Navigant Research Blog

Off-Grid Markets Foster New Microgrid Business Model Innovation

— April 29, 2016

Power Line Test EquipmentMicrogrids are being developed in mature industrial markets such as the United States to provide premium, high-quality clean power to a broad array of customer segments. Even more dramatic creativity is occurring on the business model front in developing world markets such as India, Africa, and Iraq. Here are three companies moving the needle in terms of technological advances fueling new creative ways to control, finance, and implement microgrids.

SimpliPhi

The first company is SimpliPhi Power, which got its start in 2002 developing off-grid portable power systems for Warner Brothers and Disney film shoots. The company’s portable power units, called LibertyPaks, were used in locations as diverse as the Amazon and New York City. The company then found a home for its technology with the Marine Corps in forward operating bases in Afghanistan and Iraq, relying upon lead-acid batteries and diesel generators optimized to reduce fuel consumption and save lives.

SimpliPhi has significantly upgraded its technology offering over time. The company now focuses on sophisticated power electronics embedded in its smart inverters to integrate distributed solar PV panels with non-toxic lithium ferrous phosphate batteries, which offer a thermal energy profile that does not require cooling and which reportedly outperformed Tesla’s Powerwall in a head-to-head competition. A school in Tanzania shows an example of the company’s typical installations in the developing world. Perhaps SimpliPhi’s most unique business model is its reliance upon an open source, plug-and-play, low-voltage 48-volt direct current (DC) power network, making its microgrids a nice fit with low-voltage grids throughout the developing world. Few other companies focus on such low-voltage microgrids.

SparkMeter

The second company I’d like to reference is SparkMeter, which has a smart meter offering that puts most advanced metering infrastructure (AMI) deployments by U.S. utilities to shame. Lower in cost than the majority of competing metering options and with robust functionality, the combination of hardware and cloud-based interface provides real-time monitoring and adjustments to voltage and frequency issues. SparkMeter offers a platform that that was designed for the off-grid environment, but which can also be deployed in centralized grids. A mobile money or cash-based prepayment system is also integrated into the microgrid platform, allowing vendors to insure cash flows vital to sustainable business ventures in key microgrid markets such as India. The company validates that smart metering is even more important in an off-grid operating environment than in developed economies. Why? In emerging economies, small amounts of electricity are consumed by large numbers of customers with little annual income. It is this kind of technology that is key to making any bottom of the pyramid (BOP) energy access strategy work.

Powerhive

Last, but certainly not least, is Powerhive. With recent investments by the likes of the investment arms of French oil giant Total Energy Ventures and diesel generator manufacturer Caterpillar Ventures, the company has announced plans to develop 100 microgrids serving 90,000 people without electricity. These systems will aggregate up to approximately 1 MW. With plans on the boards for microgrid portfolios that could top 500 MW over the long term, a key to the company’s success has been a pay-as-you-go business model that, like SparkMeter, depends upon mobile phone payment options. Powerhive’s Honeycomb remote monitoring system underpins the pay-as-you go strategy that it first deployed in 2011, which has now emerged as the primary business model for BOP deployments around the world.

All three of these companies highlight the innovation required to create viable sustainable energy projects. How can these lessons be applied to microgrid markets in the developed world?

 

Smaller Utilities Explore Energy Storage-Enabled Solutions

— April 20, 2016

GeneratorWhile California’s investor-owned utilities have received the most media attention for their high-profile energy storage procurements, smaller municipal and cooperative utilities around the country are beginning to recognize the value that energy storage can provide. The services that energy storage systems (ESSs) can provide these smaller utilities may differ from larger organizations, as will their procurement processes.

One notable difference is that municipal and cooperative utilities are generally able to make much quicker decisions regarding investments, as they are not as burdened by regulatory oversight and financial commitments to shareholders. Many of these organizations have been exploring the diverse benefits that energy storage and microgrids can provide, particularly as renewable energy developments become more common for smaller utilities. It is estimated that member-owned electric cooperatives in the United States have nearly 240 MW of solar PV capacity online or in development, which may bring about the need for energy storage to effectively integrate these resources and ensure grid stability.

Problems to Solve

Much of the interest from publicly owned utilities in energy storage and microgrids stems from the generally large geographic area that these entities control. In addition, many customers are located at the end of long feeder lines in relatively remote areas. As utilities see load growing at the end of these isolated circuits, issues around relatability and the need for significant new investments will arise. This challenge is magnified by the fact that many public utilities do not own generation assets, making it different to control frequency and voltage on their system when the generators feeding power are potentially hundreds of miles away. Increasingly cost-effective energy storage is emerging as an ideal solution to these problems by allowing utilities to defer investments in new infrastructure, enabling greater control over their networks and improving reliability for remote customers.

Emerging Solutions

Municipal utilities are able to solve challenges using energy storage either distributed throughout their service territory or at a single facility. For example, the Eugene Water & Electric Board in Eugene, Oregon is developing a solar PV and energy storage microgrid utilizing a 500 kW lithium ion battery from developer Powin Energy. The system will ensure the operability of critical facilities in the event of an outage as well as reduce the expensive peak demand energy the utility buys on wholesale markets. Eventually the utility may look to sell excess capacity into energy markets themselves. An alternative model is being tested by the Glasgow Electric Plant Board in Kentucky, which will deploy distributed ESSs at the homes of 165 customers in partnership with Sunverge. The systems will charge at night when costs are low and discharge during the day or during peak demand, reducing the need to supply additional power and lowering overall costs. This network of ESSs will also provide detailed, real-time insights about the local grid’s performance and ensure customers have power in the event of an outage.

These programs demonstrate the various ways that smaller utilities can enjoy the benefits of energy storage while improving service for their customers and integrating local renewable resources. As energy storage costs continue to fall, there will be numerous opportunities for the nearly 3,000 publicly owned and cooperative utilities in the United States to benefit from the technology.

 

Microgrids: Pie-in-the-Sky Dreams versus On-the-Ground Realities

— March 4, 2016

multimeterThe hype cycle on microgrids appears to have hit the crescendo level, causing at least one commentator to say “microgrids are the new kale.” This, of course, refers to the trendy vegetable alternative to lettuce and other leafy greens. Others, including many utilities, are still quite skeptical. They don’t see the rationale for third-party microgrids and argue that there are less costly alternatives to boosting resilience and energy security. Of course, many of the same utilities are busy trying to figure out what business model they should pursue so they can capture a portion of the microgrid value stream, whether from their regulated or unregulated business lines.

There is no doubt that significant barriers remain for microgrids to be considered a standard option for adding new capacity and other energy-related services across global markets. Nevertheless, there are certain application segments located within specific geographies where microgrids can make economic sense right now. Sometimes these deployments are dependent upon government incentives or other sources of supplemental funding. However, the number of microgrids being deployed today under a strict business case value proposition is growing.

Myself and others have often extolled the opportunities in the developing world. On paper, these markets look promising. High diesel prices and declining costs of solar PV (and now energy storage) make a microgrid that incorporates renewable energy a no-brainer.

As Justin Guay, climate officer at the Packard Foundation, told me the other day, some of the primary challenges to this market lie with subsidies embedded in the systems for fossil fuels such as diesel. He identifies this among several other issues that erect barriers to energy access in an article for the Huffington Post. “In many ways, enabling access to finance is job number one,” he writes. “Public policy can help address that by defining the rules of the road.” The International Energy Administration (IEA) has estimated that subsidies for fossil fuels globally totaled almost $500 billion in 2014.

Declining Oil Prices

Of course, declining oil prices have also hit this microgrid market. While in Alaska declining oil prices (ironically) threaten funding for climate-friendly renewable energy development for remote communities, in other parts of the world lower diesel fuel prices can pull the rug out from renewable energy economics. Diesel is the primary fuel for power generation in remote locations; prices hit 8-year lows in January of this year.

Yet there are bigger problems, corruption chief among them. Old boy diesel supply networks have created mafia-like arrangements lining the pockets of long-time locals that are threatened by new clean technologies. However, the tide may be turning in countries such as India, one of the most promising of all global markets for microgrids. Along with stripping away direct diesel subsidies, more subtle changes in financial rules may help this chaotic market reach its promise sooner rather than later.

India is an ideal microgrid market due to dense populations and the proliferation of cell phone technology. A series of recent rules creating a digital financial inclusion ecosystem is paving the way for creative business models to support small-scale energy supply entrepreneurs. Other changes in law allow for the shifting of subsidies once flowing to bad investments such as kerosene to instead be channeled into more productive activities, including sustainable energy microgrids. Getting big banks out of the way of mobile money creates a fiscal ecosystem that allows creative enterprises to finance energy access projects, stripping out inefficiency and lowering carbon emissions, all while providing vital healthcare and other services.

 

Arctic Circle Is Hot Spot for Renewables Innovation

— March 2, 2016

GeneratorThe market opportunity for remote, off-grid power is immense, as verified in a report released late last year sizing this market (including projects that meet Navigant Research’s definitions of both nanogrids and microgrids). According to this analysis, the total value of the assets and services that could flow into this huge global market over the next 10 years could reach more than $200 billion.

As was reported in a previous blog, one could make the argument that Alaska, sitting within the Arctic Circle, is a global leader on remote microgrids, with almost 140 such systems representing over 900 MW of capacity identified in the most recent version of Navigant Research’s Microgrid Deployment Tracker. The vast majority of these remote microgrids incorporate some level of renewable energy. In fact, Kodiak Island reached nearly 100% renewable energy generation during 2014. Several local utilities have set goals ranging from 70%-80% renewable penetration within the next 5-7 years.

It turns out innovation on renewables and remote microgrids is not limited to Alaska. The Alaska Center for Energy and Power (ACEP) is co-leading a new program to be launched this summer for countries whose borders venture into the Arctic Circle. Dubbed the Arctic Remote Energy Network Academy (ARENA) program, this program is a formal project under the U.S. Chairmanship of the Arctic Council, with four of the eight council countries co-leading so far, including Canada, Finland, and Iceland, along with the United States (Alaska). This program is designed to bring together practitioners from throughout the Arctic to learn from one another with the goal of increasing the number of hybrid-renewable energy systems installed across the region. “ARENA is focused on the Arctic now, but we are hoping to expand it to other regions in the future, if we are able to find some partners,” said Gwen Holdmann, ACEP director.

Forefront of Climate Change

As a region, the eight countries representing the circumpolar Arctic are at the forefront of climate change, as measured and expected temperature increases are significantly higher than the national average. Impacts like diminishing sea ice and coastal erosion are becoming common challenges for these frigid and remote communities. However, the Arctic region is also leading the way when it comes to renewable energy development. ACEP estimates that 60% of grid-connected communities across the Arctic produce power from renewable resources (compared to a global average of 22%), including:

  • Finland (39%, biomass)
  • Sweden (48%, hydropower, biomass)
  • Norway (99%, hydropower)
  • Iceland (100%, geothermal, hydropower)

However, approximately half of the populations residing within the Arctic are not connected to a traditional power grid. Instead, they rely on remote microgrids to provide electric power services. This increases the complexity of integrating renewables, particularly at high penetration levels. These systems are among the most sophisticated engineering marvels in the world, providing energy services that are often a matter of life and death.

Countries throughout the Arctic are actively investing in renewable resource development. Perhaps the most fascinating data points come from Russia, a country not often linked with a focus on sustainability. The project pipeline in the country totals over 800 MW of remote microgrid capacity designed to displace pure diesel capacity with some renewables. Last year, a modest 15 MW of wind and solar capacity was brought online by RAO Energy Systems of the East, the state-owned utility that serves parts of Russia within the Arctic Circle. Those numbers are expected to scale up dramatically in the near future, with some 178 distinct projects in the works. At present, Russia also has the largest solar PV array located within the Arctic, a 1 MW system at Bagaday.

 

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