Navigant Research Blog

Australia Moves Forward with Transactive Energy

— March 29, 2017

Last month saw an announcement of another Australian transactive energy trial, led by the Australian Renewable Energy Association (ARENA) and distributed energy resources (DER) management software specialist GreenSync. The transactive energy trials, which will be run alongside network operators United Energy and ActewAGL, will use GreenSync’s DER management software as a market platform. The trial marks another step in the evolution of DER management: from managing the physics of DER to also managing financial transactions. By trading grid services from their DER with local network companies, residential and commercial customers will benefit from direct financial incentives that GreenSync believes will help justify the investment in DER.

A Hotbed

Australia is a hotbed for transactive energy. There are numerous transactive energy trials underway in the country—certainly more per capita than anywhere else in the world. And there is good reason:

  • At 15%, residential solar PV penetration is high.
  • There is abundant sunshine in most cities.
  • Critically, residential PV makes up a significant proportion of all PV, so is relatively important and gets plenty of regulatory attention.
  • Network charges are high, due to the extraordinarily long distances power has to travel for relatively small numbers of customers.
  • Blackouts are not uncommon—a recent heat wave in South Australia caused a surge in demand that could not be met by existing thermal generation led to the market operator to demand 100 MW of load be shed.

Future Resources

Energy Networks Australia (ENA) and Australia’s national science agency CSIRO co-wrote the recent Electricity Network Transformation Roadmap, which details a series of integrated measures that will expand customer choice, decrease emissions, lower costs, and improve security and reliability. ENA expects residential DER participation rates of 40% by 2027, with 29 GW of solar PV and 34 GWh of batteries. By 2050, Australian generation is expected to be virtually entirely renewable.

DER are regarded as important future resources that—when aggregated—will balance the networks, reward their owners, remove the need for green subsidies, and reduce the need for network infrastructure investments.

While the Australian market has some unique characteristics that have encouraged the early adoption of transactive energy, the continued falling costs and improving efficiency of solar PV and storage will make a viable economic case in more and more geographies. It is vital that vendors develop trustworthy, robust, and scalable platforms if transactive energy is to mature from its current embryonic state to a widely accepted market mechanism. Over the next few years, regulators, network operators, energy suppliers, and DER vendors will all be watching the Australian market with close interest.


Natural Gas Generation Displacing Diesel in India

— February 7, 2017

Recent developments indicate that natural gas power generation is set to displace growing amounts of diesel in India. Though natural gas represents just 8% of installed capacity, demand is set to more than triple in the 2012-2030 timeframe according to Indian government forecasts. While some of the extra supply will come from increased domestic production, much will come from the doubling of liquefied natural gas (LNG) import capacity through 2025. At the same time, local distribution piping is expanding its reach—one customer at a time.

Natural gas is becoming more attractive for a number of reasons. One is cost; although diesel and coal are both relatively inexpensive and heavily relied on for power, the increased natural gas supplies are expected to bring prices down. The globalization of Asian LNG markets should also bring more stability to gas prices as the fuel moves away from oil indexation to more market-based pricing in Asia. Perhaps more importantly, natural gas has significantly lower emissions than diesel and coal when used for power generation—measured via particulate emissions and greenhouse gases. Alongside renewables, natural gas is seen as a key tool in fighting air pollution in India, which has half of the world’s 20 worst polluted cities.

Diesel generators are one key cause for pollution. Diesels are chosen because they are cheap, fuel is readily available, and they can be relied on to operate when India’s relatively poor grid goes down. (According to the World Economic Forum, India ranks just above the bottom third in quality of electricity supply, though this ranking is slowly improving.) Diesel gensets are ubiquitous in India, with an estimated 90 GW of diesel generators as of 2014 and about 4% of all consumed diesel going to gensets. There is a drive for renewables to displace much of this diesel use, and they are well-positioned to do so due to falling prices of technologies like PV. But where natural gas becomes available, it may often be the preferred choice, especially where reliable power is needed after the sun stops shining.

Proactive Outreach

Diesel remains the de facto choice as a reliable and established solution for residential, commercial, and industrial customers alike. Thus, for distributed natural gas to thrive in India, proactive outreach is required. These companies have recently made headlines with moves in distributed natural gas:

  • Indraprastha Gas Ltd., a gas supplier in Delhi, recently pitched gas gensets to housing complexes and factories as a cost-saving measure. The company says natural gas generation can offer power at 12 Rs/kWh ($0.18) compared to diesel 18 Rs/kWh ($0.27). The company is also in talks to provide electricity as a service.
  • Last year, fuel cell maker Bloom Energy announced a partnership with state-owned GAIL, India’s leading natural gas company. An initial project was announced in Bangalore, presumably with many more to come.
  • Dual-fuel gensets or conversions may also be an attractive option. Genset manufacturers like Caterpillar and Cummins offer gensets or retrofit kits that allow compression-ignited diesel generators to displace half or more of their fuel with natural gas. As natural gas distribution expands, this trend is expected to spread.

As these and other value chain players find new opportunities to supply power or generation equipment, more natural gas infrastructure may follow in India. In this under-electrified growing economy that represents 17% of the world’s population, massive opportunity beckons to the prepared.


Regional Energy Integration Captures National Attention as California Quietly Leads the Way

— November 7, 2016

IT InfrastructureCalls for a North American supergrid enjoyed a brief plug during the final presidential debate when Hillary Clinton, clarifying a past statement publicized by WikiLeaks, stated: “[W]e trade more energy with our neighbors than we trade with the rest of the world combined. And I do want us to have an electric grid, an energy system, that crosses borders. I think that would be a great benefit to us.”

As Clinton suggested, establishing a regional supergrid could generate numerous benefits, including improved operational efficiency, reduced costs, and the ability to harness renewable power on a bulk scale, thereby accelerating the decarbonization of the electric power system. Yet, as discussed in a recent Navigant Research report, many barriers to supergrid development remain, and a truly integrated hemispheric electricity market seems a distant dream. Even so, progress toward increasing integration within the United States and across North America is proceeding incrementally. California, consistently at the vanguard of energy innovation, offers an example.

California Market Expands, Eyes Mexico

California’s Energy Imbalance Market (EIM) began operating in fall of 2014, when the California Independent System Operator (CAISO) linked up with Oregon-based PacifiCorp to form a wholesale power market. Managed by CAISO, the EIM pools resources across participants’ territories, automatically balancing real-time electricity supply and demand and enabling utilities to access renewable energy generated across a wider geography. NV Energy of Las Vegas joined the EIM in December 2015, and both Arizona Public Service and Puget Sound Energy of Washington joined in October of this year. To date, the EIM has saved over $114 million and avoided over 140,000 metric tons of CO2 emissions.

With a 2-year track record of savings, the EIM is set to expand further. Portland General Electric and Idaho Power are both slated to join within the next 18 months, and the Sacramento Municipal Utility District (SMUD) announced its intent to join in late October. SMUD would be the first municipal utility to join and would likely be followed by several others.

With integration among Western utilities growing, CAISO is now pursuing expansion south of the border, recently announcing plans to explore extending the EIM to Mexican grid operator El Centro Nacional de Control de Energia (CENACE). CENACE’s Baja California Norte Grid already has two connections to the California grid, and its participation in the EIM is expected to enhance the overall economic and environmental benefits of the market while opening additional renewable generation to Mexico, which is targeting 35% of its electricity from renewables by 2024.

Full Integration a Long Way Off

Despite steady growth, the EIM represents only limited energy market integration. The EIM’s authority is restricted to balancing real-time supply and demand among participants and dispatching least-cost resources to meet load requirements every 5 minutes. CAISO is also pursuing a full-service day-ahead regional energy market that would require deeper market integration and, in theory, lead to more comprehensive benefits. The regional energy market would take the form of an expanded CAISO and would be designed to enable more efficient integration of renewable resources, improve regional transmission planning, and optimize use of all available generation and transmission capacity in the day-ahead market, further reducing consumer costs.

Under state legislation, CAISO is required to complete studies on the environmental and economic benefits of a regional energy market and to submit a proposal for CAISO expansion before the end of 2017. Final study results were released in July, but the proposal was delayed to allow more time to address concerns, including the risk that integrating with coal-heavy PacifiCorp could hurt California’s clean energy agenda. The proposal is now expected to reach the state legislature in January.

With potential EIM expansion into Mexico and a broader regional energy market plan in the works, California has cemented its role as a major driver of increasing energy market integration in the West. Yet the incremental nature and uncertain pace of integration suggest that the hemispheric electricity system Hillary Clinton alluded to is still a long way off.


Hope for Utilities with Decreasing Electricity Sales

— July 14, 2016

Cyber Security MonitoringUtilities today face a number of challenges in the changing energy landscape, but across the world, there is one disruptive and broad trend that could break down the traditional electric utility business model: the decoupling of electricity sales with economic growth. Traditionally, population and GDP growth have driven growing energy demand, as my colleague Jan Vrins points out in the blog series, “Take Control of Your Future.” However, over the past decade, the trend line between GDP and energy consumption has separated. Additionally, decreasing or stagnating electricity demand and sales are occurring as the base of customers worldwide is growing, meaning this phenomenon is not happening because the number of customers are decreasing, but because of the more efficient use of energy.

This phenomenon is seen largely in the United States, though studies show a lack of demand for electricity is also occurring in other developed countries in Europe and Asia Pacific. For example, in the European Union (EU), seven member states saw household electricity consumption fall between 2003 and 2013, generally by less than 10%. However, countries like Belgium saw a reduction in consumption of nearly one-quarter (23.9%), according to Eurostat. Among other factors, this reduction can likely be attributed in part to the use of energy-saving devices.

In Asia Pacific, Japan’s consumption of power in August fell to its lowest point since 2003, hitting just 74.6 TWh, and industry specialists expect to see a continuing decline in utility profits. The country has already begun taking steps to mitigate this by diversifying business segments and pursing other energy-related opportunities. Though these measures are technically power consumption versus electricity sales, they represent the idea that declining demand for power—especially for consumers in an economic environment that fosters less electricity usage year-over-year—is likely to challenge revenue growth for power companies.

Stagnating Electricity Sales

In the United States specifically, retail sales of electricity have stagnated, growing less than 1.5% from 2006 to 2015, according to the U.S. Energy Information Administration (EIA). However, the U.S. economy has climbed ahead, growing 11.84% between 2006 and 2015, according to the U.S. Bureau of Economic Analysis. Though this is not a vast amount of growth over a decade, in comparison to electricity sales growth, it is much more substantial; essentially, electricity sales grew at rate just higher than the rate that the GDP has grown annually. This shows that the relationship between economic growth and electricity sales is no longer connected.


 (Source: U.S. Energy Information Administration)

This is challenging for utilities, as many in the United States still rely on building grid infrastructure and increasing the rate base to turn a profit. Slowed or stagnated growth in electricity demand means less need for generation, less investment in infrastructure, slower growth in the utility’s rate base, and, therefore, a threat to revenue. This is happening to utilities all around the country. ISO-New England forecasts that its region’s overall electricity demand is expected to fall by 0.2% annually over the next decade, from 128,014 GWh in 2016 to 125,213 GWh in 2025. PJM has reported that it has retired 26,000 MW of generation infrastructure since 2009, nearly 14% of its generation fleet. NYISO forecasts that energy use in its territory will decrease from 163,514 GWh to 159,382 GWh between 2013 and 2016, stating that its year-over-year growth in the overall usage of electric energy from New York’s bulk electric system is expected to flatten or decline slightly over the next decade.

Despite this challenging forecast, utilities still have options for alternative revenue streams. Utilities can begin to prioritize investments in energy efficiency and distributed energy resources (DER). By offering an integrated package of energy services to customers and becoming a service provider outside of electricity, utilities have a chance to be successful in the future, according to the Rocky Mountain Institute. In order to survive, utilities must learn to align their interests in maintaining revenue with the interests of customers who want clean, affordable energy. This idea is laid out in Navigant’s white paper Taking Control of Your Future: Navigating Megatrends and Tipping Points in the Utilities Industry.


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