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.

 

Changing Building Codes Are the Latest Proof of the Distributed Energy Revolution

— March 8, 2018

The distributed energy resources (DER) revolution is underway, and there are signs all around us. Readers of this blog have seen discussion of distributed PV, energy storage, microgrids, and similar technologies grabbing ever wider bandwidth in trade journals, social media, and popular news outlets.

Building codes just may be the latest proof of the dramatic shift to distributed energy. The 2017 version of the National Electrical Code (NFPA 70), the most widely adopted electrical construction standard on the planet, has a total of five new articles (or sections)—and four of those five are directly related to DER, as shown in the table below. Since the code’s key purpose is for electrical safety and fire protection, the addition of these articles reflects the need for setting safety standards among these fast-deploying technologies.

The addition of four articles is significant. Over its 120-year history, the code had accumulated eight articles related to DER (including generators, fuel cell systems, EVs, and the like), so this adds a notable 50% increase. Watch for changes to existing articles and more hybridized, interactive DER, and standard DER-related articles in subsequent versions.

New Articles Added to the National Electrical Code 2017

(Source: National Electrical Code)

Going beyond Code Requirements

Beyond just making safe and code-compliant equipment, DER vendors need to proactively address the concerns of building officials, fire marshals, and other authorities charged with protecting public safety. Since many codes are updated on a 3-year cycle—an eternity in the current wave of innovation—some products are invented and may have multiple generations before technical committees can officially weigh in. This author has heard an initially skeptical building official consider approving a fuel cell on a parking structure express concerns with “the thermal power plant on the roof” (the project was approved). Lithium ion battery storage installers (and lead-acid before them) have spent years educating fire officials on safety measures and operating procedures for their equipment. Vendors of newer technologies often learn from those that went before. But in most cases a proactive, trailblazer approach pays dividends.

One example of a DER technology overcoming safety concerns is the case of distributed PV in California. While not strictly building code related, California’s Rule 21 interconnection requirements were recently significantly updated to reflect growing trust of grid-tied inverters like those used in PV systems. Whereas inverters were formerly required to immediately shut off at the slightest sign of grid trouble or outage (for safety reasons), new smart inverters are allowed and able to stay operational under a much wider set of circumstances. This was as much a function of increased trust of the technology as it was a need to not have megawatts worth of generation going offline after each slight blip in frequency or voltage.

Industry Recommendations

Codes and similar regulations are important—they can encourage or limit technology deployment, effect installation costs, and even determine the number of hours a system can provide usable power (e.g., California’s Rule 21 for PV). Thus, it pays for vendors to take an active approach in educating city officials and first responders, and to be active in code development cycles. The relative infancy of the DER revolution means more growing pains likely lay ahead. Since DER are not yet truly ubiquitous, a proactive approach by vendors is a wise investment.

 

Off-Grid Offerings Aim to Keep Utilities Ahead of New Competition

— November 9, 2017

Over the past several years, the falling costs for solar PV, energy storage systems (ESSs), and other distributed energy resources have prompted some industry observers to predict the major threats to the utility business model would be driven by increasing numbers of customers generating their own power. This prediction has proven to be premature and not a serious concern for many utilities. The costs and complexity required for customers to truly become independent of their local electricity provider remain too high. However, some utilities with largely rural and remote service territories face unique challenges to provide reliable and affordable service to their customers. Select providers around the world have begun exploring opportunities to offer off-grid energy systems directly to customers in an effort to reduce costs while establishing a new segment of their business.

Examples Around the World

In the US, Vermont-based utility Green Mountain Power claims to be the first in the country to actively help its customers go off-grid with combined solar PV and energy storage offerings. With a high percentage of rural customers, long feeder lines, mountainous terrain, and frequent blizzards, the company faces higher costs to reliably serve each customer. A key aspect of Green Mountain Power’s offering is selling its customers the Tesla Powerwall residential storage system through a well-established partnership with the EV and stationary storage provider. To reduce the energy required by these customers, the utility provides energy efficiency retrofits and home automation controls. It also supplies backup generators to ensure electricity is always available.

On the opposite side of the world, one of New Zealand’s largest electric distribution companies is facing similar challenges and has established its own off-grid program. Powerco has begun constructing several all-in-one microgrid energy systems for customers in remote parts of the country. The company’s offerings include solar PV, energy storage, and backup generators configured to meet a customer’s year-round energy needs. Powerco has partnered with US-based ESS provider SimpliPhi Power to offer its modular 3.4 kWh lithium ion battery units. The utility has determined that these off-grid energy systems are more cost-effective than having to extend the reach of the centralized grid by just 2 km, with an added benefit of reducing fossil fuel consumption and providing greater reliability for customers.

Avoiding Threats 

As explained by my Navigant colleagues in a 2016 article, threats to the utility business model have evolved into something far more pernicious in the past 3 years. Solar PV, ESSs, and other individual technologies are increasingly combined into complex hybrid energy systems driven by evolving technology platforms to meet the energy needs of end customers. These developments have resulted in previously unheard of competition in the market from cable and telecom companies, solar PV providers, home security firms, and large tech companies.

Utilities Facing Increased Competition at the Edge of the Grid

(Source: Navigant Research)

Utilities such as Green Mountain Power and Powerco recognize these threats and are attempting to get ahead of the competition posed by new energy service providers. These companies recognize that they must be innovative with their offerings to keep pace with the demands of customers and the industry’s technology-driven evolution. By encouraging customers to adopt new technologies and go off-grid on their own terms, utilities can establish a profitable extension of their business while forging stronger relationships with customers.

 

Innovators Wanted for DER Solutions: Part 3

— November 7, 2017

Coauthored by Brett Feldman

Earlier this year, Navigant Research wrote about innovations required to overcome challenges to widespread distributed energy resources (DER) adoption and integration. Next, we offered examples of some companies and products looking to address those gaps from different perspectives, with varying levels of success so far. Here, we follow up with a few more examples related to business models, customer relationships, market structures, and organizational paradigms.

Models

Edison Energy is an unregulated business unit of Edison International, the parent company of regulated utility Southern California Edison. It is branded as an advisory and services company that can design energy solutions—on both the supply and demand side—for large energy users. It is one of the major early competitors demonstrating the emerging energy as a service business model, having made rapid strides into the market by acquiring four startups—collectively, a $100 million investment (SoCore Energy, ENERActive Solutions, Delta Energy Services, and Altenex).

However, Edison Energy has also struggled to find its footing, despite the aggressive approach to acquiring new capabilities. It is now undergoing a major shake-up at the executive level, including the departure of its president in July 2017 after a strategic review by its parent company.

Relationships

The customer relationship with utilities, energy usage, and technology providers is changing. Utilities are now expected to offer a wider array of customer-facing services, offer a digital experience, and accommodate customer self-generation like solar PV. In many cases, utilities and technology providers are increasingly competing for the same customers (e.g., as a demand response program provider).

At the same time, other vendors are finding new products and services to sell to utilities to help them meet changing customer needs. Schneider Electric is one such vendor tapping into this transformation. In this case, Schneider Electric is marketing its WiserAir smart thermostat to utilities as a way to engage customers with an energy management platform before a competitor does.

Markets

Transactive energy is a hot topic in the energy industry and a concept that has great potential for DER markets. Transactive energy would allow customers with DER to trade power and grid services with each other and their utilities, leveraging blockchain technology for encrypted trading between parties. Policymakers and technology vendors have been the loudest proponents of transactive energy so far, but utilities are cautious about the value/benefits of such a market.

Utilities are also mindful of the influence of market forces on the reliability of their distribution systems and the large amount of software and grid technology that would be required to manage such a market. These are some of the primary reasons that a true transactive marketplace is still a relatively distant goal, even in California, which has been investigating DER for more than 10 years and is making progress on locational pricing for grid resources.

Organization

Many of the industry changes associated with DER have major repercussions for regulatory and utility organizational structures. These repercussions are most apparent in New York, under the Reforming the Energy Vision (REV) initiative. In 2016, the New York Public Service Commission approved structural reforms to electric utility regulations related to the alignment of utility shareholder financial interests and customer interests. Under the order, utilities have four ways of achieving earnings: (1) traditional cost-of-service earnings; (2) earnings tied to achievement of alternatives that reduce utility capital spending and provide definitive consumer benefit; (3) earnings from market-facing platform activities; and (4) transitional outcome-based performance measures. Changes to earnings, ratemaking approaches, and technology deployment will have a major influence on the affected utilities and how they are regulated.

 

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