Navigant Research Blog

California’s Energy Code Update Benefits Some More Than Others

— May 22, 2018

In a move to reduce energy use by more than 50%, the California Energy Commission (CEC) voted on May 9 to support on a series of reforms designed to require that new homes comply with standards of self-sufficiency. This includes requiring solar—a first globally.

Green Vision Is 2020

The new requirement will take effect on January 1, 2020 and will focus on four areas: residential and non-residential ventilation requirements, non-residential lighting requirements, updated thermal envelope standards, and—what interests me most—smart residential photovoltaic systems.

On the last topic, the CEC aims to “promote installing solar PV systems in newly constructed residential buildings. The systems include smart inverters with optional battery storage.”

The solar requirement is well-timed. The ITC step down will have its first decline in 2020, from 30% to 26%, and that will disappear for residential systems in 2022.

CEC Plans Include DER 

The requirements go beyond solar; the CEC also included other DER technologies in the mix. It also aims to “encourage battery storage and heat pump water heaters that shift the energy use of the house from peak periods to off-peak periods.” This aligns well with previous time-of-use electricity pricing regulations in California with mandates for solar installations.

While the solar industry will benefit from this requirement, some parts of the industry will benefit more than others:

  • OEMs: OEMs will be the clear winners from this initiative. California adds between 70,000 and 100,000 new housing units per year—or an extra demand for solar equipment of between 490 MW and 700 MW (assuming 7 kW systems). This effect will be similar for batteries and smart HVAC and heat pumps. Here we have two groups. Those OEMs that have products and brands that can add value to the property will benefit the most, as they will be able to work with real estate developers to create premium housing. Tesla leads this group, but others like SunPower, LG, and First Solar could benefit as well. The other group will have to compete to create low cost solutions to partner with real estate developers that target the poorer segments of the real estate market, or try to build a recognizable brand.
  • Installers: For installers, the new requirement is not a clear victory. While the extra demand is generally welcomed, in this specific market segment the real estate developers will have the upper hand. Therefore, installers will face deals that sacrifice margin for volume to become sub-contractors. In the medium-term, it’s more likely that real estate developers will build their own teams in charge of DER installations.
  • Financiers: Financiers face the same problem as installers. While the extra demand might bring new deals in which the person that buys the house decides to have a mortgage on the house and a separate loan or lease on the DER installations, the most likely outcome is that mortgages will cover the house and the DER equipment.

An Opportunity for a New Type of Residential DER Company

Initially, the outcome after the CEC energy code reforms does not seem to change for companies involved in installation and financing of solar systems in California, like SunRun or Vivint Solar. They do have a skill that real estate developers do not—the ongoing servicing they offer their customers. Companies with strong servicing arms could sacrifice part or all of their margin in the installation in exchange for long-term servicing contracts and potentially the rights to operate the equipment as an aggregator to offer services to the grid.


Swinging the Blockchain Hammer – Event Horizon 2018: Part 2

— May 8, 2018

In my second post following the Event Horizon 2018 event, I discuss blockchain startups’ business models. I see too many startups following the peer-to-peer energy trading model, rather than pursuing business models that address utilities’ current needs.

A Hammer without a Nail Is Just Scrap Metal

Innovation in the technology industry is unrivaled. “Necessity is the mother of invention” may be the credo for utilities’ innovation efforts, but the technology industry is different: it must stay ahead of the curve through endless cycles of R&D. The output of this research has given birth to many fantastic products that have revolutionized the way we live—no one really knew they needed an iPod or smartphone until the products were brought to market.

Conversely, many fantastic technologies—from Betamax VCRs to Google Glass—fall ignominiously by the wayside. They are the proverbial hammers that failed to find a nail. Despite the hype, right now blockchain is a hammer searching for a nail. The rash of startups developing energy-focused blockchain solutions are each hoping their solution will be the one that transforms the industry. However, there is likely not enough room for all of them.

Peer-to-Peer Energy Trading Is (Probably) Not the Right Nail

However, I have concerns that the business models pursued by many startups are not optimizing the pursuit of those elusive nails. After many conversations with people across the industry and listening to several startup pitches, I am worried that too much investment is flowing into the wrong business models. Right now, the majority of energy-focused blockchain startups include some element of peer-to-peer energy trading. While I remain positive about the future of transactive energy markets, there are still significant barriers to adoption.

So why are there so many TE-related startups? The cynic in me believes that too many of the people behind these startups are following the money and copying the business models of previously successful initial coin offerings (ICOs). Rather than spending time with a utility to identify existing business needs, it’s far easier to raise a few million dollars by launching an ICO with a white paper that promises Uber-style industry disruption and bitcoin-like token inflation.

ICO Follow-the-Leader Will Consign Many Startups to the Scrapheap

There is a saying often, but incorrectly, attributed to Einstein: “The definition of insanity is doing the same thing over and over again, but expecting different results.” Unfortunately, blockchain startups seem to value short-term ICO success, not the value of their business models: too many are recycling the business models of their peers to raise seed capital rather than identifying the business pain points that blockchain can address. This is not just unoriginal; it is fraught with danger.

Potential new entrants will do well to note the following observations before deciding on their business models:

  • We do not need any more peer-to-peer blockchain startups. More than enough currently exist for the world’s transactive energy requirements.
  • A peer-to-peer trading platform does not address any current, pressing issue with utility industry business processes.
  • The energy industry is not the taxi industry. Regulators will not permit Uber-style disruption. No startup can simply release an app and instantly sideline industry incumbents.
  • Regulatory approval for peer-to-peer energy trading could easily take longer than it takes a startup to spend all its seed capital.
  • No peer-to-peer energy trading model will create cryptocurrency billionaires. Startups should think twice about using any form of token. I am unconvinced regulators will permit the energy system to be priced in anything other than fiat currency.
  • True peer-to-peer energy trading is a physical impossibility; some form of centralized control and pricing must be done to maintain electricity networks.

Facebook’s Scandal Shows Importance of Data Privacy in Smart Homes

— May 3, 2018

The world’s most valuable resource is no longer oil. It’s data. In the digital era, data not only powers various online services, but also increasingly powers the real world as devices become more and more connected. Virtually any activity a person can engage in now leaves a digital footprint, and artificial intelligence technologies like machine learning have brought to light the value in these footprints. The giants in charge of this data economy—Alphabet (Google), Amazon, Apple, Facebook, and Microsoft—have massive power and influence. Considering recent events, this is something to be ever warier about as consumers.

Facebook’s Scandal

Facebook has been under immense scrutiny over the Cambridge Analytica scandal. In short, it involves the unauthorized sale of private data to companies that used the data to manipulate the US presidential election and arguably other major global events.

Until now, the added convenience a technology like Facebook brings to our lives—such as relevant news, event planning, and the ability to connect with friends and family—has seemed like a price worth paying in exchange for our data. What this story shows about the tech titans who control our digital era is that our data is not only used to target us with more relevant stuff to buy. It’s also shaping the world we live in and making real-life impacts.

What Does This Mean for the Smart Home?

We are increasingly letting these big tech giants into our lives, not only through use of their traditional online services, but through physical devices in our homes. The increasingly popular and widely adopted devices peddled by these companies, be it smartphones, voice-activated speakers, connected cameras, or smart thermostats among copious other residential IoT devices, are creating touchpoints in the home by which these companies can collect even more data.

As consumers, we may think our data is fairly useless. The Facebook scandal shows that all the data we give away for free has immense real-world value. It’s more important than ever for consumers to be aware of the devices that they bring into their homes, how their data is being used, and the effects that can have, especially as the smart home market continues to grow.

Should Consumers Abandon Connected Tech?

This isn’t to say that consumers should stop using online services or avoid adopting smart home technologies—that is unrealistic. It means that as we continue to adopt connected devices, construct smart ecosystems in our homes, and divulge the details of our personal lives to these companies, data privacy needs to be top priority. This is increasingly becoming the case. General Data Protection Regulation (GDPR) is set to take effect at the end of May, and it will massively influence any company serving EU citizens and residents by requiring measures be taken that better protect and ensure the privacy of user data. Though this is a positive development, there is much to be done in the realm of data privacy.

For consumers, it’s important to consider the worth in convenience via technology. While the prospects of a smart home can bring a range of benefits to our lives and the bigger picture of smart grid operations, the value in what we provide digitally-driven companies should not be taken for granted. For device manufacturers and smart home tech vendors, it’s more crucial than ever to be transparent and reassuring about the investments they are making in protecting our data in order to avoid losing consumer trust and hindering technology adoption.


A Robust Analytics Infrastructure Is Vital for Future EV Business Models

— May 1, 2018

The electricity industry is waking up to the prospect of large-scale deployments of EVs. And well it might, as all signs point to a future where EVs are increasingly common. Annual demand from EVs for electricity could exceed 400 TWh by 2035, creating the largest opportunity for new load growth in a generation. However, EVs will also pose significant problems to network utilities, particularly in areas where grids are already constrained. The future EV market presents many opportunities and sizeable threats to the utilities industry.

EVs Present Unique Opportunities and Challenges

EV integration is a complex and unique issue. When EVs charge, they are loads; when idle, they are storage; and when dispatching back into a network, they are sources of supply. They also move around, so utilities will never have full visibility of their location.

EV fleets and buses present different opportunities than individually owned cars. There is a complex and competitive ecosystem of stakeholders, some of which will be in direct competition with incumbent energy suppliers—there is little room for monopoly market thinking, even for vertically integrated utilities. The customer base is also diverse, with different needs and requirements. Complexity is only one issue. The future pace of change is arguably a tougher nut to crack. Utilities must prepare themselves for a dynamic and open future where change and uncertainty are the only constants.

Treat EVs Like Any Other IoT Deployment

A new Navigant white paper, Charging Ahead with EV Analytics, assesses the future EV market and details the many opportunities and sizeable threats they create. Its primary focus is on the data and analytics requirements of an EV infrastructure. Most if not all EV opportunities rely heavily on data and analytics. Likewise, analytics will also help mitigate many risks. While many utilities are excited about the opportunities presented by EVs, few have made significant investments in the data and analytics architecture that will support the diverse and rapidly changing processes that future EV business models demand.

One of the paper’s central messages is that the electrification of transport is in practice a digitization project. EVs and charging infrastructure are essentially IoT deployments. Consequently, EV business models rely heavily on IoT devices and an associated data and analytics platform. While a handful of utilities are actively planning their future IT infrastructure to support EV integration, many more recognize the EV opportunity but have not yet built solid strategies.

Now Is the Best Time to Start EV Planning

The business process requirements of EVs will change over the coming decades. It is a futile exercise to design and build an entire infrastructure around projected future requirements. Instead, a flexible approach to architecture will enable a utility to adapt to these changing requirements. A detailed roadmap that identifies specific inflection points in EV adoption will act as a signal for when to add or remove functionality.

2025 is often cited as the year EVs step into the mainstream. While this may seem a long way off, it is far better to plan now when EVs are not an operational problem than when they are. There is good reason to act now. There are strong arguments for EV adoption to follow an S curve. The further into the future, the faster the rate of adoption. Planning for EVs while there is time to spare can help avoid having to rush critical decisions once time is scarce.


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