Navigant Research Blog

How Invested Is NY REV in a DER-Centric Energy Future?

— November 10, 2016

Last week, the New York Department of Public Service (DPS) released a report examining the best means of future integration for distributed energy resources (DER). Spoiler alert: it’s not net energy metering.

Instead, under the Reforming the Energy Vision (REV) proceeding, state policymakers want to see the development of a valuation framework for DER that values resources according to benefits that can be achieved by both the utility and customers. This should be done by establishing the holistic value of DER on the grid in the short term and by enabling the configuration of transactive, distributed markets for DER in the longer term. In the short term, proposed value for DER will be focused on two areas:

  • Distribution grid services, which include offsets and deferment of short-term and long-term investment costs.
  • Aggregated generation resources and ancillary services to be sold to the New York Independent System Operator (NYISO) through NYISO markets to optimize generation and transmission operations and costs.

The DPS report stated: “The modernization of New York’s electric system will involve a variety of products and services that will be developed and transacted through market initiatives. Products, rules, and entrants will develop in the market over time, and markets will value the attributes and capabilities of all types of technologies. As Distributed System Platform capabilities evolve, procurement of DER attributes will develop as well, from a near-term approach based on requests for proposals and load modifying tariffs, toward a more sophisticated auction approach.”

Though the recommendation does not completely get rid of retail net metering (which it proposes to grandfather in), this is a significant stepping stone in terms of providing a roadmap toward the active restructuring of an energy market around DER integration.

Initiatives at Odds?

Prior to the report, REV introduced two other efforts related to the accurate valuation of DER. The first, the 2015 Benefit Cost Analysis framework, sought to establish a precise structure for evaluating and comparing different types of investment required to establish a distribution-level market for DER (including both distribution infrastructure and grid-connected DER). A corresponding DPS effort includes a proposal to create utility Distribution System Implementation Plans, which “identify [utility] system needs, proposed projects for meeting those needs, potential capital budgets, particular needs that could be met through DER or other alternatives, and plans for soliciting those alternatives in the marketplace.”

But these tasks and initiatives seem to run counter to what the state is actually enabling utilities to invest in. As of now, the only major investment projects in New York seem to be for advanced metering infrastructure (or smart meter) deployments. On the other hand, REV demonstration projects have been single use cases and limited in scope. To take on the task of granular, accurate valuation—one of the most complex technology challenges associated with DER integration—might require a bit more upfront and direct investment.

 

Nevada’s Net Metering Change May Present Opportunities for Storage

— April 15, 2016

GeneratorNevada’s public utilities commission (PUC) has changed the net metering rules for solar PV, effective January 1, 2016. Not only will this development erode the business case for new systems, but will also affect approximately 17,000 existing customers. SolarCity and Vivint have eliminated jobs in Nevada, and Sunrun has exited the solar PV market in the state. Two customers have filed a class-action lawsuit against utility NV Energy in protest of the decision. Although this rule change has been characterized as a bait-and-switch for solar PV customers, this is also an opportunity for residential energy storage under two scenarios.

The first scenario would be if residential energy storage with PV can be aggregated to deliver services to NV Energy. The aggregator—which could either be the utility itself or a third party—would share the payment with residential customers. In order to make the storage option appealing to customers that have invested heavily in solar PV, it would need to be offered using a low capital expenditures (CAPEX) business model. The value of the services delivered through the virtual power plant would need to at least cover the monthly grid connection charge and would also need to help the customer minimize the amount of solar PV energy exported to the grid and maximize self-consumption. The Nevada PUC could also opt to waive the grid connection fee for solar PV plus storage plants because distribution system issues would be mitigated by using a storage system.

Customer Disconnects

A second scenario that may present an opportunity for storage is if the storage can help customers disconnect completely from the grid. This would be a much more radical move for customers, but would help them avoid the grid connection charge. This charge starts at $12.75 to $17.90 per month in 2016 and is slated to increase to $38.51 per month by 2021. Although the yearly grid connection fee is relatively modest in 2016 at between $153 and $214, it is set to double to $462 within 5 years. Customers could spend over $1,500 over a 5-year period in grid connection charges alone. This solution’s business case would take many years to pay for both the battery and the solar PV. Therefore, this solution would also require some financing mechanism to ease the CAPEX burden on the homeowner in order to gain market traction. This scenario would be appealing to customers dissatisfied with the local utility, or who are looking to move off-grid for ideological reasons.

The chart below forecasts the power capacity and revenue of residential solar PV and energy storage systems—referred to by Navigant Research as nanogrids—as 40.8 GW and $79.5 billion from 2015 to 2024. North America is slated to account for 16.8% of the global market over the 10-year period. One of the key issues to tapping into this market will be creative customer offerings and go-to-market strategies on the part of vendors in this space.

Solar PV plus Energy Storage Residential Nanogrid Capacity and Revenue by Region,
World Markets: 2015-2024

Anissa Blog Chart

 (Source: Navigant Research)

 

DER Solutions Emerge from Utility Rate Changes

— March 18, 2016

electric meterAs debates around solar PV net metering and other distributed energy resources (DER) compensation programs continue around the world, there is great uncertainty for many vendors. These compensation mechanisms and programs provide stability and guaranteed revenue streams that are essential for many DER business models. While the reduction or termination of net metering programs may be detrimental in the short term, these policies are likely to be replaced with rate structures that more accurately reflect the costs to serve customers in a given location at a given time. Various DER technologies can provide customers with unprecedented flexibility to respond to changing rate structures to benefit both the grid as a whole and their power bills. Leading vendors are already working to offer innovative solutions that combine multiple technologies into an optimized, flexible DER solution.  

The Hawaii Connection

The rapid growth of Hawaii’s solar PV market over the past several years has resulted in state regulators ending the utility’s net metering program in October 2015. The program was replaced with two new options that allow customers to be compensated below the retail rate for energy sent back to the grid, or keep all the energy they generate onsite and gain faster access to grid interconnection. Although this change is likely to slow solar PV installations in the near term, it opens up vast new opportunities for other DER to help customers save money while improving the efficiency of the grid. Vendors have already responded with new offerings tailored to these rate structures. Late last month, SolarCity introduced their Smart Energy Home offering, which includes solar PV, battery storage, smart electric water heaters, and a smart thermostat designed to maximize solar PV generation and self-consumption. The system automatically modifies energy usage and storage based on how much solar power is available to prevent energy from being exported to the grid in accordance with the utility’s new rate structures.

While SolarCity’s solution may be the first to offer this specific suite of technologies to customers, it is not the only company looking to capitalize on rate structure changes and consumers’ desire for control over their home energy systems. Across the Pacific Ocean, Australian telecommunications company Telstra recently announced plans to roll out a home solar plus storage solution to the millions of customers it already serves in Australia. This plan is part of a whole-home connectivity package that also includes Internet and phone. Telstra has the advantage of a large customer base and well-established customer support to help expand its offering as solar compensation programs wind down throughout the country in the coming years.

Global Trend

Utilities around the world are also getting in on the action, with companies in Vermont, Germany, Australia, and Arizona looking to offer integrated DER solutions to their customers. Perhaps the most intriguing vision for this type of offering comes from Tucson Electric Power, where CEO David Hutchens recently discussed the possibility of offering a type of “premium energy service” that may involve the utility owning and operating a whole suite of DER—including solar, storage, electric vehicle chargers, and more—based on customer needs and wants. These innovative offerings from various stakeholders in the industry are just the beginning of a post net-metering world where DER can provide increasing value to both customers and to the grid as a whole.

 

Solar Customers in Nevada Compensate for Changes in Net Metering with Storage

— February 22, 2016

clean energy backgroundThe Nevada Public Utilities Commission’s (PUC’s) recent decision to dramatically alter the net metering policy for rooftop solar customers has created an uproar and cast doubt on the state’s solar future. The fight began in December of last year when the PUC voted to not only increase the fixed charge to NV Energy customers who own rooftop solar from $12.75 per month to $38.51 per month in gradual increases over the next 4 years, but also decrease the credit solar that customers receive for the excess energy they send back to the grid from $0.091/kWh to $0.026/kWh. However, perhaps the most controversial part of the decision is its retroactive effect on nearly 18,000 existing rooftop solar customers. The new pricing took effect on January 1 of this year.

Regulators argue the new pricing scheme makes solar customers pay their fair share for use of NV Energy’s grid. But the new pricing could be a deal breaker for most solar customers. According to solar companies, the pricing changes could erase all the savings from going solar over the next couple of years. That prospect has spurred a group of solar customers to file a class action lawsuit against NV Energy, seeking payment for being misled into purchasing solar systems “that do not provide the promised rebates, discounts, and rates.”

Operations Shutting Down

Solar companies say the new pricing will effectively kill Nevada’s rooftop solar market. Several companies have already been forced to shut down operations in Nevada, including Sunrun, Vivint, and the largest solar installer in the United States, SolarCity. In fact, SolarCity has begun laying off 550 employees and closing the doors of a new training center. Due to this backlash, the PUC released a draft order saying it will reconsider “grandfathering” in existing solar customers to protect their investments, but there is no mention of reconsidering the net metering policy overall.

Despite the seemingly dismal future for rooftop solar in Nevada, existing solar customers still have options. Naturally, higher fixed charges and lower net metering tariffs can incentivize existing solar consumers to use as much of their self-generated power as possible, as opposed to selling the excess power back to the grid. This is where solar plus storage comes into play. Integrating solar panels and energy storage allows customers to generate energy during the day and store that energy to use at a time when the consumer would otherwise be paying a retail electricity rate. Products like the Tesla Powerwall can change the equation for customers, and many anticipate that these types of technologies will forever change the energy industry.

Instead of harshly fighting trends and upsetting customers, smart utilities and PUCs must find a balance and be more willing to embrace new technologies and the reality that customers now have more energy choices than before.

 

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