Navigant Research Blog

Can Virtual Marketplaces Unlock the Potential of Distributed Energy Resources?

— March 28, 2017

In previous posts, I have explored innovative business models that aim to maximize the value of solar plus energy storage systems in Australia. The country has quickly become a leading market for these technologies—as well as the advanced business models and platforms necessary to unlock their full potential.

Navigant Research tracks the rapidly growing Australian market through its new Energy Storage Projects Data Service, which provides unique insights into the dynamics of markets around the world. As shown below, the majority of storage systems in Australia are being used to integrate new solar projects and maximize their value for both customers and the grid.

While the Australian market for both solar and energy storage has grown exponentially in recent years, these technologies will only be an economical investment for select customers given current business models and regulations. A new program being launched by software provider GreenSync hopes to change this situation by opening new opportunities for customers to benefit from its distributed energy resources (DER).

Navigant Research Data Services

(Source: Navigant Research)

Making Connections

GreenSync’s software-based marketplace, known as the Decentralized Energy Exchange (deX), aims to provide an avenue for distributed solar PV and energy storage system owners to trade their system’s services with local network operators in exchange for payments. Initially, the primary goal of the exchange will be to help operators manage both peak demand and variable solar generation on the grid. The opening launch of the marketplace will focus on trials with two utilities. ActewAGL, in Australia’s Capital Territory, hopes to understand how market-integrated batteries can alleviate constraints in certain parts of the grid, particularly those struggling to handle high levels of solar PV. United Energy in the Melbourne area is piloting the deX marketplace to reduce grid congestion where summer peak demand is straining existing infrastructure.

These utilities join a number of others in Australia that are working to understand how networks of DER can be utilized to provide services for grid operators in addition to the customers who own them. Utilities like AGL Energy, SA Power Networks, and Ergon Energy are working with various vendors to maximize the value inherent in energy storage systems and other flexible DER to improve the efficiency of the grid while allowing for greater amounts of solar PV to be added by customers.

Coordination Is Key

For DER providers to reach the most customers and realize the full potential of their technologies, these types of virtual aggregation platforms will be essential. Without proper coordination, the growing number of DER on the grid can result in significant systemwide inefficiencies, and their benefits may only be accessible to select electricity customers. Collaboration and coordination among DER stakeholders on the grid are key themes explored in Navigant Research’s recent white paper, Navigating the Energy Transformation.

The ability to effectively aggregate and coordinate distributed systems will be crucial for both utilities and vendors to capitalize on all the values these systems can provide. Vendors with a narrow focus on only providing cost savings and backup power for customers will significantly limit their addressable market, as their solutions may be too costly for many customers. They also risk missing out on the opportunity to play a foundational role in the development of the next-generation transactive energy system that will transform the industry.

 

China Exploring New Avenues for Energy Storage in 2017

— February 8, 2017

BatteriesLooking back on 2016, the energy storage industry in China has had its positives and its negatives. Navigant Research believes that energy storage increasingly is valued based on the services that a system provides. Overall, China is an attractive market for energy storage, particularly lithium ion (Li-ion) batteries. Market activity in 2016 included increased sales of EVs throughout the country, electricity market reforms to spur grid-tied storage resources, and a multimillion-dollar increase in investment of national battery companies. The country is embracing a cleaner, more connected future going into 2017.

Electric Vehicles

Long projected to be the largest global EV producer and market (despite reports of inflated plug-in EV sales figures being used to garner government subsidies), policies that promote the development of alternative fuel vehicles drive EV sales in China. The central government began giving out subsidies for EVs in 2013, and the value of subsidies has decreased annually since then. The 2016-2020 Notice on the Financial Support Policy for the Promotion of New Energy Vehicles from the country’s Ministry of Finance announced that, compared to the 2016 level of subsidy, the 2017-2018 level and the 2019-2020 level will be reduced by 20% and 40%, respectively. In addition to the subsidy, the central government has also waived the vehicle sales tax. Additional subsidies in China can be found predominantly at city governments. For example, Beijing and Shenzhen allow a 1:1 matching subsidy for consumers, effectively doubling the national EV purchase subsidy.

On the grid-tied storage front, Navigant Research anticipates that China will be the single largest country market for energy storage, reaching 5.5 GW of new capacity by 2025 across the utility-scale market alone. Though the country’s electricity market has long been government-run, recent market reforms have allowed non-state wholesale power producers to enter the market, opening up opportunities for independent power producers (IPPs) to provide ancillary services by way of energy storage resources. Compounded with the big push for new variable generation resources within China, storage greatly improves the business case for renewables by eliminating the need for new transmission and distribution resources.

Battery Manufacturers

Large battery manufacturers headquartered in China (such as BYD, CATL, Lishen, and Wanxiang A123) have deployed several systems in various EVs and stationary storage installations; these companies introduced several rounds of investment plans to further develop their respective technologies. In April 2016, China’s Ministry of Industry and Information Technology announced that any EVs applying for the Chinese government subsidy had to utilize a battery manufactured by a Chinese-owned company listed on the ministry’s so-called White List, effectively eliminating competition from other large global manufacturers like Panasonic and LG Chem. Chinese battery companies are also targeting other applications in foreign markets. For example, Neovoltaic, GCL Integrated Storage, and Pylontech have launched residential solar plus storage solutions ranging from 2.5 kWh to 8 kWh for residential customers in Australian, German, and American markets. Several other Chinese Li-ion battery providers are looking to establish partnerships with other systems integrators to further expand into other attractive storage markets.

The battery energy storage industry in China goes where the government steers it. Though the effect of policy and demand-side incentives varies by territory, the country seems to have a clear plan on what role storage will play in its clean energy future. As the industry matures, customer needs and grid needs will evolve and allow for EVs and energy storage systems to penetrate new markets. It remains to be seen whether China’s aggressive clean energy adoption strategy will be successful in the long term.

 

Enhancing Grid Resiliency through Collaboration

— September 30, 2016

GeneratorAfter nearly 11 years without a major hurricane in Florida, Hermine hit the gulf coast in early September 2016. While it was a relatively small hurricane compared to others that have hit the region, the storm caused widespread power outages that lasted for over 4 days in some parts of the state. Many areas that saw outages experienced no significant wind damage or flooding, yet were left in the dark due to damaged power lines many miles away. As with most major storms, Hermine served to highlight the fragility of a centralized electricity grid dependent entirely on large-scale generation and long-distance transmission networks. Despite being very susceptible to this type of extreme weather, Florida lags behind other states in efforts to modernize its grid and improve resilience against major storms.

Addressing Outages

The impacts of Hurricane Sandy in 2012 drove many northeastern states to push significant grid modernization initiatives aimed at limiting the potential for outages from future storms. Much of this activity focuses on deploying microgrids—including energy storage and solar PV—to provide backup power to critical facilities including police and fire stations, communications infrastructure, and gas stations in the event of a major grid outage. Given the greater risk of extreme weather in Florida, energy storage and microgrids could provide much more value than in other parts of the country. However, deployments of these technologies in the state have been limited to date.

The rapidly falling costs of distributed energy resources (DER) including solar PV and battery energy storage systems have resulted in utilities around the world looking to both improve grid resilience and customer relationships by offering these new technologies. One emerging opportunity, explored in  Navigant Research’s recent Residential Energy Storage Systems report, includes utilities deploying networks of solar + storage systems for residential customers. These projects have numerous benefits for both utilities and customers, including:

  • Reduced need to upgrade infrastructure to meet peak demand
  • Provide greater visibility into conditions on distribution circuits
  • Easier integration of distributed solar PV systems
  • Enhanced customer engagement
  • Backup power for customers
  • Maximum use of solar PV onsite for customers

Innovative business models are being explored both in the United States and internationally in order to maximize the value of residential DER as utilities recognize both the potential and risks presented by these technologies. Despite the contention surrounding ownership and deployments of DER in many areas, partnerships between utilities, solar PV, and storage providers are emerging as a popular model. Utilities including Consolidated Edison in the United States, PowerStream in Canada, and Ergon Energy in Australia have partnered with leading DER providers to offer combined solar + storage solutions for their customers. Though these offerings are mainly limited to pilot projects, early results have been positive for both utilities and their customers. This type of model could provide a solution to the contention surrounding solar PV development in Florida while also limiting the effects of future storms.

 

Australia Is Emerging as Ground Zero for Governments Seeking Microgrid Role Models

— July 29, 2016

BiofuelNavigant Research has long argued that North America—and especially the United States—is the global hotspot for microgrids. I’ve argued that if one includes remote microgrids into consideration, it could be said that Alaska is the microgrid capital of the world. However, recent trends point to explosive growth in microgrids of all sizes, shapes, and applications (including both grid-tied and remote) in the Asia Pacific region. And it appears Alaska has some stiff competition in Australia.

Most of the innovation in the Asia Pacific region has been focused on private sector business models. But what about carving out a new role for utilities owned by the government? Certainly, microgrids challenge and may disrupt typical utility business models within the context of systems that intentionally island in order to derive economic benefits within a distribution grid. But what about utilities that operate and manage off-grid, remote systems?

Horizon Power a Standout Model

This is a space in the microgrid market where few have ventured, with the single notable exception of Horizon Power in Western Australia. Horizon Power services the biggest area with the least amount of customers in the world—a service area of approximately 2.3 million square kilometers, or an average of one customer for every 53.5 square kilometers of terrain. Its microgrids are exposed to intense heat and cyclonic conditions in the north and severe storms in the south.

Australia has long been a leader in wind-diesel hybrid microgrids provided by vendors such as Powercorp (now ABB) and Optimal Power Solutions, the latter a company which ranked third in last year’s Navigant Research Leaderboard Report on microgrid developers/integrators offering their own controls platform.

Horizon Power is more focused on providing operational efficiencies and value creation for the much maligned government-owned utilities. Its creativity may well spill over into other Asia Pacific markets that also focus on how to bring an enterprise management acumen to remote systems. Such remote systems traditionally have suffered from poor operations and management systems, contributing to the eroding financial status of utilities.

Asia Pacific Innovation

Australia is, like Alaska, a unique setting in which to test drive new and innovative business models, as well as robust technologies that must withstand extreme weather and logistical challenges. Innovators in nearby New Zealand (such as Infratec, an entity that is a spin-off from a publicly owned electricity distribution company) are showing that not all good ideas come from the private sector. Infratec recently entered into a strategic alliance with Perth-based company EMC to bring a wider range of product offerings to New Zealand and the Pacific. Already, Infratec and EMC jointly deployed the country’s first grid-connected, commercial-scale battery energy storage system in South Canterbury.

As the most recent Microgrid Deployment Tracker shows, the Asia Pacific region is rapidly catching up to North America in terms of total identified microgrid capacity. One could argue today that Australia is today’s global leader in terms of exploring synergies possible with enterprise optimization of remote microgrids, a topic that has yet to be tackled in any comprehensive way anywhere else in the world. A decade from now, I wouldn’t be surprised to see Australia and New Zealand among the top countries in the world when it comes to microgrid innovation.

 

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