Navigant Research Blog

Innovative Residential Solar PV Offering Designed to Increase Customer Retention

— March 13, 2018

In July 2017, I highlighted how innovative UK residential solar PV plus energy storage products were being brought to the residential marketplace. These kinds of new, customer-focused solutions are at the heart of Navigant Research’s new Utility Customer Solutions Research Service, which is focused on new solutions and business models for utilities and technology companies to meet new utility customer expectations.

Residential utility customers in Texas are now seeing another innovative business model being rolled out to take advantage of Electric Reliability Council of Texas’ power market rules and intense solar irradiance. This new Texas solar business model will be featured, among others, in my upcoming Navigant Research report, Maximizing the Residential Energy Customer Experience with Emerging Solutions.

The Texas model is an example of how the emergence of distributed energy resources and software innovation can come together to meet customer needs. Navigant Research envisions that these types of business model innovations will become more common to meet the needs of the utility residential customers of the future.

A New Model for Consumer Agreements

Sunrun and Think Energy, Engie’s retail choice electricity and energy services provider in the US, have partnered to offer a unique financed residential solar PV product. Due to local grid rules, there are no consistent solar PV net-metering policies to reimburse customers or solar PV asset owners for excess solar PV power provided to the grid. However, Sunrun and Think Energy created a virtual net-metering credit that residential property owners can apply toward their electricity bill for exported power. This new model allows Sunrun and Think Energy to save the customer money while engaging with a customer for a long-term, 20-year solar PPA agreement, rather than the typical short-term retail choice electricity procurement contract.

Traditional retail electricity choice sales in deregulated electricity markets has increasingly become more like non-energy e-commerce transactions. Many e-commerce transactions with high customer acquisitions have well-documented challenges to remain profitable. Think Energy is partnering to save customers money by going solar with no out of pocket expenditures while reducing its own customer acquisition by keeping the customers it has under a long-term agreement. Sounds like a winning approach across the board.

 

DER Developments Challenge Incumbent Grid Operating Models

— December 27, 2017

Net metering has been a key driver for the deployment of solar PV distributed generation in the US. The simplicity of net metering—merely deducting the electricity generated during a year from the total electricity consumed, with no regard to the time when these two activities occurred—is easy for customers to understand. It simplifies the design process of installations, lowers the barriers to entry for distributed solar and wind, and has allowed the industry to develop.

But net metering creates an artificial barrier for the adoption of other flexibility-related distributed energy resources (DER) technologies like energy storage and demand response, as utilities are forced to provide balancing at no cost. Although net metering is still leading in the US, regulators in the main solar markets are tweaking it to pass some of the balancing costs to the end user. For example, California is moving toward time-of-use tariffs for all new distributed solar installations, opening the market to flexible technologies.

DER Deployments Increasing and Shifting

Navigant Research forecasts the deployment of all DER technologies in its Global DER Deployment Forecast Database report. We expect North America to install 31.5 GW of new DER capacity in 2017 and 98.1 GW in 2026. The technology mix for 2017 is led by distributed generation (DG), which accounts for 61.9% of the total DER capacity installed. However, by 2026, DG is expected to drive only 31.4% of new DER capacity additions, leaving a large market share to other technologies. These include flexibility, microgrids, energy efficiency, and (driven by the electrification of transport) EV charging, which is expected to lead DER new capacity in 2026 with a market share of 43.2%.

Despite the US leaving the Paris Agreement and its move away from the Clean Power Plan, DER capacity additions in the US are expected to be almost 8 times more than central generation deployments over the next decade. This includes central renewables like utility-scale solar and wind and significant amounts of natural gas power plants. Navigant Research forecasts the US will install 519 GW of DER capacity between 2017 and 2026, while the US Energy Information Administration’s International Outlook projects that the US will add just 66 GW of net new central generation capacity.

DER as Percentage of Annual Additional Capacity, US: 2017-2026

Source: Navigant Research

DER Developments Bringing Challenges and Improvements

DER developments are challenging incumbent grid operating models, requiring a more dynamic and flexible network with advanced communications and orchestration to ensure stability, efficiency, and equality among diverse resources. From a utility perspective, the overarching goal of DER deployments is to integrate these resources effectively to make the electricity grid more efficient, resilient, cost-effective, and sustainable. However, DER is usually deployed behind-the-meter, where customers are more concerned with securing cost-effective and reliable onsite power. This raises questions about who DER should be optimized for and the pace and scale of DER deployments.

Despite the disruption that DER is bringing, it is already possible to see the first sprouts of DER investments: a cleaner, cheaper, consumer-focused, and far more innovative power sector. For this reason, the transition to DER will not be easy for organizations used to the centralized energy model, but focusing on happy customers over electrons will help companies to thrive.

 

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)

 

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