Navigant Research Blog

Californian and National Policies Could Shape Future Value Stacking for Distributed Natural Gas

— December 5, 2017

Distributed natural gas generation (DNGG) has significant potential for disruption in the electric sector thanks to improving generator technologies, cheap fuel, and the global trend toward decentralized systems in need of dispatchable power. Navigant Research has identified DNGG as a significant trend of the future, and various legislative and regulatory actions continue to affect this often overlooked but critical solution ecosystem. On the surface, some of these regulatory decisions appear as setbacks, and issues at the federal level remain unresolved. Yet, this key enabling technology for the Energy Cloud will continue to show growth due to underlying benefits dependent upon government subsidies. Some of the recent actions are discussed below.

California AB 36: This bill, which proposed to expand California’s fuel cell net energy metering (FC-NEM) program to include other efficient DNGG technologies, was vetoed by Governor Brown. The governor cited recent changes to the program and wanting to assess their effectiveness first. The goal of the bill was to make the FC-NEM program (with its 500 MW cap) technology agnostic and available to other technologies that meet certain emissions criteria. The decision keeps the larger cap exclusive to fuel cells. In a separate fuel cell development, new California projects have slowed in 2017 after new minimum biogas requirements were instituted in the Self-Generation Incentive Program.

California AB 1400: This bill, which prohibits recipients of microgrid funding from using those funds for diesel generators, was signed into law by Governor Brown in October. Though not exactly related to natural gas, this law continues a California lawmaking trend in aiming to limit carbon emissions—in this case as it relates to microgrids funded by the state’s Electric Program Investment Charge (EPIC) program. DNGG is not currently affected by this new law. These developments take place during a time of surging microgrid activity in California, with highlights including an active $44.7 million grant funding opportunity from the California Energy Commission and an active microgrid research roadmap.

Federal Investment Tax Credit: This credit for fuel cells, microturbines, and combined heat and power was a long-standing tax credit that expired at the end of 2016. House Bill HR 1, a tax bill, includes an extension for this credit, which if passed would provide a boost to these predominantly natural gas-fueled technologies. Note that the bill does not include this provision as of this writing. According to Navigant Research estimates for fuel cells, the credit is worth about $0.02/kWh throughout the system lifetime, which can significantly affect the economics of such systems.

Such policy developments have the potential to for significant effects on this dynamic industry. As renewables and storage receive significant governmental support, the relative merits of distributed natural gas will continue to be debated and judged. Regardless of the level of direct support of technologies like fuel cells, generator sets, and microturbines, the fundamental drivers of DNGG point toward a bright future.


Thinking Outside the Box about Microgrid Technology

— November 28, 2017

When one hears the word technology, most think of a hardware gadget, something tangible that can be touched and is a literal tool. However, some prominent thought leaders take a much broader view.

Jayant Kumar, global digital grids director for GE Grid Solutions, points to better microgrid master planning tools as a technology vital to bringing the microgrid platform into full commercial viability. In a recent interview, he asked “What we are trying to do is to create a utility in a box. But how do you do that at the right economic scale? What is the right business case?” He explained that with sophisticated planning tools, the assets can be matched up with the right market landscape to reach necessary internal rate of returns to make projects pencil out.

Investments in Microgrid Tech to Rise

Navigant Research will soon be publishing a report on the topic of microgrid enabling technologies (MET). The focus will be on the distributed energy resources—hardware assets—that get wrapped into microgrids. Preliminary findings show combined heat and power (CHP) capturing the largest market share today, but by 2026, the leader is solar PV (with energy storage coming in second place). All told, the hardware assets (biomass, CHP, diesel, energy storage, fuel cells, hydro, solar PV, and wind) will represent approximately $90 billion in cumulative investment over the next decade.

While these numbers are staggering and may make certain investors drool, the key to unlocking the value sometimes hidden in these hardware assets is more nebulous since they delve into the realms of telecommunications, finance, and software technologies—the value of which is more difficult to count and quantify.

Mobile Phones as a Microgrid Enabling Technology

In the developing world, there is an acute need for financial products to pave the way for microgrids linked to energy access initiatives. In these markets, it is the proliferation of mobile phones—and the infrastructure required to enable communications (i.e., cell phone towers)—that could also be considered MET. Mobile phones create the infrastructure to enable payment for energy services on an as used incremental basis that is driving growth in smaller scale microgrid systems.

For example, Simpa Networks is one of many innovators bringing energy access through microgrids to developing world markets via the pay-as-you-go model. It installs solar PV systems in households or small businesses and customers pay for the electricity consumed, like prepaid mobile phone plans. The payments count toward the purchase price of the solar PV system so customers will eventually own the system.

Controllers: The Magic Sauce

The other MET to be sized in my forthcoming report is microgrid controls spending. This is the linchpin software enabling technology that remains the bottleneck to full-scale commercial viability (just ask Duke Energy). The US Department of Energy (DOE) and the Institute of Electrical Energy Engineers (IEEE) are playing critical roles in taking a bit of the mystery out of what is now the magic sauce that makes a microgrid work (or not.)

Perhaps the most interesting initiative was launched by the National Renewable Energy Laboratory (NREL) in what is being described as a shootout under a controller-in-the-loop test pitting controller against controller. Stage 1 involved five vendors in a Microgrid Innovation Challenge where all five vendors competed in managing a simulated highly complex microgrid. The companies competed for 100 minutes on seven performance parameters. Next, NREL will pit two finalists in a real-world hardware environment in December 2017. The winner will be selected as the controller to be used at NREL’s microgrid testing facility.


Postcard from Puerto Rico

— November 1, 2017

It has been more than a month since Hurricane Maria swept through Puerto Rico. The majority of this US territory remains without reliable electricity and is facing a crisis of unprecedented proportions. The lack of power in Puerto Rico, as well as the hurricanes that struck Florida and Texas, have turned up the heat on utilities, regulators, and the federal government regarding how best to rebuild power grids for greater resilience to protect against future outages during natural disasters.

While companies such as Tesla proclaim that Puerto Rico provides the perfect opportunity to deploy solar PV plus energy storage microgrids to rebuild regional power supplies, others argue the quickest way for restoration lies with fixing the traditional hub-and-spoke centralized transmission grid. Where does the truth stand? As is often the case, somewhere between these two extremes. Though I personally would invest more heavily into microgrids, I would not restrict them to solar energy because hurricanes can both damage and limit power production. Nonetheless, wind-powered mobile microgrids were part of the immediate response, smart dual-fuel generators should also be vital parts of the microgrid solution mix.

Can Lessons from the Military Rebuild Puerto Rico?

There are some important lessons that Puerto Rico can benefit from if it listens to the US military, a key responder to the crisis in Puerto Rico.

As I noted in a recent blog, the US Department of Defense (DOD) and data centers have been wrestling with how to maintain uptime while scaling back its reliance upon diesel generation. In a new Navigant Research white paper sponsored by Schneider Electric, I argue that innovative business models, such as microgrids as a service, may be the ticket to transforming industries reluctant to embrace distributed energy resources (DER) innovations. Likewise, military bases are following similar pathways forward, eliminating capital costs and financing upgrades through energy efficiency savings. Case in point is the Marine Corps Logistics Base in Albany, Georgia, which is the DOD’s first net zero energy military base.

The military microgrid market was viewed as an early adopter before budget issues helped stall the market. While a uniquely US market in terms of adoption for stationary bases, its effect is global since the DOD has sites scattered across the globe. Forward operating bases and mobile tactical microgrids can operate as standalone systems or interconnect with traditional grids and have been featured in recent conflicts in both Afghanistan and Iraq. A new report from Navigant Research notes that momentum for DOD microgrids is picking up.

Military Technology – Civilian Implications

The DOD has played a remarkably consistent role in commercializing new technologies that provide tremendous social benefits within the larger civilian realm. The Internet, created by the Defense Advanced Research Projects Agency (DARPA) in 1969, is perhaps the most ubiquitous of the DOD’s contributions to consumer markets. Along with accelerating the commercialization of traditional manufactured products such as aircraft, the DOD has also pushed the envelope on IT. These advances have been vital to all smart grid platforms, including microgrids.

Hurricanes and related rain and wind do pose challenges to all forms of power supply, including microgrids. Yet, developing a distributed and diverse portfolio of resources is always the best bet, whether one is talking about the wholesale or retail delivery system (note that Cuba’s reliance on microgrids limits outages compared to its Caribbean neighbors). While the Trump administration favors traditional energy pathways, the DOD has forged new ground in DER. One option for Puerto Rico could be to carve out a lead role for the DOD in rebuilding its power system, showcasing lessons learned from both domestic bases and remote power bolstering national security, while at the same time delivering the humanitarian services so direly needed by the local population.


Data Centers and Military Microgrids: The Diesel Dilemma

— October 20, 2017

If something isn’t broken, why try to fix it? This kind of thinking sums up the perspective of many owners and operators of data centers. If they feel comfortable with the technology or solution that has been in place for quite some time, the incentive to enact something new and different is small. As a result, to maintain power for mission-critical loads, data centers have historically relied upon diesel generators linked to lead-acid batteries and (perhaps) dual feeds from two different utilities.

The Uptime Institute has created de facto data center industry standards that range from Tier I to Tier IV, with the latter representing the highest possible resilience. “Human beings have an almost emotional attachment to their diesel generators, as they give data center owners and operators both comfort and a form of insurance,” observed Chris Brown, CTO for the Uptime Institute. He does not see a decline in reliance upon diesel generators. According to Brown, “Engine generator usage will likely hang on, as the emotional tie and the form of insurance will still be present.”

Despite these insights, new data highlights how existing power infrastructure does carry risks for data centers. The average power outage cost for a data center in 2015 was $740,357—a 38% increase in the cost of downtime compared to 2010. Perhaps the most disturbing statistic found in Eaton’s Blackout Tracker Annual Report for 2016 is that the increase in maximum downtime costs rose to $2.4 million.

Military Base Parallels

One analogy to the challenge facing data centers is military bases in the United States. A typical large-scale military base may feature from 100 to 350 backup diesel generators, each hardwired to a single building. In many instances, they are sized at more than 200% of each building’s peak load as a contingency for energy security. Just a simple networking of existing diesel generators into a microgrid can offer cost savings for military microgrids and data centers alike.

A study by Pew Charitable Trusts found, for example, that creating a microgrid instead of relying upon standalone backup diesel generators reduces the cost of resilience by $1 billion or more. Note that the savings vary by region, with the greatest savings for those military microgrids deployed in the PJM Interconnection transmission control area. Yet, when displacing diesel backup generators with 50% diesel/natural gas fuel hybrid microgrid, California military bases boast the largest net savings. With a 50/50 portfolio of diesel/natural gas, microgrids in the PJM territory and the Southeast ironically show an increase in cost on a dollar-per-kilowatt basis if compared to the current reliance upon diesel backup generators. This is largely a result of low diesel fuel prices in those parts of the country, and it arguably points to the need to diversify power generation sources with a microgrid beyond fossil fuels.

Annual Net Cost of Protection ($/kW of Critical Load)

(Sources: Noblis, The Pew Charitable Trusts)

A new report by Navigant Research, Military Microgrids, notes that a key to innovation lies in new business models. The same could also be said for data centers. Data centers like to control their own destiny, which often means they want to own infrastructure. Yet, just like solar leases and third-party power purchase agreements accelerated the solar PV industry at a critical point in time in its development path, similar models could also bring microgrids into the mainstream.

Does such an approach hold promise for state-of-the-art data center microgrids? Schneider Electric would like to find out. Learn more at the upcoming webinar on October 24.


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