Navigant Research Blog

Microsoft Pushes IoT as a Service as Competition Heats Up

— May 12, 2017

In a quiet way, many different businesses are helping to establish a stronger foothold for the Internet of Things (IoT), moving beyond the hype and delivering on the buzzy promises from several years back. As evidence, Microsoft recently launched IoT Central, an IoT as a service (IoTaaS) offering that enables companies to deploy IoT technologies without having to do so from scratch using in-house resources.

Early Adopters

IoT Central’s goal is to help companies rapidly design, build, and deliver smart products and integrate them with enterprise-scale systems. So far, early adopting companies of IoT Central—thyssenkrupp Elevator, Rolls-Royce, and Sandvik Coromant, according to reports—are in the manufacturing and engineering sectors. IoT Central is part of a suite of IoT-related products from Microsoft, including Azure Suite IoT (a platform as a service [PaaS] offering for developing backend applications) and Azure IoT Hub, which acts as the messaging infrastructure for distributed device communications.

But Microsoft is not alone in helping to establish a stronger corporate foothold for the IoT. Competitors like Amazon Web Services (AWS), Google Cloud, and Oracle, to name a few, offer several IoT-related services for business clients. And recently the head of AWS, Andy Jassy, said, “Of all the buzzwords everybody has talked about, the one that has delivered fastest on its promises is IoT and connected devices.” That’s a strong validation.

IoT and Utility Patents

IoT has also arrived for utilities. A recent piece by Alec Schibanoff, a vice president at patent broker and consulting services firm IPOfferings LLC, notes the many patents for operational efficiency and security that have been granted over the years form the basis of the modern grid. One was granted as far back as 2002.

Next Steps for IoT

These are all signs of a maturing IoT landscape, one that will underpin Energy Cloud 2.0 as envisioned by Navigant Research and outlined in the free white paper, Navigating the Energy Transformation. But there is much more value to be unleashed from IoT devices and connected systems. We’ve only scratched the surface around data analytics, and future applications and services have yet to materialize. Many companies are starting to explore the possibilities. It won’t be too many years before the IoT will make louder noises as a solid platform for business innovation and efficiency.

 

Corporate Renewable Energy Goals Stimulate Solar, Wind Demand, and Business Models

— May 4, 2017

Large retailers, data centers, manufacturers, and even government facilities are among the growing number of entities shifting away from the standard electricity model where utilities decide the generation source and technology for consumers. As the costs of wind and solar energy continue to decline, owners of these energy-intensive buildings are taking advantage to meet their renewable energy goals. The combination of these two factors has led to the manifestation of corporate procurement as a major driver in the deployment of renewable energy, forcing utilities to continuously adapt to meet a wide range of consumer needs.

Leading companies such as Microsoft and Google paved the way early on for renewable energy procurement, but more and more companies are joining in. Notably, the online retail giant Amazon is building (and has built) wind and solar farms in North Carolina, Texas, Virginia, Ohio, and Indiana as part of its goal to achieve 100% renewable energy usage. Worldwide, nearly 20 GW of corporate renewable energy procurement contracts have been signed to date, with 240 Fortune 500 companies now having set renewable energy goals.

Achieving Renewable Energy Goals

Making things more interesting are the growing number of methods companies use to meet their formidable renewable energy targets:

  • Physical power purchase agreements (PPAs) were the preferred method for many years; a third-party developer would install, own, and operate a solar PV system (often onsite) and sell that energy to a company at a fixed price.
  • Financial or virtual PPAs are becoming more common. A utility or independent renewable developer sells power from wind or solar into the wholesale energy market at an agreed upon price via a third party (in this case, the companies looking to fulfill renewable energy targets). The company gets credit for bringing renewable energy to the grid and can count this toward its goals without directly sourcing its energy from renewables. Amazon’s 80 MW solar farm in Virginia operates under this structure through a deal with Dominion Energy.
  • Utility tariffs or green tariffs are agreements between a company and utility to purchase renewable energy from a specific facility in the utility’s service territory instead of negotiating a PPA directly with the developer. Google and Duke Energy announced a partnership under this arrangement.
  • Exiting the utility entirely is another method, though it is uncommon. Companies that are able to exit can separate from the utility entirely and purchase energy from private providers. MGM Resorts International and Wynn Resorts recently announced their plans to part ways with the local utility, NV Energy.

Favorable Future for Aggressive Movers

Looking ahead, it’s still to be determined if any one procurement method will emerge as the preferred path to meeting renewable energy goals, and it is unclear how utilities will respond. The demand doesn’t seem to be waning: Google, a leader in procured renewable energy, announced a plan to be 100% renewable powered on a real-time basis. To meet these bold targets, companies will need to continue to be creative in coming up with arrangements that work for both sides. Competitors are becoming more aggressive in this expanding space, and the evolution of this nuanced renewable energy application will be one to watch for the foreseeable future.

 

US Drought Puts Spotlight on Demand Response Management Systems

— September 9, 2016

TabletThe extreme heat and drought that has engulfed much of the United States this summer has led to the most active demand response (DR) season in many years. Regional transmission organizations (RTOs) and utilities across the Mid-Atlantic and Northeast regions such as PJM, Independent System Operator of New England (ISO-NE), and Consolidated Edison (Con Ed) all called upon DR to alleviate peak demands in excess of available generation resources or extraordinarily high real-time energy prices.

In the old days of DR, this process would have entailed a lot of phone calls and manual interactions that have a lot of failure points and a lack solid feedback mechanisms. As the scale of DR programs has increased, their operational reliability has become more critical and the choices of communication protocols and devices have expanded. There is a need for more centralized management and control, similar to what is done on the power generation side of the electricity market. Numerous vendors have come from many different angles to offer solutions that are categorized as demand response management systems (DRMSs).

Developing Vendor Offerings

DRMSs are developed to help utilities manage their DR programs and improve program ROI, though to date vendors indicate that the uptake of DRMSs has been slow. The core functions of DRMSs are to allow utility operators to view and add to the database of loads available for DR, to call events and/or issue pricing signals, and to perform the measurement and verification (M&V) after events to determine how much customers need to be compensated for reducing their load. In addition to this core functionality, there are many other functions and analytical tools that can be built upon this platform.

Outside of the strictly regulated utility construct, competitive retail energy suppliers have also offered DR programs to their electric commodity customers in order to provide more value and increase customer loyalty. The most striking examples are in Texas, where all customers must choose a competitive supplier as utilities are not allowed to provide supply services. Some retailers in the United States are active only in certain regional markets, while others have coverage in most—if not all—of the competitive markets. As with utilities, retailers could develop their own DRMS capabilities in-house, but in most cases it is not worth the effort. In recent years, Direct Energy has selected Siemens for its DRMS; NextEra Energy chose AutoGrid.

DRMS Drivers

The key drivers for advancing DRMSs include technical, policy, and economic factors such as DR program management, internal and grid cost reductions, and integration with other utility information technology (IT) and operational technology (OT) systems. However, the slow rate of DRMS development points to the depths of barriers, such as system cost, integration complexity, and flexibility and interoperability limitations as being major hurdles to be overcome.

These trends and more are covered in Navigant Research’s new report, Demand Response Management Systems. Utilities are just starting to gain interest in DRMSs now, but as resources like solar and energy storage grow, DRMSs will act as a bridge to distributed energy resource management systems (DERMS).

 

Europe’s Energy Transition Megatrends and Tipping Points, Part I: Take Control of Your Future

— August 3, 2016

Energy CloudThe pace and impact of change in the utilities industry globally is unrelenting. Europe is no exception, and you could argue that the pace of the energy transition in Europe is faster than anywhere else in the world. The European Union (EU) as a market is the largest energy importer in the world, importing 53% of its energy at an annual cost of around €400 billion (~$447 billion). This drives many aspects of energy policies, including placing the EU at the vanguard of grid reform over the past decade. In this blog series, we will share our view on the energy transition in Europe by describing the megatrends and tipping points. Each of the following megatrends is changing the way we produce and use power in Europe. Together, these megatrends are revolutionising the energy industry.

1. Rising number of carbon emissions reduction policies and regulations: The long-term impact of the Paris Climate Agreement will be significant. The agreement will focus on limiting global warming to well below 2 °C (3.6 °F) by the year 2100. A record number of countries (175) signed the agreement, which they must now each ratify and approve, which could take some time. But European countries, provinces, cities, and utilities are not waiting. They are taking actions now toward the outlined objectives and targets of the agreement. In fact, sustainability objectives between government, policymakers, utilities, and their customers are more closely aligned than ever before. Globally, numerous cities have committed to 100% clean energy, including European cities like Copenhagen, Denmark; Malmo, Sweden; and Munich, Germany. The EU has shown no signs of slowing down in its ambition to standardise reform across unique markets through regulatory and policy momentum. A single energy market for EU member states is an enabler—if not a necessary condition—in a policy of an “ever greater union,” with or without the UK. Meanwhile, the UK has enacted legislation to deliver emissions reductions consistent with the 2 °C target through the Climate Change Act of 2013 and the commitment to remove 100% of coal-fired generation from the UK system by 2025. As the EU moves with ever greater momentum, Navigant believes other European countries in the hinterland around the EU will also be swept along. This is in part because these counties will seek to gain from the triple bottom-line benefits (climate sustainability, increased efficiency and productivity, and greater energy security), and in part because the EU as a trading partner will require compliance with these standards, policies, and regulations.

2. Shifting power-generating sources: According to the U.S. Energy Information Administration (EIA), net European generation capacity will increase by 7 GW in 2016. Much of Europe’s new capacity now comes from renewables, with close to 75% of new capacity coming from wind (44%) and solar (29%). While some new coal (16%) and gas (6%) capacity was added, far more coal and gas assets were decommissioned. As a result, net new capacity in Europe is virtually 100% renewables. While recent solar subsidy cuts have tempered its growth, wind is marching inexorably onwards. There is still no effective utility-scale solution to the inherent intermittency in renewable generation, with storage solutions and grid interconnection/active management still lacking penetration at scale. Natural gas is therefore the obvious bridging fuel during the shift to renewables. Given the abundance of natural gas availability globally, lower long-term prices, and increasing import capacity in Europe, we expect more natural gas generation capacity to come online in the future, at least for the mid-term. More traditional generation assets, particularly coal and nuclear, face an uncertain future. For coal, every scenario looks dark—at best bad and at worst grim. Older coal plants are being phased out; others are being converted to burn biofuels. Nuclear power accounts for 25% of all European electricity consumed, and any change in nuclear’s role in the generation mix will take time to implement. However, nuclear power highlights the significant differences in national energy policies across the EU and the wider European context. Nuclear was effectively killed in Germany, yet still may enjoy a renaissance in the UK if the British government decides to move forward, and new plants are under construction in France, Finland, and Slovakia. Germany has undergone the most significant generation source transition in Europe: it leads the market in renewables capacity, while its nuclear decommissioning programme has been accelerated. As a result, its two largest utilities are separating their businesses to focus on the one hand on renewables, grid modernisation, and distributed energy resources (DER), and on the other hand traditional generation and trading. Germany has become a net exporter of power and the knock-on effects of this shift in power generation sources means neighbouring countries have had to significantly change their networks to manage the impact of intermittency on their own systems and more investment in their own grid.

3. Delivering shareholder value through mergers and acquisitions (M&A), restructuring, and divestment: New industry ventures, M&A, and divestitures are happening at a rapid pace. In the search for shareholder value through scale, increased synergies, and reducing exposure to less performing businesses, this is a path that utilities will continue to explore. European renewables leader DONG Energy became the largest IPO in 2016 with a valuation of approximately €13.5 billion (~$15 billion), and RWE Innogy is slated for its own IPO by year-end. Engie and Centrica are investing billions in creating new DER and energy services businesses with numerous acquisitions. EDF, Enel, and others continue to acquire assets outside Europe in a search for global expansion and shareholder value. All this has been occurring while much of the 2016 M&A activity so far has been the divestment of non-core assets, with 1 GW of utility-owned wind assets sold to investors in 2016.

4. Globalisation of energy resources: The EU actively seeks to deliver Europe’s 2030 climate and energy targets while ensuring security of supply and affordable prices. The EU also seeks to be a world leader in renewable energy. Achieving these goals requires a transformation of Europe’s electricity system, including the reconfiguration of individual member state electricity markets into a single energy market. The EU must also achieve a balance with meeting consumers’ expectations, delivering benefits from new technology, and facilitating investments in renewables and low carbon generation while also recognising the interdependence of member states. A critical part of this initiative is connecting isolated national and regional electricity systems to secure supply and helping to achieve a truly integrated EU-wide energy market—a key enabler for the continent. While the UK’s vote to leave the EU raises a number of questions about future policy, it is too early to call what impact Brexit will have on the UK’s participation in the EU’s future single energy market. What is clear is that a focus on greater levels of interconnection (both offshore and onshore) and energy efficiency will continue to be necessary aspects of EU energy policy and will continue to receive much scrutiny.

5. New entrants and converging industries: With €1.3 trillion (~$1.5 trillion) in new industry value up for grabs globally, new entrants see value in European power markets, which is disrupting the traditional utility industry and taking market share away from utilities. These new entrants include manufacturers; technology companies (from startups to global powerhouses like Apple, Amazon, and Google); telecommunications and other data, content, and network providers; and even some oil & gas companies (like Total). For utilities, it will become more expensive to address a smaller market with the resulting impact on margins. Europe is no exception, and with significant opportunities for growth across the value chain and new energy and digital technologies available, we see new entrants investing in renewables, DER (distributed generation, energy efficiency, demand response, energy efficiency, etc.), energy management, smart cities and infrastructure, and transportation. Navigant sees many cross-industry movements between utilities and oil & gas. Shell getting back into renewables and Total announcing the creation of a Gas, Renewables and Power division—which the company has said will help drive its ambition to become a top renewables and electricity trading player within 20 years—are examples of this new competition’s encroachment on traditional utility markets.

6. The power of customer choice and changing demands: Whether residential, commercial, or industrial, customers want to control their electricity usage and spend, as well as when and what type of power they buy. But beyond having supplier options (in competitive markets), customers now want the ability to self-generate and sell that power back to the grid. Many residential customers in Europe have and will continue to install rooftop solar, and despite the reduction of subsidies in some countries, overall residential distributed generation will continue to grow. On the commercial and industrial side, large corporations like Amazon, Apple, Cisco, Google, HP, Mars, and many other large energy buyers in Europe have increased their focus on sustainable energy solutions. For example, Swedish furniture retailer IKEA plans to completely shift to renewable energy by 2020 and will invest up to €1.5 billion (~$1.7 billion) in wind and solar energy as part of new safeguard nature strategy. The company does not rule out becoming a net energy exporter, potentially selling the surplus of energy to suppliers or customers. The key question is who will capture the value of more local (distributed), broader (energy management), and individualised energy—the incumbents or the disruptors?

7. The emerging Energy Cloud: Old infrastructure is being replaced, and the trend toward a cleaner, distributed (flexible), and smarter energy infrastructure, known as the Energy Cloud, will accelerate. The Energy Cloud is an emerging platform of two-way power flows and intelligent grid architecture expected to ultimately deliver higher quality, greener, and more affordable power. While this shift poses significant risks to incumbent power utilities, it also offers major opportunities in a market that is becoming more open, competitive, and innovative. Fuelled by steady increases in DER, this shift will affect policy and regulation, business models, and the way the grid is operated in Europe. The work by EU member states in decarbonising and digitalising the grid has made the region a global leader in energy transition and puts Europe at the forefront of testing Energy Cloud reform through policies that mitigate carbon emissions, expand the role of distributed generation, and promote smart grid initiatives.

These megatrends cannot be underestimated. They are accelerating transformation in the European energy industry, enabling the entry of new players, putting pressure on incumbent players, and altering traditional strategies and business models. Organisations will need to adapt, and there will be winners and losers as this transformation takes shape. Our advice to senior leadership of energy companies is to take an integrated, holistic view of the opportunities and challenges that are flowing from these megatrends. Only then will you be able understand the full impacts and path forward—and that is the only way you can really take control of your future.

This post is the first in a series in which we will discuss each of the megatrends and the impacts (“so what?”) in more detail. We will attempt to discuss how these megatrends play out at the European level as a whole, as well as within the diverse set of regions and countries. Stay tuned for our next blog in this series.

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

 

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