Navigant Research Blog

Beyond Non-Wires Alternatives: Growing Opportunities in Natural Gas for Non-Pipes Alternatives

— January 5, 2017

More utilities are employing non-wires alternatives to avoid the construction of traditional transmission & distribution (T&D) infrastructure. These novel solutions incorporate demand response (DR), advanced controls, or various distributed energy resources (DER) to save infrastructure costs. Alongside this trend in electricity T&D, a parallel phenomenon is developing in natural gas T&D—a set of solutions Navigant Research calls non-pipes alternatives. Such alternatives utilize natural gas much closer to its point of origin, often by generating electricity that can then be used onsite or nearby. Pressure to avoid large infrastructure projects is one driver of this trend, but technological improvements and regulatory developments are also expected to contribute momentum in the coming years.

T&D projects in both electricity and natural gas face growing hurdles. Officials in Germany, for example, are having a hard time gaining approval for electrical transmission lines to link areas with cheap wind power to power-hungry cities, thanks to a mix of red tape and NIMBYism. Pipelines face similar hurdles in the gas-rich and densely populated parts of the eastern United States. More broadly, fuel pipelines of any sort are becoming more identifiable targets for anti-fossil fuel activists, as seen in the protests organized against the Dakota Access Pipeline in late 2016. Companies across the energy value chain are cutting costs as cheap fuel trims margins, which can also draw extra scrutiny to big infrastructure projects.

Market-Changing Technologies

Technological developments are also driving non-pipes alternatives. Among the prime movers that generate electricity, those that can flexibly vary output are often most attractive for these applications. With their low cost and fast ramping times, natural gas generator sets (gensets) may see the most opportunities, though there will also be opportunities for turbines, microturbines, and fuel cells. Though most of these technologies are mature, developments in software and controls make new business models available to them. Traditional DR providers and other entities adept at reading market signals from both the electricity and natural gas markets are positioned to capitalize on this trend. And thanks to the growth in intermittent energy resources and DER, utilities and software companies alike are working toward ever more flexible and responsive smart grids (both electric and natural gas).

Developments in DER regulations should also propel non-pipes alternatives. Groundbreaking DER proceedings in New York and California are establishing frameworks to fairly compensate DER for their locational value. Such frameworks could help distributed natural gas generation since the compact technology can be placed just about anywhere. A proposed ruling by the US Federal Energy Regulatory Commission would also allow fast starting resources (like gensets) to set market prices for electricity. Developments like these are expected to more fairly reward distributed generation that can be quickly dispatched in optimal locations. Developers/operators like IMG Midstream and genset manufacturers like Cummins, Caterpillar, and GE are among the potential beneficiaries from these developments.

As grids become congested and locational benefits are rewarded, opportunities are expected to grow for non-pipes alternatives at the many points where the natural gas and electric transmission grids cross paths. Natural gas storage capacity in the United States amounts to 4.8 quadrillion btu, enough to power the country for almost 2 months—an underappreciated storage resource. If hydrogen or syngas injection takes hold on a large scale, the electric and natural gas grids could become a dynamic two-way resource that would boost efficiency and resiliency in ways never before seen.

 

Disruptors Welcome in the Future Energy World—Sort Of

— May 17, 2016

CodeThe future of electric power in the United States looks brighter than many might think, given all the wringing of hands in recent years about a supposed utility death spiral and lurking technology disruptors seemingly about to upset the old guard. I was reminded of this by two stories that crossed my inbox in recent days.

One was an intriguing piece by Tom Kuhn, president of Edison Electric Institute, the trade association representing investor-owned electric utilities. He notes the profound transformation taking place in the industry, and says, “At the heart of this transformation is the terrific progress that we are making today to deliver America’s energy future—a future driven by new and innovative technologies, developments in public policy, and changing customer and market expectations.”

Investments Increasing

Fair enough, and expected comments from an industry booster. But then Kuhn goes on to point out, “What you might not know is that just as all of the devices, gadgets, and services we rely upon are becoming smarter and more dynamic, the power grid is too. In fact, the electric power industry is investing $100 billion per year, on average, to build smarter energy infrastructure and transition to even cleaner generation sources. A record $108.6 billion in investments is estimated in 2015 alone.” That’s real money, and a sign of an industry not afraid to embrace change, though perhaps at a slower rate than Silicon Valley expects. And, finally, Kuhn embraces the competition. “We view many of the so-called ‘competitors’ or ‘disruptors’ to our industry as partners,” he says. “Today, we are working with hundreds of leading technology companies, including Tesla, Google, Apple, and Nest, as well as the startup community, to bring tomorrow’s technologies to customers today.”

Battle of Billionaires

The other was the contrast between energy billionaires Elon Musk and Warren Buffett. In a Las Vegas Sun piece, author Daniel Rothberg paints a picture of old-versus-new grid business models in an ongoing clash between Buffett’s NV Energy and Musk’s SolarCity and Tesla. Nevada is ground zero in this debate, with Musk and Buffett seeking the same goal, a carbon-free grid, but achieving it by different means. “Buffett wants to do that mostly by buying power that is centralized at large-scale plants,” Rothberg writes, while “Musk, with SolarCity, wants to integrate more decentralized rooftop solar and battery-storage technology with the grid.” The outcome means a lot to each businessman, of course, since both stand to win or lose depending on the model that emerges, and that will depend mainly on how the state’s energy policy is shaped in coming years.

This battle between Musk and Buffett is healthy and instructive. It shows there is more than one way to look at energy production and distribution. The combined debate and competition should yield a more efficient, cleaner, smarter grid in the long run, and it has implications for other states wrestling with similar issues. And I agree with Kuhn, the transformation and disruptors in the industry are welcome. It will be messy for a while as stakeholders—policymakers in particular—sort out the competing interests and business models. But a utility death spiral? Seems like that won’t happen. Utility transformation will, and it is already here.

 

Take Control of Your Future, Part II: The Power of Customer Choice and Changing Demands

— May 9, 2016

DataIn my last blog post, I discussed seven megatrends that are fundamentally changing how we produce and use power. In this blog, I discuss how customer choice and changing customer demands have become the leading drivers of industry transformation.

Move from “Big Power to Small Energy”

Customer choice is driving a large move from big power to small energy. More and more customers are choosing to install distributed energy resources (DER) on their premises. DER solutions include distributed generation, demand response, energy efficiency, distributed storage, microgrids, and electric vehicles. This year, DER deployments will reach 30 GW in the United States. According to the U.S. Energy Information Administration (EIA), central generation net capacity additions (new generation additions minus retirements) are estimated at 19.7 GW in 2016. This means that DER is already growing significantly faster than central generation. On a 5-year basis (2015-2019), DER in the United States is growing almost 3 times faster than central generation (168 GW vs. 57 GW). This trend varies by region because policy approaches, market dynamics, and structures vary. However, the overall move to small power will persist. In other words, the movement toward customer-centric solutions and DER will ultimately become commonplace worldwide.

Annual Installed DER Power Capacity Additions by DER Technology, United States: 2015-2024

Jan Blog Update(Source: Navigant analysis)

Customer Choice: Everything Is Changing

Customers want to self-generate and sell that power back to the grid. Customers also want new energy management products and services from their utility or other providers. The rise of the prosumer and active consumer movement is being fueled by three things:

  • A growing number of customers care about how and where their energy is generated and about the impacts of global warming.
  • Unprecedented and rapid technology advances are bringing greener energy choices directly to consumers.
  • New and disruptive entrants are rapidly emerging that give customers meaningful energy usage insights and options related to their homes, businesses, and transportation choices.

Where we see this movement picking up pace is in the increased number of commercial and industrial (C&I) customers that are choosing to implement their own more sustainable energy solutions. Amazon, Apple, Cisco, Google, Honda, Walmart, and other large energy users have increased their focus on installing onsite solar. Walmart has 142 MW of solar PV capacity at 348 installations in the United States, according to the Solar Energy Industries Association’s (SEIA’s) Solar Means Business 2015: Top U.S. Corporate Solar Users report. The retail company has a 100% renewable energy target, together with 57 others currently as part of RE100. And then there is the “Power Forward” movement, where 215 Fortune 500 companies are pursuing their own investments in local greenhouse gas (GHG) reductions, sustainability, or renewable energy initiatives. Power Forward 2.0 states that if incumbent utilities are not proactive (e.g., offer power purchases agreements, financing, rates, or project development), then they will be bypassed in favor of third-party energy providers (including non-regulated subsidiaries of incumbent utilities).

What Is New?

The focus on customer engagement and improving the customer experience is not new. In recent years, utilities have tried to improve the customer experience by introducing broader self-service, multi-channel options, and advanced information on energy products and usage. Such improvements include offering energy management applications like DTE’s Insight app.

What is new (and isn’t getting enough attention) are the actual implications of customer choice. With the increased availability of DER and new energy management technologies, the breadth and diversity of customer needs and interests that the utility will have to deal with are growing exponentially. Meeting diverse and changing customer demands is forcing utilities to rethink their role in the energy value chain. The range of possible services goes well beyond what they currently provide, including building energy management solutions, fast demand response, distributed generation, storage, microgrids, etc. Utilities must understand the full impact of all this on their customer service processes and systems. They must also understand how DER and advanced energy management solutions will affect their strategy, product innovation, business models, and the way they operate the grid. Taking an integrated and holistic approach is key.

Who Else Wants to Play?

Besides the incumbent utility, we see new entrants coming into the market that are focused on meeting the changing demands of large energy users. In the last 6 months, we have seen several announcements of new business models going after this market. Some examples are described below.

  • Edison International is launching a business that will help reduce energy costs, improve efficiency, and offer more environmentally friendly options for large energy users. The company’s new subsidiary, Edison Energy, aims to serve commercial buildings, data centers, retail centers, healthcare operations, and educational institutions nationwide.
  • Duke Energy’s Commercial portfolio president, Greg Wolf, has said, “In addition to utility-scale solar projects, we’ve also made investments in distributed generation and energy management systems for commercial and industrial companies.” Last year, Duke Renewables bought majority stakes in REC Solar (for commercial businesses) and Phoenix Energy (energy management systems and services for C&I customers).
  • GE Current combines GE’s products and services in energy efficiency, solar, storage, and onsite power with our digital and analytical capabilities to provide customers—hospitals, universities, retail stores, and cities—with more profitable energy solutions,” said Jeff Immelt, Chairman and CEO of General Electric (GE). Customers include Walgreens, Simon Property Group, Hilton Worldwide, JPMorgan Chase, Hospital Corporation of America, Intel, and Trane.

What Does All This Mean for the Incumbent Utility?

The incumbent utility (which includes the traditional competitive retailer not offering DER) has to adapt. Customers will look for better, greener, and cheaper alternatives, and more and more of these alternatives are becoming available. What’s more, the fight has started for the business of large C&I customers. If only a small percentage of large C&I customers switch over, the incumbent utilities will be in trouble. This will affect their revenue streams, roles, and the cost versus value of the centralized managed grid.

Facing declining revenue as customers consume less and produce more of their own power, utilities are faced with potential stranded generation (and eventually transmission and distribution) assets. This makes it even harder to make large investments (aimed at improving reliability and resilience) in their current grid while also making it more intelligent. And finally, they have to make investments in developing DER capabilities, offerings, and businesses. Given these challenges, utilities must play both defense and offense.

An updated defensive strategy will entail:

  • Engaging with customers to understand their customer choices and changing demands vis-a-vis price and reliability.
  • Engaging with regulators to find equitable ways to charge net metering customers for transmission and distribution services that fairly address the cost to serve.
  • Improving customer service and grid reliability at the lowest prices possible.
  • Developing utility-owned renewable assets to appeal to environmentally conscious customers.

Playing offense is even more important. Utilities must:

  • Create new revenue streams through the development of new business models, products, and services.
  • Transform their organizations and culture in order to fully integrate sales, customer service, and operations.
  • Upgrade the grid and operations to facilitate the integration of DER.

The above objectives can only be accomplished by implementing new business models that include developing, owning, and operating integrated DER such as community solar, customer-sited storage, microgrids, charging stations, building energy management systems, and home energy management systems. These goals also require utilities to provide third-party financing for DER and offer new products and services focused on energy efficiency and demand response.

There is no going back to the old ways of doing business. Utilities must lead—by playing both defense and offense—or they run the risk of being sidelined.

This is the second in a series of posts in which I will discuss each of the power industry megatrends and impacts (“so what?”) in more detail. My next blog will cover the rising number of carbon emissions reduction policies and regulations. Stay tuned.

Learn more about our clients, projects, solution offerings, and team at Navigant Energy Practice Overview.

 

Salt River Project, Others, Buying 700 MHz Spectrum for Smart Grid Applications

— July 2, 2015

Utilities have long bemoaned their lack of access to appropriate, affordable wireless spectrum for their smart grid communications networks.  But this year, a handful of utilities have taken the plunge, acquiring 2 MHz of licensed 700 MHz band spectrum from private investors.

Salt River Project (SRP), based in Phoenix, Arizona, has made one of the largest purchases to date in terms of population covered. Earlier this year, SRP acquired the Phoenix-Mesa economic area (EA) license #158, which covers an estimated 4.3 million people (pop) in central Arizona.

The license includes two 1 MHz swaths of spectrum at 757 MHz to 758 MHz and 787 MHz to 788 MHz. Access Spectrum was the seller; the company, along with Columbia Capital and Beach Point Capital, is marketing similar licenses nationwide for $0.75/MHz pop (pops x MHz).  This implies a price tag in the $6.45 million range for the SRP transaction.

I spoke with Ron Taylor, senior principal engineer for SRP, about the purchase and what still needs to happen for this spectrum band to meet utilities’ needs.

“We have to find the right vendors; we’re working with standards bodies right now,” he said, to develop a standard protocol.  “We’re not interested in a proprietary solution; we don’t want a single point of failure.”  Taylor added, “We took a bit of a risk [buying the spectrum].  Others were waiting for someone to put a foot in the water.”

As of April 2015, two other utilities—NorthWestern Energy and Great River Energy—had also contracted to acquire spectrum in this band.

Distribution Automation Is the Goal

SRP intends to use the private network to fill the connectivity gap between its substations, which are all connected by fiber, and its advanced metering infrastructure (AMI) networks.  Taylor noted that they are interested in distribution automation applications like voltage control and fault location, isolation, and service restoration (FLISR), adding that it is also looking at smart inverters for solar installations and monitoring of distribution transformers and dynamic line rating applications.

When asked if 2 MHz of spectrum is enough to do it all, Taylor admitted that SRP won’t be able to do it all.  “We did the math.  What is smart grid?  We had to trim our list,” he said.  But he added, “Everything that’s critical, and even nice to have, should be accommodated for 10 years.  It all fits except meter reading; that would overload our network.”

Prior to the acquisition, SRP leased the license and tested for interference with Verizon Wireless’ adjacent licenses and network.  The field test validated the license for SRP’s planned purposes.

Just a Start

SRP and other utility buyers of this slim license band are hoping the vendor community can standardize around a single technology, yielding economies of scale for utilities still seeking an efficient communications strategy for high-performance-need applications in the distribution network.

But as SRP’s chief engineer pointed out, just 2 MHz really does limit the options for longer-term smart grid goals—but with no sign the Federal Communications Commission (FCC) is  considering dedicated spectrum for power utilities in the near term, the availability of this contiguous, nationwide set of licenses is a start.

 

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