Navigant Research Blog

Batteries Overtake Fuel Cells as California Reopens SGIP

— June 12, 2017

California’s Self-Generation Incentive Program (SGIP) reopened in May after a hiatus that included an overhaul and expansion of the program. Public program data continues to shed light on the competitive distributed energy resources (DER) scene in California as vendors stake their claims. Energy storage, historically a small funding recipient, is now front and center. Stationary fuel cells, historically funded by $0.5 billion in SGIP funds, accounted for zero applications (though the industry forges ahead elsewhere).

The key changes to SGIP are as follows:

  • SGIP reopened on May 1, 2017 with double the previous annual budget—$567 million through 2019.
  • There is a new emphasis on storage, with more than 75% of the budget allocated there. Key reasons for this shift include the need for storage to support intermittent renewables and a shift from carbon-emitting generation.
  • Power generation projects, including small wind and natural gas distributed generation (DG), are allotted less than 25% of total funds—in a category that historically took more than 90% of the $1.25 billion of incentives paid since 2001. Gas DG projects must add at least 10% biogas into the gas mix in 2017, increasing in steps to 100% by 2020.
  • Incentives are awarded across the investor-owned utility territories in 5 steps, with a 20-day minimum waiting period between. If a step is fully subscribed, applicants are entered into a lottery. This lottery was needed for the initial storage steps and allowed all applicants to have a shot at program funds.

A deeper look at the 1,237 applications logged during May serves as a guide to California’s DER space:

  • No fuel cell projects applied in 2017—after nearly half of historical SGIP funds (more than half a billion dollars) were awarded to fuel cell projects. Many stationary fuel cell manufacturers are regrouping around a technology that still has potential.
  • Storage was popular, with step 1 fully subscribed on day one across most utilities: 1,198 of the 1,237 total applications were received on the first day.
  • Generation accounted for just 9 of the 1,237 projects. However, the funds requested for those large projects exceed $6 million, more than 10% of total funds in step 1.
  • Generation’s step 1 was not fully subscribed; it appears the rigid biogas rules are discouraging many potential applicants. This requirement aimed to encourage growth in the biogas industry, but it seems there is insufficient supply or the economics aren’t panning out yet. All four natural gas project applications were based around onsite digester gas rather than directed (offsite) biogas.
  • The program roughly subscribes to the 80/20 rule: 80% of the funds were requested by less than 20% of developers (17 of 117, developers requested 80% of the funds). For equipment providers, there is a favorite: Tesla equipment, presumably all lithium ion batteries, accounts for $29 million, or more than half the applicant funds.

A summary of the leading participants is available at the SGIP website. Note that new data is coming in from step 2, which opened the week of June 5. A historical statistical overview of the program is provided below.

Selected SGIP Statistics

(Source: Center for Sustainable Energy, as of May 8, 2017)

SGIP has had its share of detractors, including claims that it unfairly rewarded certain technologies or companies or overspent ratepayer money. Yet, SGIP’s $1.25 billion in payments have helped cement California’s role as a global DER leader by developing industries that that may be worth much more in the future. In addition, the program has supplied valuable data, including information on capacity factors, efficiency, cost, and other metrics. The understanding of these metrics contributes greatly to the public good and the goal of a transparent and sustainable future.


Natural Gas Flaring: Time to Turn a $30 Billion Waste Stream into Profit, Part 2

— May 22, 2017

Part 1 of this blog series covered the state of natural gas flaring; this post examines specific developments allowing stakeholders to put the gas to use.

Flaring, the intentional burning of excess natural gas, contributes a great to deal to climate change. Therefore, this practice is regulated across the globe in the hopes of meeting climate goals. But is regulation necessary? Ideally, this wasted gas would be put to profitable, efficient use, limiting the need for specific flare gas regulations. In fact, several developments are pointing toward the profitable use of associated gas, including improved gas-to-liquids (GTL) technologies, improved onsite combustion technologies, and access to electricity offtakers through microgrids. Consider the following:

  • GTL technologies are improving rapidly. Notably, small-scale GTL players like Velocys, CompactGTL, and many others have commercially available products that convert natural gas into a variety of liquid products, including diesel and methanol, among others. These products have generally higher local value than natural gas and can be transported easily. This points to more opportunities in the developing world—much of which relies on liquid fuels, but has limited access to pipelines. GTL technologies have been held back by low oil prices, but become quite economical in many cases when oil costs over $50 per barrel—a scenario playing out with more regularity.
  • Improved combustion technologies, including natural gas reciprocating engines and microturbines, are opening new opportunities. Manufacturers like Caterpillar and Cummins offer dual fuel generator sets (gensets) that can mix natural gas into oilfield diesel generators. Meanwhile, microturbine vendors like Capstone Turbine offer units as small as 30 kW that can run on a wide range of fuels. GE’s Jenbacher gensets, well suited to handle the variable composition and impurities in associated gas, account for more than 450 MW of installed associated gas generation worldwide.
  • Access to new electricity offtakers through microgrids has the potential to put flare gas to use. Improvements in solar, storage, and microgrid controls technologies make microgrids a popular phenomenon—though such microgrids often call for a consistent baseload fossil fuel source to optimize generation. This is a good match for wellhead gas, which is produced with a relatively consistent output. Various companies are developing microgrids tied to oil & gas production, from Horizon Power in Australia to Mesa Natural Gas Solutions in the United States.

Global Opportunities

As a measure of global opportunities, consider developments in two key markets: Nigeria and Indonesia. Both major oil-producing nations, these countries rank No. 7 and No. 12, respectively, on The World Bank’s flare gas ranking list, accounting for a collective $2 billion in wasted gas (based on the $5.61 per million Btu measure previously outlined).

Nigeria has an aggressive strategy of 75% electrification by 2020 and recently released minigrid regulations that encourage decentralized generation. This, combined with continued oil & gas growth, points to opportunities for the $1.5 billion of wasted flare gas.

Indonesia, meanwhile, recently released new rules that incentivize wellhead power developments—provided that they are close to gas fields and to existing transmission lines and consumers. With more than $500 million in gas flared there, this regulation will open opportunities for microgrid developers, generator vendors, and other stakeholders in distributed power. With billions of dollars of gas going up in smoke and technologies and regulations pushing for efficient generation, opportunity looms large in flare gas alternatives.


Wärtsilä Acquires Greensmith: Genset Manufacturers Expand Their Role in the Energy Cloud

— May 19, 2017

This week, Wärtsilä announced its acquisition of Greensmith, highlighting a significant trend: generator set (genset) manufacturers are acquiring systems integration and controls capabilities. As this trend continues, the companies are embedding themselves ever deeper into the distributed energy paradigm outlined in Navigant’s Energy Cloud.

Hybrid/Storage Plays

Wärtsilä of Finland is a major global producer of larger reciprocating engines for power generation and marine uses. Yet, genset manufacturers in a variety of segments have been building relationships with storage and controls companies. This strategy can be considered both defensive and offensive in the fast changing genset industry, as explained below. Some specific moves since 2015 are shown in the following figure.

Generator Manufacturers with Publicly Announced Hybrid/Storage Plays

(Sources: Navigant Research, Company Press Releases)

In addition to Cummins, Caterpillar, Wärtsilä, and Doosan, other generator manufacturers, including General Electric (GE) and Aggreko, have announced storage offerings developed either internally or by undisclosed vendors. Most of the above companies also offer solar PV solutions in conjunction with their installations, whether through partners, through distributors, or directly.

There is clear appeal in genset/storage/PV hybrid systems. PV provides clean daytime power at cheapening costs, while gensets provide flexible baseload on demand for nighttime hours and fluctuations in demand. Solar production forecasting, as in the cloud monitoring systems developed by CSIRO, can adjust the operation of gensets to improve integration and save fuel costs (often a significant few percentage points). Storage then provides multiple benefits: in addition to smoothing out PV production, batteries can optimize genset operation, allowing for fuel savings, smoother operation, and sometimes even elimination of redundant gensets.

Defense and Offense

With the latter fact in mind, this acquisition/partnering strategy can be thought of as playing defense—acquiring a backfill revenue source for what may be a declining need for number of systems on any given project. Consider the example presented by Wärtsilä here. Of the six gensets in the “spinning reserve by engine vs storage comparison,” two have become redundant with the addition of battery storage, since the storage provides the spinning reserve formerly afforded by the gensets. If vendors see lower genset sales in cases like these, they may jump at the chance to backfill with sales of controls, storage, or PV.

Apart from its defensive aspects, this strategy also has significant offensive upside. As power production becomes ever more decentralized, genset manufacturers with solid distributed energy resources (DER) strategies will be well positioned to capture market share. There exist major opportunities in microgrids and virtual power plants—indeed, all across the Energy Cloud. As the core technology providers of thousands of legacy microgrids, genset vendors are both driven and well suited to serve a major role in the future of electricity.


Natural Gas Flaring: Time to Turn a $30 Billion Waste Stream into Profit, Part 1

— May 15, 2017

In 2015, an energy source equivalent to twice the total global solar production literally went up in smoke. That year, 147 billion cubic meters of associated natural gas was burned at the wellhead, releasing more than 300 million tons of CO2 into the atmosphere. Associated gas is a byproduct associated with petroleum wells, as opposed to wells built for natural gas production only.

What Is Flaring?

Globally, most associated gas is captured and put to use; however, flaring occurs due to a variety of technical, regulatory, and economic constraints. The light from these flares makes up a large part of the Earth-produced light that is visible from space. Indeed, the quantity and value of the gas is substantial. Amounting to 5.2 quadrillion Btu (known as quads), the flared gas would be worth about $30 billion annually if sold on major global markets (assuming a global value of $5.61 per million Btu, which is an average of the costs in the major markets of the United States, Canada, Germany, United Kingdom, and Japan in 2015).

There are a variety of reasons for flaring. In many cases, the amount of associated gas from oil operations is too small to justify the infrastructure needed to economically capture, compress, and transport it. Where it might be burned for electricity, there are often insufficient offtakers within 1- to 10-mile distances, over which electricity infrastructure is often worth building. Some countries, and even some oil companies, avoid pumping from locations that will require flaring, but flaring remains common practice in many cases.

Flaring Regulations and Economics

Flaring regulations take a variety of forms. In most of the world, flaring is regulated at the national level—a practice that has had mixed results. For example, Norway produces one-fifth the amount of oil as Russia, but burns less than one-fiftieth as much flare gas, due in part to stricter regulations. On the other hand, perverse incentives (with unintended consequences) also exist: the coffers in some countries (like Kazakhstan) count on the significant revenue generated by penalties for flaring, making crackdowns less likely there. Another perverse regulation exists in North America, where unlike most of the world, emissions are regulated at the state—or even regional levels—through air quality management districts or other entities. This has the advantage of tailoring regulations to local needs, but can also lead to administrative burdens and a lack of consistency across countries.

The economic choices related to flaring associated gas are complex, and the equations are changing as technologies and policies shift the energy landscape. However, the emissions associated with flare gas are substantial enough to merit scrutiny if countries are to meet their emissions targets for 2020, 2030, and beyond.

Part 2 of this blog series will look at some of the specific developments that will turn associated gas from waste into profits—for technology vendors, energy developers, and oil & gas companies. These developments include improved gas-to-liquids technologies, improved onsite combustion technologies, and access to electricity offtakers through microgrids.


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