Navigant Research Blog

EnerNOC Loses Its Crown as the Last of the Pure-Play Public Demand Response Companies

— June 23, 2017

And then there were none. All the pure-play energy efficiency and demand response (DR) public companies have now been gobbled up by large industry players. First, Comverge went private in 2011 and was recently acquired by Itron. Then Opower was bought by Oracle in 2016. Now EnerNOC has been acquired by Enel Green Power North America (EGP-NA) for $300 million. It was no secret that this was going to happen, as EnerNOC had essentially put itself on the auction block earlier this year. The only suspense was who the buyer would be. I don’t know anyone that had EGP-NA in their betting pool. I saw EnerNOC’s CEO Tim Healy at the Edison Electric Institute’s annual conference in Boston last week, and he did a great job keeping his poker face on.

The likely scenarios seemed to include either being taken private by a private equity company, like what happened with Comverge, or being bought by a large vendor like General Electric (GE) or Schneider Electric. It was not probable that a US utility would be in the mix. But European utilities like ENGIE have been active in getting footholds in the US distributed energy resources (DER) market with more customer-facing solutions. EGP-NA had been one of the quieter ones. By adding the EnerNOC deal to its recent acquisition of energy storage software/project developer Demand Energy, EGP-NA has pushed itself toward the forefront of this market.

A Lot of Opportunity

EGP-NA has no existing DR infrastructure, so there should not be a lot of overlap in terms of personnel or resources. The move should help EnerNOC expand more quickly in the European markets. The press release on the deal quoted Healy as saying, “we look forward to accelerating the growth of our core businesses and to delivering ever more value to our customers as we lead the transition to a more sustainable, distributed energy future.” So it seems like there is a lot of opportunity for EnerNOC to pursue, but it will likely face integration risks as the deal gets consummated.

I am glad that it appears that EnerNOC’s main business and position in the DR industry will continue. I was worried that a private equity firm might pick it apart and sell the pieces. I look forward to seeing the company expand DR further around the globe.

On the downside, I won’t have any more exciting transactions to write about. I guess we’ll have to wait and see if all of these recent deals pan out in a few years or if the next wave of news will be the large players selling the smaller DER players after unsuccessful integration attempts.

 

Saving the Sun for Later: Opportunities and Barriers for Solar PV plus Energy Storage

— June 22, 2017

At the recent Better Buildings Summit, I had the opportunity to moderate a session with Karen Butterfield of Stem, Ben Myers of Boston Properties, and Jessie Denver with the City of San Francisco to discuss their strategies and experiences related to adopting solar PV plus energy storage. It was a spirited discussion and we received in-depth, informed questions from the audience on feasibility, system costs, lessons learned, and how to make the business case for project deployments.

Lessons Learned

Stem opened the session and provided many great lessons learned from its experience to date:

  • Solar PV plus energy storage can be applied to save energy costs and demand charges, but a concise site- and tariff-specific use case is required to make a project work.
  • Robust software is required to integrate building load, solar PV system performance, and battery deployment scenarios to generate cost savings.
  • Utility partnerships can improve project economics and help make the business case.

Boston Properties highlighted that, as part of its sustainability plan, it has installed solar PV at many of its properties across the United States and has reduced its energy charges. The company is now looking at solar PV plus energy storage to guarantee tariff-specific demand charges as well. While Boston Properties has yet to complete a project, it is in the process of negotiating contracts using a solar PV plus energy storage power purchase agreement with a shared demand charge savings component.

Whereas Boston Properties’ drivers were financial and sustainability, the City of San Francisco’s drivers are resilience and sustainability. The city recently won a US Department of Energy SunShot grant to study the feasibility of installing solar PV plus energy storage at critical facilities to provide power in case of an earthquake or another emergency. San Francisco is currently selecting pilot sites and completing its feasibility analysis. As part of the project, the city and its project partners have created a free online tool to help others assess the feasibility of using solar PV plus energy storage for resilience.

Growth of Distributed Solar PV plus Energy Storage

The topics and session discussion at the Better Buildings Summit highlighted several key issues that Navigant sees as important for the growth of distributed solar PV plus energy storage markets:

  • The ability of energy storage software platforms to forecast energy and demand charge savings for anticipated building load and battery deployment scenarios is critical to the business case for these projects.
  • The multitude of regulations and rate structures affecting both solar and energy storage, and their expected evolutions, will increase the value of project design and operating software by helping lower customer acquisition and development costs.
  • As with standalone energy storage deployments, the predictability of costs savings from these projects will further the development of financing innovation to drive the deployment of these technologies.
  • The value of resilience and resulting business case criteria will differ greatly between solar PV plus energy storage customers. For example, the resilience value of solar PV plus energy storage for commercial office building occupants differs from that for a municipality like the City of San Francisco. Building occupants likely have a business continuity plan to address long-term energy outages at their facilities while the city is charged with critical first responder responsibilities in the event of a disaster or emergency.
 

Non-Wires Alternatives Give NWA a New Meaning

— June 22, 2017

There is a growing trend among utilities and grid operators to forgo traditional transmission and distribution upgrades in favor of alternative methods to meet system needs. In mid-June, it was reported that Massachusetts lawmakers are considering a bill that would require the consideration of non-wires alternatives (NWAs) before utilities make investments in grid upgrades. In May, Bonneville Power Authority (BPA) announced that it had chosen to take “a new approach to managing congestion on our transmission grid,” according to CEO Elliot Mainzer, rather than build a new $1 billion, 80-mile transmission line along highway I-5 in Oregon. Such examples show a move from tradition toward creative innovation.

Past to Present

Traditionally, when a transmission or distribution system operator had a need to upgrade or replace infrastructure due to aging equipment or increased load demand, it would simply conduct poles and wires projects with which it could earn a regulated rate of return. No thought was given to alternatives in addressing the issue; it was simply seen as replacing a part in the electric grid machine. However, more creative solutions are being explored to address infrastructure needs at a lower cost with higher customer and environmental benefits as grid management and distributed energy resource technology has improved. Utilities now look to increase customer engagement and provide more value-added services, and policy concerns related to cost and the environment have grown.

The Massachusetts bill would require utilities to competitively seek non-wires projects for necessary grid upgrades. It would require utilities, when proposing new infrastructure, to provide a “description of the alternatives to the facility,” including other methods of transmitting or storing energy, other site locations, other sources of electrical power or gas, load management, or local energy resource alternatives.

The BPA decision “reflects a shift for BPA—from the traditional approach of primarily relying on new construction to meet changing transmission needs, to embracing a more flexible, scalable, and economically and operationally efficient approach to managing our transmission system,” according to Mainzer. The preferred solution includes resources like battery storage, flow control devices, and demand response.

No One Solution Is Yet in Play

Several utilities in different state jurisdictions have undertaken NWAs with diverse program design and procurement models. At this early stage in development, there is no standard business model and procurement process for utilities to implement NWAs. Currently, there are four models being considered and tried by utilities. The first is request for proposal, a typical utility procurement model. Auctions are another; borrowed from wholesale market models to drive the lowest cost solutions. Also being considered is procurement with current implementation contractors to keep things simple and quick. The last possibility is internal utility resource deployment if the utility has the required capabilities. There is no one right answer for all situations; each case will depend on the utility’s internal structure and capabilities along with the regulatory construct in which it operates.

NWAs are likely to become more common in US utility capital planning processes and regulatory requirements in many US state jurisdictions. It is an exciting yet anxiety inducing opportunity to change the way utilities address system and customer needs simultaneously. The sooner the industry faces this new reality, the better prepared all parties can be to ensure it succeeds. Navigant Research’s recently published report, Non-Wires Alternatives, discusses the drivers, barriers, business models, and future growth of the market.

 

For the First Time, Solar Surpasses Wind

— June 20, 2017

2016 was a record year for solar with 76.6 GW installed—50% year-over-year growth from the 51.2 GW installed the year before. This brings solar to over 300 GW installed globally, just after exceeding the 200 GW mark in 2015, according to SolarPower Europe. This is great news for the broader renewables industries and for anyone concerned about climate change. However, it may raise some concerns within the wind energy industry, which for many years has vastly exceeded the installation rates of solar.

Since wind installed 54.3 GW (cumulative wind capacity stands at 484 GW), 2016 marks a turning point: the first time solar has exceeded wind energy’s annual installation rates. Solar only recently has been considered a serious competitor to wind, as solar PV module prices have fallen and installation rates have skyrocketed. This has led some notable developers (such as US-based Pattern Energy and Tri Global) to diversify from wind into solar, and turbine manufacturers Gamesa (now Siemens Gamesa Renewable Energy [SGRE]) and Suzlon to diversify into solar. SGRE landed a deal to build 130 GW of solar projects in India using inverters manufactured by Gamesa from factory capacity previously intended only for wind turbine power converters. Pattern is involved in a number of solar projects, including its first solar foray with 120 MW in Chile.

Wind continues to attack costs. It has decreased its cost of energy by 66% over the past 7 years (while solar decreased 85%), and its higher capacity factor of around 40% versus solar means wind will continue to maintain an edge in total megawatt-hours produced with the same nameplate capacity as solar. However, there are some key detractions to wind power that can’t easily be overcome. Two major impediments stand out: resource constraints and aesthetic impact.

Resource Constraints

Wind power is increasingly cost competitive in areas where there are good wind resources. In the United States, for example, the clear majority of wind capacity is installed in the vast central interior corridor spanning through Texas, Kansas, Oklahoma, Colorado, Iowa, Nebraska, Iowa, Minnesota, and the Dakotas. The consistent, low turbulence wind makes new wind plants cheaper than fossil fuel generation in those parts of the country.

While some of those states boast significant populations, the majority of the US population is located along the coasts where much less wind power is being developed because the resources are not as good (except for offshore—an entirely different topic). Solar doesn’t have the same challenge, as areas with strong solar resources are more likely to be colocated with population centers.

The Aesthetic Challenge

Wind turbines have increased their efficiency by evolving taller towers and longer blades. While this results in fewer turbines needed at a given project, it still results in a major visual change to the horizon. There are many people around the world that do not welcome such obstructions. Solar is arguably less visually obtrusive, as it takes up space on roofs in the residential setting or large fields in commercial settings.

Wind development has largely plateaued and global installations above 50 GW are expected annually for the next 10 years. Whether solar will begin to consistently eclipse those figures as it maximizes its core strengths is the big question.

Best of Both Worlds?

Regardless, one factor that will help the two technologies remain (to some degree) complementary instead of direct competitors is the different and complementary resource profiles. In most parts of the world, sunny months tend to be less windy and windy months tend to be less sunny. Analysis by the Fraunhofer Institute of Germany’s grid shows greater value and system stability with both wind and solar operating versus only one of the two technologies operating.

 

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