Navigant Research Blog

Regulated Utilities Deliver Innovative Home Construction Solutions

— March 15, 2018

In a recent blog, I discussed how a new virtual net metering product is saving residential customers money by going solar with no money down while also retaining customers and reducing sales overhead for the energy service provider. This kind of creative, customer-focused solution is the focus of my new Utility Customer Solutions Research Service.

Utilities Are Rolling out Creative Solutions

The announcement of the Southern Company Smart Neighborhoods initiatives with Alabama Power and Georgia Power is showing that creative customer solutions can have utility benefits within a regulated utility jurisdiction as well. These Smart Neighborhood initiatives are featured, among others, in my recently released Navigant Research Strategy Insight report on these solutions.

In Birmingham, Alabama Power is now providing distributed energy resources (DER) including solar PV and battery energy storage, as well as smart home appliances and technologies as part of a new home construction development. This initiative will also aggregate renewable generation and distributed energy storage at the neighborhood level through community scale storage, solar PV, and emergency distributed generation to optimize the local grid and improve resiliency.

In Atlanta, Georgia Power is also providing DER (rooftop solar PV and battery energy storage), enhanced home insulation, advanced HVAC units, and LED lighting, as well as home automation systems with smart thermostats, smart locks, and voice control technology as part of a new home construction development. The Georgia Power program will collect data from the DER, HVAC systems, heat pump water heaters, and other technologies to inform grid optimization and new services for customers.

What Should We Expect in the Evolving Market?

Navigant Research anticipates that both regulated utilities and deregulated energy service companies will be increasingly more focused on these new solutions and business models to meet new utility customer expectations. For deregulated energy services companies, the reason is quite simple—the sale of electricity in retail choice is being commoditized, which reduces margins. Therefore, the drive to deliver new services without customer expenditures under longer contracts and recurring revenue is obvious. And there are few regulatory barriers to doing so.

But regulated utilities face regulatory constraints on what the utility can do beside operate the grid and sell electricity to customers, making the path to new business models more difficult. However, these two Southern Company Smart Neighborhood initiatives are extending the role a home can play in transitioning the grid from traditional centralized generation to part of an Energy Cloud platform while also creating new residential customer solutions.

 

Urban Automated Vehicle Deployment Needs Coordination

— March 8, 2018

There’s little doubt that ride-hailing as a means of urban transportation is on the rise, and that trend is expected to continue unless something dramatic changes. Urban congestion is also on the increase globally. While there is a clear correlation, causation is still open to some debate—although studies seem to indicate that ride-hailing is at least partly to blame.

As of early 2018, there are probably no more than 1,000 highly automated vehicles (HAVs) being tested on the public in cities around the world. Those tests are going to start turning into commercial applications for ride-hailing possibly as soon as later this year, and before these vehicles proliferate, we need to have the conversation about how to integrate these vehicles without exacerbating the congestion problem.

What Will Entrepreneurs Do?

Left to their own devices, we already know how entrepreneurs, especially those backed by mountains of Silicon Valley cash, are likely to deal with this. They will rush as many vehicles as possible into the marketplace (primarily, in densely populated cities) in order to establish a dominant position early. This has happened in many areas of the technology sector, and it certainly has been the strategy of Uber and Lyft.

Is Ride-Hailing the Future?

Navigant Research’s Mobility as a Service report projects that, by 2026, ride-hailing services will be providing more than 160 billion rides annually and with nearly 1 trillion vehicle miles traveled.

From a consumer perspective so far, ride-hailing has been a huge boon, providing convenient access to rides at reasonable prices (except during rush hour and inclement weather). While I don’t use ride-hailing at home, I haven’t rented a car during a trip in many years and I rarely take traditional cabs. The convenience factor often makes it a great alternative to traditional transit.

Ride-hailing companies claim that for each of the vehicles deployed on their platforms, they replace multiple individually owned vehicles, which should reduce congestion. However, often these vehicles are without passengers as drivers wait for a ride request. To provide short wait times for customers, the companies entice more drivers with higher fares via surge pricing. While this makes sense economically, it also puts more cars on the road at times of high demand, increasing congestion. Also, the platforms have no control over where drivers choose to deploy themselves.

What Is the Potential for HAVs?

HAVs provide an opportunity to address the problem of urban congestion, but only if they are deployed in a coordinated fashion that is probably anathema to those of a more libertarian bent in the tech industry. Nonetheless, cities are going to need to step up and play an active role in shaping deployment plans for HAVs, and companies involved in the sector are going to need to cooperate.

Any regulatory frameworks need to allow for enough flexibility for multiple companies to compete with services and retain the potential to be profitable. At the same time, service providers need to be prepared to share enough data to enable the optimization of the mobility ecosystem so that excess vehicles are kept to a minimum while still meeting the needs of residents.

However, not every resident is going to be able to afford to take an HAV for every trip. A multimodal ecosystem with a range of vehicle types and operational models from point-to-point to fixed-route mass transit will persist. To the degree possible, trips should be optimized with the use of whatever mode makes the most sense. The HAVs should also be optimized to keep empty trips to a minimum, which will benefit everyone by reducing congestion and maximizing profitability.

 

US State Legislatures Are Pivoting to Blockchain—Will Energy Follow?

— March 1, 2018

Blockchain’s high profile in the news, particularly the billions of dollars pouring into Initial Coin Offering fundraisers (ICOs) and yet more cryptocurrency heists, is pressuring governments and policymakers globally to develop new laws and standards to guide the developing technology.

Policy changes are happening at all levels of government. China has banned ICOs and cryptocurrency exchanges but remains interested in commercializing the underlying technology. South Korea wants to ban cryptocurrency trading altogether. Even in regions where no new laws have passed, existing legislation designed to regulate centralized systems of energy supply or data privacy are barriers to blockchain development and scalability in many parts of the world.

Stakeholder consortia and other groups in the energy sector that see value in the architectures that support cryptocurrencies are working hard to convince utility commissions and local governments to adopt more blockchain-friendly policies. Some worry that too much regulation too soon could scare away developer talent and potentially lucrative new blockchain-based businesses.

In the US, States Are Moving First on Blockchain Regulations

While the US lags behind Europe and Asia Pacific in the number of energy-related blockchain projects, it is making some promising progress in the regulatory space. At least eight states are already tackling issues surrounding legal treatment of blockchain signatures and blockchain data. A few examples:

  • In California, Assembly Bill 2658 would formally recognize blockchain signatures and records as legal electronic records, paving the way for smart contracts
  • In Florida, House Bill 1357 ensures that blockchain smart contracts are treated with the same legal weight afforded to traditional contracts
  • In Arizona, House Bill 2417 adds blockchain databases to the list of electronic records with recognized legal status and enforceability
  • In Wyoming, the House approved two bills in 2018 that set standards for when digital currencies can be exempted from securities regulations (House Bill 70) and modifies regulations on financial transactions that would exempt digital currencies and allow exchanges to operate legally in the state (House Bill 19).

Progress Is Being Made in Unusual Places

What’s particularly interesting about the above list is the range (geographical and political) of states jostling for position in the market. The next question for the energy sector is how, or if, state-level regulations will translate into real change in these states’ energy markets. Utilities have been understandably bearish on blockchain so far, even in traditionally experimental states like New York and California.

Some of the states experimenting with blockchain regulations are usual suspects when it comes to energy market experimentation, but others are not. Will public utility commissions and regulatory authorities in the latter group take cues from their state governments, or will real progress require more pressure from the bottom up? Either way, the pressure will come.

States are often called laboratories of democracy, and they have the potential to become laboratories for blockchain as well. A range of approaches and experiments is the best way to develop best practices and determine a path forward for a rapidly evolving technology. Check out Navigant Research’s upcoming Utility Blockchain Applications report for more insight into blockchain’s growing role in the energy sector.

 

Corporate Climate Leadership at the Dining Table

— February 13, 2018

Over the last 3 years, 341 companies have joined the Science Based Targets initiative, of which at least 40 are from the food and beverage sector. These companies include household names such as Walmart, Coca-Cola, General Mills, Kellogg’s, and PepsiCo, with billions in combined revenue. Why are these food and beverage companies integrating climate science in their strategies and how is consumer behavior influencing this?

The agricultural and forestry sector alone is responsible for over 10 gigatons of CO2 equivalent annually. This equates to about 20% of the world’s total greenhouse gas emissions, according to a 2016 joint report from the University of Aberdeen, the energy experts of Navigant and Ecofys, and PBL. These emissions are embedded in the food we eat and the beverages we drink. Due to increasingly better corporate citizenship and pressure from non-governmental organizations and investors, major food and beverage brands are developing climate targets to reduce emissions from this sector, and they are publishing their targets online.

What Is the Purpose of Science-Based Targets?

Science-based targets (SBTs) are both an approach and a communications vehicle to help companies contribute to the Paris Agreement’s target of limiting warming to 2°C and pursuing efforts to limit it to 1.5°C. Consumer brands with a climate SBT not only look at their own emissions, but they also seek to reduce emissions in their supply chain. These emissions include those related to the agriculture sector, such as meat, dairy, and any other crops, as well as processing and logistics. This full value chain approach in the end helps consumers reduce their climate impact.

Investors Recognize Climate Threats to Business

Investors recognize that the food and beverage supply chain is exposed to many climate risks, including physical risks such as changes to weather patterns and sea levels, and those linked to the transition to a low carbon economy, such as policy and reputational risks. Major food, beverage, and apparel brands take this to heart and are responding by developing roadmaps to reduce emissions and risk management procedures to prepare for a changing climate. I will discuss climate related risk in more detail in my next blog.

Consumers Increase Their Opportunities to Make Better Decisions for the Climate

The Science Based Targets initiative, an initiative of World Wildlife Foundation, CDP, and World Resources Institute, provides a unique opportunity for consumers to reduce emissions by identifying the brands that are actively engaging on climate change and developing strategies to reduce their impact. Consumers can also reduce emissions by being mindful of the choices they make at a restaurant or store. For instance, beef has higher embedded emissions than pork or chicken, and dairy has higher embedded emissions than plant-based products. However, for companies that are on an SBT pathway, the gap between the carbon footprint of these ingredients is likely to decrease.

SBTs and increased customer insight in the embedded emissions of what they buy are trends that are here to stay. If you are looking at how to approach this theme for your organization, contact Vincent Hoen for information on the corporate sustainability services Navigant offers.

 

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