Navigant Research Blog

A Tumultuous Year for Demand Response

— January 6, 2015

The participation of demand response (DR) in the wholesale markets has been fairly stable for the last 5 years or so.  2014 blew those trends out of the water.

The year came in like a lion, with the polar vortex hitting the entire United States during the first week in January.  Virtually every region of the country activated DR resources during that freeze.  Overall, DR performed well, dispelling myths that it could not contribute to winter reliability.

The spring brought the annual forward capacity auctions for the 2017-2018 power year for ISO New England and PJM, which both showed lackluster results for DR.  In New England, while capacity prices doubled around the region, the amount of DR cleared capacity stayed flat from the prior year’s auction.  Meanwhile in PJM, while the capacity price in the eastern region stayed flat and the western price doubled compared to the prior year’s auction, DR cleared 10% less capacity than last year.

Legal Bombshell

Then the fireworks began.  Everyone in the industry had been waiting for a ruling from the U.S. Circuit Court of Appeals on Order 745 from the Federal Energy Regulatory Commission (FERC) on DR compensation in response to a challenge that was raised by the Electric Power Supply Association a couple years earlier.  The court dropped a bombshell by questioning the very jurisdiction of FERC over DR, and the entire DR community stopped in its tracks.

The rest of the year was consumed by appeals and writs and stays and various other legal maneuvers, with some parties trying to get the court’s decision to take immediate effect and others trying to delay it as long as possible and get the U.S. Supreme Court to take up the case.  As we enter 2015, the fate of the order is still in the balance, and probably will be until the spring, when the Supreme Court will likely decide whether to take up the case.

Meanwhile, Elsewhere …

Other accomplishments in the DR world have been overshadowed by the FERC 745 case.  Baltimore Gas and Electric unveiled the first default Peak Time Rebate program.  New York and California are undertaking large-scale utility transformation efforts.  Internationally, many markets in Europe are percolating with DR activity, and Asia is heating up as well, led by South Korea opening up its electricity market to DR in November.  Finally, merger and acquisition activity in the space has accelerated, with EnerNOC going on a buying spree and Constellation selling its DR business to Comverge to create CPower.  Many of the above topics, along with several other interesting developments, can be found in Navigant Research’s free white paper, Smart Grid: 10 Trends to Watch in 2015 and Beyond.

Will 2015 be equally eventful?  I certainly don’t expect a repeat of the polar vortex situation, so in that respect, DR should get a respite.  I do expect chaos on the regulatory front to continue, though, regardless of the outcome on Order 745.  The regional transmission organizations will likely continue to squeeze all resources, including DR, for higher reliability standards.  More states are expected to push for retail-level DR, both as a reaction to Order 745 and out of their own needs.  And the international arena is likely to expand strongly, providing a relief outlet for companies looking to diversify outside the United States.

 

The Trouble with Trying to Reduce Residential Energy Consumption

— January 5, 2015

A recent story in The Wall Street Journal (subscription required) reminds us of the difficulty in trying to reduce energy consumption.  The story, by Jo Craven McGinty, notes that after 3 decades of effort aimed at lowering residential energy use in the United States, the overall level of consumption is still about the same, about 10 quadrillion BTUs per year.

Taking a deeper look, however, there is some positive news in the data.  While overall consumption is nearly unchanged, the average energy consumption per household has decreased, dropping to about 90 million BTUs a year in 2009 (latest year available) from about 114 million BTUs in 1980.

So, what is going on? Several things: newer homes tend to be larger than older ones.  And though they have more efficient envelopes and systems (double-pane windows, improved insulation, and efficient heating-cooling systems), it takes more energy to heat larger spaces, and the proliferation of devices in homes has required more energy use.  We now plug in more TVs, computers, DVRs, mobile phones, and second refrigerators.

The Efficiency Paradox

While our homes are more efficient, this is offset by an increase in energy consumption, a phenomenon called the rebound effect, or the Jevons Paradox, which holds that an increase in efficient use of a resource, like energy, can result in greater use and reduce the benefit.   This is not a hard and fast rule, and it is often debated among economists.  Nonetheless, there is a propensity toward squandering some efficiency gains once realized.  For example, when gas prices drop significantly, the cost per mile is lower, and people are more inclined to drive further or faster.

As McGinty points out, Americans receive mixed messages, being hectored to conserve energy while also being constantly invited to buy new gadgets and appliances that require energy.  This is evident in the U.S. Energy Information Administration data showing how consumption by type has changed.  In 1993, appliances, lighting, and electronics accounted for 24% of home consumption, which rose in 2009 to 34.6%.  Space heating was 53% of home energy consumption in 1993 and decreased to 41.5% in 2009.

Annual Residential Energy Consumption by End Use, U.S.: 2009

                               (Source: U.S. Energy Information Administration)

Helping to reduce residential consumption lies at the heart of home energy management systems and represents a key goal of utility energy efficiency programs.  No one is suggesting these efforts should stop just because the net result can seem frustratingly ineffective, or merely incremental.  But, as noted in Navigant Research’s report, Home Energy Management, one of the inhibitors to wider adoption is the uncertainty around net benefits.  Some argue that one way to avoid the rebound effect would be a tax to keep the cost of energy use the same.  But that would be a hard sell.

 

Solar-Powered EV Charging Network Takes Shape in Jordan

— January 5, 2015

Jordan is now among the growing list of countries intent on encouraging electric vehicle (EV) usage to reduce emissions and increase domestic energy security.  Strategically located between Israel and Saudi Arabia, Jordan has waived the import tariffs on EVs (which otherwise could double the price of a vehicle) and is embarking on a $120 million project to install a national network of solar-powered EV charging stations.

The plan is for 3,000 charging stations and 30 MW of solar power to be installed, with the first 11 charging stations to be placed in the capital of Amman.  Jordan imports 95% of its energy, according to Said Al-Hallaj, the chairman and CEO of AllCell Technologies, which is leading the consortium that will build the charging network.  Other participants include Hyseo International of France, which will provide solar systems for the charging stations, and the U.S. subsidiary of French supplier DBT, which will provide the charging equipment.

Greening the Desert

The Jordanian government views EVs as cost-effective since electricity is approximately 25% of the cost of gasoline as a fuel in Jordan.  While the price of crude oil and gasoline in many regions were in free fall during the second half of 2014, the current low prices are likely temporary in nature.

Some of the charging stations will have solar canopies, while others will use energy from nearby solar farms.  Shopping malls, tourist destinations, and parking lots are likely locations for the first charging stations, Al-Hallaj told me in an interview.  In 2013, Jordan’s Ministry of the Environment first began evaluating the use of EVs for the public transit fleet, according to The Jordan Times.

Al-Hallaj, who is Jordanian and leads AllCell from its headquarters in Chicago, said funding for the project  will come from the USAID Jordan Competitiveness Program (JCP), which has the goal of creating jobs and increasing the country’s competitiveness in technology, healthcare, and energy.  He expects sales of EVs in the country to be around 10,000 annually.  AllCell will provide the battery packs that will be used to store the solar energy that would be used to power the charging network.

Since transportation is a major producer of greenhouse gases, “the EV is considered to be an integral part of [the Jordanian] Ministry’s drive to support and strengthen our national Green Economy,” said Raouf Dabbas, Jordan’s senior ministry of environment advisor, in an email.

 

E-Scooters Get Their Own Network

— January 5, 2015

A San Francisco-based startup with Asian roots called Gogoro announced on January 5 that it is launching a line of futuristic battery-powered electric scooters and an e-scooter charging network that, for a monthly fee, will provide unlimited battery swapping and cloud connectivity.  The concept of battery swapping for electric vehicles has been tried before – most notably with the epic failure of Israeli startup Better Place (and with a little bit more success by Tesla Motors).  But this venture might have a much happier ending.

To understand how Gogoro might succeed, let’s first examine why Better Place failed.  Although the company made a number of personnel and strategic missteps, the fundamental problem of the Better Place model was that the battery switching stations were too expensive and too complex.  Another major problem was that the financial projections didn’t pan out because battery costs were still too expensive at the time of the firm’s launch in 2012.

Swap It Out

Gogoro, which has engineering facilities in Taiwan and whose CEO, Horace Luke, was the design mastermind behind Taiwanese cell phone manufacturer HTC, solves the complexity issue with a smaller battery pack: the Gogoro Smartscooter uses two batteries, each about the size of a Kleenex box and containing about 1 kWh of energy.  The user merely takes the battery out by hand and inserts it into the vending machine-like switching station.  Six seconds later, a fully charged battery comes out of the machine and can easily be reinserted into the scooter.  A fully charged pair of batteries provides the user almost 60 miles of range in an urban driving environment.

To solve the battery cost problem, Gogoro has two aces up its sleeve.  The first is timing: we are in a period of dramatically shrinking lithium ion battery costs.  What would have cost more than $1,000 per kWh a few years ago can be had for as little as a third of that today.

Gogoro’s other advantage is its strategic partnership with Panasonic, one of the largest battery manufacturers in the world.  Gogoro will use the same battery cells, made by Panasonic, that are used by Tesla Motors for its Model S battery pack.  And if it can grow quickly enough, Gogoro will get Tesla-type volume discounts.  Navigant Research estimates that Tesla pays approximately $200 per kWh for its Panasonic cells today, and that price is expected to drop as low as $130 per kWh by 2020 once the recently announced Tesla/Panasonic Gigafactory is up to full capacity.

Cool and Clean

Gogoro has one more big advantage going for it: the world’s young people are begging for alternatives to car ownership.  They want clean, affordable, yet stylish transportation alternatives.  This trend is as true in scooter-crazy Asian cities as it is in North America.  Traditional scooters are too dirty, dorky, and noisy to provide an appealing car substitute for most young people.  But Gogoro’s scooter will be affordable enough (although pricing hasn’t been announced, it should be cheaper than most other e-scooter options because the battery isn’t part of the purchase price) and stylish enough (CEO Horace Luke is a renowned industrial designer whose accomplishments include the Xbox game console and the much lauded HTC smartphone lineup) to be attractive to young urban dwellers in many countries.

 

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