Navigant Research Blog

Are Inverter Players and Data Loggers the Gatekeepers of Future Residential Solar Services?

— April 5, 2017

Inverter and data logger companies, the little cousins of the solar OEM world, are sometimes seen as playing a secondary role in the industry. The cost of inverters is usually a fraction of module costs and an even smaller fraction of the total installed cost of a residential solar installation. But their location in an installation—between the solar modules and the grid connection—gives their manufacturers an opportunity to play an important role in a distributed energy as a service world.

Who Owns the Client Relationship?

In my Solar as a Service (SOaaS) report, I argue that large SOaaS player like SolarCity, Sunrun, and Vivint Solar need to evolve their offerings to offer advanced energy services. Their hold on the client relationship gives them an advantage against external players offering this type of service. But despite grabbing most of the headlines in the solar industry, the truth is that there are only a handful of large SOaaS players. All of them are active in one market—the United States—and combined manage only between 50% and 60% of all distributed solar installations in the country.

Globally, there is simply no large installer or SOaaS provider with a significant hold on the market. This opens the question of who can own the client relationship in this fragmented world, especially for small installations.

Inverter and Data Logger OEM Providers

It is difficult to see small local installers investing heavily in this type of service, but their OEM providers could. While module manufacturers take the lion’s share of the hardware cost of an installation, their product is essentially dumb. On the other hand, inverter and data logger OEMs do offer relatively smart products.

Inverters and data loggers with monitoring software have been part of distributed solar installations since at least the late 2000s, when distributed solar gained popularity, and in virtually all installations after 2012. Data loggers (external or as part of inverters) and monitoring tools have been used by installers and inverter companies as differentiators in an otherwise very competitive market. While there aren’t any public figures on active users, there are some examples of the penetration in the market. SMA—a leading inverter OEM—has put its user figure at around 250,000 residential end users. Using an average of 5 kW per installation, each company is monitoring around 1,250 GW. Solar-Log has a similar number of data loggers in the field, providing monitoring and other services to around 11.6 GW of installed capacity (including large installations). Other inverter companies like SolarEdge and Enphase have also integrated monitoring services into small-scale products.

Most of the smart monitoring tools have been developed and run at a loss by inverter and data logger OEMs. By doing this, they have inserted themselves in the routines of solar installation owners, as the monitoring tools are the interface between the solar system and the installation owner.

Ideal Candidates

Monitoring tools can become the seed of more interesting energy services if the OEMs keep building the products offered through their tools. Most of them already allow for battery installations along with solar, and some companies are already adding ways to monitor loads and become home/building energy management tools. They could even open the platform to allow third-party service providers through an app store to add other services like generation forecasting, artificial intelligence-based load management, etc. The interface role that inverter and data logger OEMs play in solar installations, combined with their large user base, makes them ideal candidates to provide advanced energy services.

 

Australia Moves Forward with Transactive Energy

— March 29, 2017

Last month saw an announcement of another Australian transactive energy trial, led by the Australian Renewable Energy Association (ARENA) and distributed energy resources (DER) management software specialist GreenSync. The transactive energy trials, which will be run alongside network operators United Energy and ActewAGL, will use GreenSync’s DER management software as a market platform. The trial marks another step in the evolution of DER management: from managing the physics of DER to also managing financial transactions. By trading grid services from their DER with local network companies, residential and commercial customers will benefit from direct financial incentives that GreenSync believes will help justify the investment in DER.

A Hotbed

Australia is a hotbed for transactive energy. There are numerous transactive energy trials underway in the country—certainly more per capita than anywhere else in the world. And there is good reason:

  • At 15%, residential solar PV penetration is high.
  • There is abundant sunshine in most cities.
  • Critically, residential PV makes up a significant proportion of all PV, so is relatively important and gets plenty of regulatory attention.
  • Network charges are high, due to the extraordinarily long distances power has to travel for relatively small numbers of customers.
  • Blackouts are not uncommon—a recent heat wave in South Australia caused a surge in demand that could not be met by existing thermal generation led to the market operator to demand 100 MW of load be shed.

Future Resources

Energy Networks Australia (ENA) and Australia’s national science agency CSIRO co-wrote the recent Electricity Network Transformation Roadmap, which details a series of integrated measures that will expand customer choice, decrease emissions, lower costs, and improve security and reliability. ENA expects residential DER participation rates of 40% by 2027, with 29 GW of solar PV and 34 GWh of batteries. By 2050, Australian generation is expected to be virtually entirely renewable.

DER are regarded as important future resources that—when aggregated—will balance the networks, reward their owners, remove the need for green subsidies, and reduce the need for network infrastructure investments.

While the Australian market has some unique characteristics that have encouraged the early adoption of transactive energy, the continued falling costs and improving efficiency of solar PV and storage will make a viable economic case in more and more geographies. It is vital that vendors develop trustworthy, robust, and scalable platforms if transactive energy is to mature from its current embryonic state to a widely accepted market mechanism. Over the next few years, regulators, network operators, energy suppliers, and DER vendors will all be watching the Australian market with close interest.

 

Distributed Energy Storage Deployments Driven by Financing Innovation, Part 1

— February 8, 2017

This blog is the first in a two-part series that will focus on innovative financing instruments that are being applied to deploy new distributed battery energy storage applications.

The growth of solar PV has been fueled in part by lower equipment and project development costs, but also by the development of standardized power purchase agreement (PPA) contracts. Without a standardized PPA contract, each new project looked unique to investors. This type of contractual uncertainty made investors’ ability to evaluate and finance projects at scale next to impossible. The introduction of standardized PPA contracts as part of The National Renewable Energy Laboratory’s multi-stakeholder Solar Access to Public Capital Working Group enhanced investor comfort levels by standardizing key contract terms and the approach to project revenue streams. These efforts resulted in the growth of an at-scale financing asset class that continues to drive solar PV technology deployment today.

Markets for the deployment of behind-the-meter (BTM) stationary battery energy storage systems (BESSs) are beginning to grow. Navigant Research recently explored the development of new BTM energy storage business models and financing instruments in its recent research brief, Financing Advanced Batteries in Stationary Energy Storage. Similar to the financing benefits delivered by a standardized solar PV PPA, several new standardized contracts have emerged enabling BESS financing. One such standardized contract focused on tariff-specific demand charge savings at commercial and industrial (C&I) facilities.

Demand Charge Shared Savings Agreements

A demand charge shared savings agreement (DCSA) mimics the contractual approach employed by energy service companies (ESCOs) to finance energy efficiency projects. An ESCO uses the cost savings from energy conservation measures like lighting or heating, ventilating, and air conditioning system upgrades to repay debt and equity partners. With a DCSA, the host and a third-party energy storage system owner or operator agree contractually on how BESS and load management software will be deployed during peak energy use to reduce demand charges. The financing partners depend on a portion of the cost savings from tariff-specific demand charge reductions to be paid by the host to debt and equity partners.

Advantages and Challenges for DCSAs

Key advantages of financing distributed energy storage technology deployments using demand charge savings agreements include:

  • The deployment of a BESS with no money down by the C&I host, thus eliminating the access to capital challenge.
  • The ability to bundle O&M costs for the BESS into a single transaction, eliminating the need for the C&I host to add staff or resources to manage the system.

Key challenges of financing distributed energy storage technology deployments using demand charge savings agreement include:

  • The ability of the BESS software platform to accurately evaluate historical building load profiles and site-specific tariff requirements relative to future load to generate project revenues.
  • The effect of future changes in building load profiles and tariffs on battery deployment assumptions and project revenues.

Quantifying Complexity, Risks, and Revenue

These contractual hurdles are being addressed today, despite the complexity. Navigant Research points to Green Charge Network’s commitment from Ares Capital in early 2016 for non-recourse project finance based debt funding as an example of where these issues have been sufficiently addressed, resulting in DCSA financing commitments.

Now that the ball is rolling on energy storage financing, the roadblocks facing energy storage projects don’t look so difficult. Navigant Research anticipates that these types of standardized contracts will lead to the financing innovation needed to drive the deployment of stationary energy storage technology.

 

Can Hybrid Projects Usher in the Next Generation of Renewable Energy?

— September 16, 2016

Wind and SolarIndia’s ambitious plans for renewable energy development are faced with a number of challenges. Chief among these challenges is the limited availability of land for wind and solar plants in the densely populated country, as well as the cost and technical challenges of interconnecting projects to the grid. These challenges have driven some developers and equipment manufacturers to explore hybrid renewable energy facilities, combining both wind and solar generation at a single site. This hybrid concept has been explored in other areas with limited land available for new development, most notably in Japan, where a 56 MW hybrid wind and solar project was commissioned in 2014.

Wind and solar development is often limited by the relatively high upfront costs for land acquisition, grid interconnection, and project development. The availability of grid interconnections can prohibit the development of many potential wind and solar sites, and the cost for interconnection often requires developers to build larger-than-ideal facilities. As a result, many of the optimal locations for wind and solar generation have already been developed, particularly in densely populated regions.

Hybrid Wind and Solar

The concept of a hybrid wind and solar project aims to eliminate many of the barriers to development by maximizing the value of a facility to overcome the costs for acquiring land and interconnecting to the grid compared to individual technologies. In the United States and other countries, select areas have already been set aside for renewables development. A hybrid system can allow developers to maximize the megawatts of capacity installed per each acre of available land. In addition to overcoming upfront costs, a hybrid project can take advantage of the complementary generation profiles of wind and solar. Wind is often most productive at night while solar power is naturally only generated during the day. By co-locating these generation sources at a single site, a project can more closely represent a baseload resource on the grid, facilitating easier integration and making the resource more valuable for grid operators. The improved predictability of generation output is further enhanced if an energy storage system is also combined at a single facility. This is exactly the aim of developer Windlab Ltd. for the Kennedy Energy Park it is developing in Queensland Australia. The project, scheduled to come online in 2018, will feature 30 MW of wind, 20 MW of solar PV, and 2 MW of battery energy storage capacity.

This hybrid power plant concept doesn’t stop on land, the Danish company Floating Power Plant is currently testing its hybrid wind and wave power generation platform known as Poseidon in the waters off of Northern Europe. While the concept of hybrid renewable plants holds significant potential, it will have to overcome the existing approach of both developers and utilities to typically work with only a single technology per project. However, as the industry matures and ideal sites become scarcer, the benefits of hybrid projects are likely to increase and these projects may eventually become the norm.

 

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