and services company, S&T has recently expanded its offerings in the smart grid space.  It has a solid presence in Central and Eastern European markets where Echelon’s power line carrier technology is likely to be dominant for smart meter deployments.  Whereas many Western European meter projects are well into the deployment process (or at least in the request for proposal stage), several Central and Eastern European governments have committed to Europe’s 20-20-20 initiative and smart meter deployments, but major utilities have not yet made significant commitments to vendors.

At least one Wall Street analyst expects additional consolidation among smart grid technology vendors.  Louis Basenese of Wall Street Daily reported on August 18 that more than $30 billion in smart grid deals have occurred over the past 2 years.  Of course, GE’s $17 billion buy of Alstom Grid will add substantially to that sum, but Basenese believes both Itron and Silver Spring Networks are presently attractive, largely because of their patent portfolios.

Unfortunately, Echelon appears to have been forced to sell at what may be a nadir in the market for smart meter business — but considering the growth ahead for smart grid technology deployments, I would agree with Basenese that more deals are likely to emerge.

 

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