Navigant Research Blog

Roller Coaster Summer Continues for Fuel Cell Incentives

— June 21, 2016

HydrogenRobust incentives in places like Germany, Japan, and the United States have expanded the market for stationary fuel cells over the past decade. Within the United States, recent changes to major incentive programs hint at the future of the industry.

The California Public Utilities Commission recently proposed changes to the Self-Generation Incentive Program (SGIP). If approved at the Commission’s June 23 business meeting, the wide-ranging changes would substantially restructure the program. Two key changes would specifically affect natural gas generation technologies such as fuel cells, microturbines, and generator sets. First, energy storage projects would be allotted 75% of program funds, with the remaining 25% going to generation projects, including natural gas projects, wind turbines, and others. This would be a strong pivot toward storage over generation since these categories account for 4% and 96%, respectively, of $1.1 billion in historical incentives paid. Second, beginning in 2017, natural gas projects would need to use a minimum of 10% biogas, increasing in steps to 100% in 2020. The changes are intended to strike “the right balance of the program’s goals of reducing [greenhouse gases] GHGs, providing grid support and enabling market transformation.”

The federal Business Energy Investment Tax Credit (ITC) has been another important incentive, offering as much as a 30% rebate on fuel cells and other energy technologies. Wind and solar won big with the December 2015 extension, though fuel cells and other natural gas technologies were passed over and currently expire at the end of 2016. However, recent comments from congressional leadership indicate that an extension for the overlooked technologies is likely this year and may even be approved as part of the Federal Aviation Administration (FAA) authorization bill, which has a deadline of July 15.

So the news for fuel cells is mixed, with California likely offering smaller incentives than in the past but the ITC likely extending beyond 2016. The goals of such programs are ever changing, though in most cases, increasing focus is placed on GHG reductions. California’s biogas requirement cuts emissions and could thus be good for the industry, provided biogas can be viably sourced in the quantities required.

Successful incentives should ultimately render themselves unnecessary by driving down costs. Fuel cell costs have been falling, though not at the rate of some other technologies like PV. The winners will be those that can creatively cut the costs of manufacturing, installation, and financing to make the systems cost-competitive with other electricity sources. Despite the GHG emissions associated with natural gas fuel cells, current developments play a role in a zero-emissions future. Today’s natural gas fuel cell research can be directly applied to the hydrogen fuel cell, a key emissions-free and dispatchable energy resource that can complement the mix of renewables that will power our future.


Breaking New Ground While Exploring Value of Energy Storage in Southern California

— June 7, 2016

Cloud ComputingThe closure of the 2,150 MW San Onofre Nuclear Generating Station (SONGS) has left a huge hole in the power supply portfolio that Southern California Edison (SCE) had traditionally relied upon to serve customers. On top of that, the massive leak of methane from the Aliso Canyon natural gas storage facility has further aggravated the electricity supply challenges facing Southern California.

The leak is the largest known leak of methane into the atmosphere in U.S. history. It continues to make headlines, but longer term impacts could still be felt this summer.

Filling the Gaps

“When full, Aliso Canyon has enough natural gas stored to supply fuel to 18 regional power plants located in the Los Angeles basin for 21 days. But it takes 2 to 3 days for that natural gas to get into the basin where it is needed. So when the sun goes down, we can’t get the gas fuel to power plants where it is needed in time,” said Susan Kennedy, CEO of Advanced Microgrid Solutions (AMS), a company that has won a contract with SCE to deploy up to 50 MW of distributed energy storage to help fill regional supply gaps via hybrid electric buildings such as those owned by the Irvine Company.

“One major heat wave this summer could have major impacts, leading to curtailment of electricity service,” a prospect recalling the power outages that plagued California in the 2000-2001 timeframe, when Kennedy, working on behalf of then-governor Gray Davis, had to resort to emergency measures seeking drastic demand reductions in order to keep the lights on. “Few people seem to make the connection between this natural gas supply and our reliable electricity system,” she noted. But Kennedy does. “What we clearly need to get through this summer and into the future is fully dispatchable demand response [DR], the ability to use customer load as a resource in the same way we use supply. Energy storage allows us to create such a resource that also provides economic value for customers, such as the Inland Empire Utility Agency [IEUA].”

Water-Energy Nexus

The agreement with IEUA is addressing the water-energy nexus in California, an issue that is also raising concerns in light of lingering droughts. IEUA has been leading on renewable energy since 2008, with solar, wind, and biogas resources already part of its electric resource portfolio. With the help of AMS and its partner Tesla, these energy storage devices will allow the agency to maximize value to reduce its energy costs by an estimated 10%, or as much as $230,000 annually.

IEUA did not have to pay any upfront capital costs under the terms of the unique contract with AMS. Yet the biggest surprise to emerge in this project was SCE’s flexibility in contracting. The investor-owned utility had to adjust the existing tariff with IEUA in order to bring the energy storage devices online. “There was no template of how to do this,” said Jesse Pompa, a senior engineer at IEUA. “Batteries had never been connected to a grid in this way before. This was indeed a risk for us, and the biggest surprise is that they accommodated us.”

“I have to say, SCE is the most open-minded of all California utilities in viewing energy storage as a grid resource,” added Audrey Lee, AMS’s VP of analytics and design. She noted that the artificial intelligence software that AMS provides enables the fleet of Tesla batteries to provide a firm, dispatchable DR resource to help SCE get through this summer.


Take Control of Your Future, Part VI: Regionalization of Energy Resources

— June 6, 2016

Tablet Device with StatisticsIn my initial blog in this series, I discussed seven megatrends that are changing how we produce and use power. Here, I discuss how the regionalization of energy resources is fundamentally changing the energy industry.

What Is Happening?

To get access to energy supply and resources, more regions, states, energy markets, and utilities are looking beyond the traditional borders of their energy business and territory. The main drivers playing out right now are:

  • An accelerated shift of generation resources to cheaper gas and low-cost renewables.
  • An increase in carbon reduction policies and targets.

Accelerated Shift of Generation Resources

In part IV of this series, I discussed the accelerated shift in power generation to natural gas and renewables. First, as a result of cheap natural gas—which will be the case for the foreseeable future—investments in combined-cycle natural gas generation plants have increased. Major investments in gas pipelines by utilities have also increased (including from Florida Power & Light [FPL], National Grid, Spectra, and others), mostly supported by states and regions like Massachusetts, New York, and Texas. Some utilities (including FPL) have been investing in the exploration and production of natural gas.

These infrastructure investments still face challenges in getting the required approvals and expected returns. FPL initially received approval from the Florida Public Service Commission (PSC) to recover the costs related to its investment in upstream development in Oklahoma’s Woodford Shale through rates as part of its fuel expenses. However, 2 weeks ago, Florida’s highest court overturned this decision and concluded that the PSC did not have the authority under state law to approve cost recovery for the joint venture as part of FPL’s rates. We will see how this plays out as utilities continue to look to secure access to natural gas and increase shareholder value.

Second, investments in renewables continue to increase. The Navigant Energy Market Outlook projects that in 2016, 19.3 GW of wind and solar generation capacity will be added in the United States, which is about 75% of total new generation additions in 2016. Besides the complexity of the duck curve, regions, states, energy markets, and utilities are also looking at how to get this renewable power (in places where sun and wind are favorable) to places where this power gets consumed. The transmission impacts are significant. Combined with Federal Energy Regulatory Commission (FERC) Order 1000, these impacts will drive new investments in transmission. This has been evidenced already in the Northeast, Texas, Massachusetts, and the western United States, among other places.

Increased Carbon Reduction Policies and Targets

Part III of this series explored the rising number of carbon emissions reduction policies and regulations. Even though the U.S. Environmental Protection Agency’s (EPA’s) Clean Power Plan (CPP) is on hold, many individual states, cities, and utilities are moving toward the CPP goals to reduce carbon emissions, plan for an advanced energy economy, and meet cleaner generation goals. Policymakers are setting clear targets to increase renewable generation in the Northeast. Recently, in order to meet the state’s 50×30 goal, the New York Department of Public Service (NYDPS) described a path forward in its Clean Energy Standard (CES) white paper. The paper outlines the principal policy objectives of the CES, which include increasing renewable electricity supply to achieve the ambitious goal of renewable energy meeting 50% of New York’s electricity needs by 2030 and promoting the progress of Reforming the Energy Vision (REV) market objectives. Regions, energy markets, states, and utilities are looking for access to cleaner energy resources—mainly gas and renewables—either by building these generation assets and securing access to cheap natural gas or by bringing cleaner power into their territory through interconnection.

How Does All This Play Out?

There are many examples now of regional approaches for solving the challenges discussed above. One example is the creation of the western Energy Imbalance Market (EIM) by the California Independent System Operator (CAISO), which is pursuing shared benefits for the participants. CAISO reported recently that the cost benefits of the EIM were $18.9 million during the first 3 months of 2016. The western EIM also saved 48,342 metric tons of carbon emissions during the first 3 months of the year by using 112,948 MWh of surplus renewable energy across the participants to meet demand. “The EIM is now firmly established and is providing considerable economic and environmental benefits,” said CAISO’s President and CEO Steve Berberich. “These successes are the result of the vision and hard work of many across the West.” Oregon-based PacifiCorp, which serves customers in six western states, was the first EIM participant, followed by NV Energy. Other utilities that have announced plans to join the EIM include Puget Sound Energy and Arizona Public Service in October 2016, Portland General Electric in October 2017, and Idaho Power in April 2018.

A second example is the Regional Greenhouse Gas Initiative (RGGI), which was used by the EPA as an example of a flexible and multi-state carbon reduction program. Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont are members of the RGGI, which is a cap-and-trade program to curb CO2 emissions. To comply with the EPA’s final targets for carbon reductions from existing fossil fuel power plants, states may attempt to join the RGGI or establish similar programs that can then trade into and out of the RGGI.

Beyond the United States: Europe a Good Example?

Europe created the Energy Union, which is designed to help deliver Europe’s 2030 climate and energy targets and make sure that the European Union (EU) becomes the world leader in renewable energy. Achieving these goals will require a transformation of Europe’s electricity system, including the redesign of the European electricity market, in order to meet consumers’ expectations, deliver benefits from new technology, facilitate investments in renewables and low carbon generation, and recognize the interdependence of EU member states when it comes to energy security. A critical part of this initiative is connecting isolated electricity systems to secure supply and helping to achieve a truly integrated EU-wide energy market—a key enabler for the region. The EU has set an initial minimum interconnectivity level of 10% to be achieved by all member states by 2020. Depending on the geographical position of a country and its energy mix (e.g., the weight of renewables in a given country), achieving the required 10% minimum may not be enough. The EU is therefore looking into raising the target to 15% by 2030.

These are the underlying objectives as defined by the Energy Union:

  • Electricity systems will become more reliable, with lower risk of blackouts.
  • Money will be saved by reducing the need to build new power stations.
  • Consumers’ increased choice will put downward pressure on household bills.
  • Electricity grids will be able to better manage increasing levels of renewables, particularly variable renewables like wind and solar.

You could argue that these objectives would be very important for the United States, as well. Should we take a much more national, inter-regional approach like Europe?

So What Does This Mean?

First, regions, states, energy markets, and utilities have to adapt their long-term resource plans and incorporate regional scenarios for power supply, while at the same time build in a rapidly changing mix in fuel resources toward renewables and natural gas. Second, they must think out of the box with regard to securing fuel security or access to renewables well beyond their traditional territory borders. Third, to effectively develop system plans, the planning processes need to take into account the entire regional transmission system. Regional entities should find a way to bring together players such as federal agencies, municipalities, and cooperatives so that their needs are also addressed and more holistic solutions are presented. Finally, to facilitate and enhance emerging market offerings such as the EIM, the planning toolkit needs to be expanded to better address the challenges of very large-scale renewables integration across multiple regions.

This post is the sixth in a series in which I discuss each of the power industry megatrends and the impacts (“so what?”) in more detail. My next blog will be about merging industries and new entrants. Stay tuned.

Learn more about our clients, projects, solution offerings, and team at
Navigant Energy Practice Overview.


Pending Blackouts Highlight Benefits of Energy Storage

— June 2, 2016

Production Plant - NightConsequences of the largest natural gas leak in U.S. history continue to be felt across Southern California. The leak at the Aliso Canyon storage facility in Porter Ranch, California had a major impact on the local environment, forcing thousands of residents to abandon their homes and releasing the equivalent of the annual greenhouse gas pollution of 572,000 cars. While the leak has been stopped, the facility is now out of commission and the region faces a major shortage of natural gas, which could lead to 14 days of blackouts this summer and potentially 9 more in the coming winter unless action is taken.  The situation highlights the danger of relying too heavily on any one source of energy and is accelerating plans to transition to a system based on renewable energy.

What the Grid Needs

The potential blackouts this summer result in part from the shortage of gas supplies to fuel peaking power plants needed when demand spikes on hot summer days. In order to avoid widespread outages, the peak demand on the system needs to be reduced. Reducing the overall peak demand has been a focus of grid operators for year, and a number of solutions, including energy efficiency programs, demand response and energy storage systems, are being employed to meet this challenge. While these solutions all have their downsides (such as a low reliability or high upfront costs), the current situation in Southern California highlights the benefits of distributed energy storage systems in particular.

California is already a leader in the distributed storage market, and the threat of numerous blackouts may result in increased demand for these systems. As explored in Navigant Research’s Solar PV plus Energy Storage Nanogrids report, distributed storage systems can provide backup power during an outage (perhaps indefinitely when paired with solar PV) in addition to reducing electricity bills. While backup power is one of the main drivers of interest in distributed storage, these systems can provide much greater value to the grid as a whole. Storage systems aggregated into a virtual power plant can allow grid operators to reduce demand on the system at peak times, shifting energy usage to maximize the use of solar PV and limiting the need for gas-fired generation.

Central vs. Distributed?

As grid operators in California consider how storage can reduce the risk of blackouts, they are examining one of the key debates in the energy storage industry: Is it better to deploy centralized or distributed storage systems? While some of the issues facing the grid can be solved with centralized storage, distributed systems are being installed in increasing numbers without any action from utilities. Centralized storage systems won’t keep the lights on for customers in the event of a major outage and can take much longer to develop, an important consideration given the immediate need for new resources. Overall, it seems distributed storage systems are in the best interest of the California grid. While some customers get improved resilience, everyone benefits from the improved reliability that comes with these flexible assets on the grid.


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