Navigant Research Blog

Thinking Outside the Box about Microgrid Technology

— November 28, 2017

When one hears the word technology, most think of a hardware gadget, something tangible that can be touched and is a literal tool. However, some prominent thought leaders take a much broader view.

Jayant Kumar, global digital grids director for GE Grid Solutions, points to better microgrid master planning tools as a technology vital to bringing the microgrid platform into full commercial viability. In a recent interview, he asked “What we are trying to do is to create a utility in a box. But how do you do that at the right economic scale? What is the right business case?” He explained that with sophisticated planning tools, the assets can be matched up with the right market landscape to reach necessary internal rate of returns to make projects pencil out.

Investments in Microgrid Tech to Rise

Navigant Research will soon be publishing a report on the topic of microgrid enabling technologies (MET). The focus will be on the distributed energy resources—hardware assets—that get wrapped into microgrids. Preliminary findings show combined heat and power (CHP) capturing the largest market share today, but by 2026, the leader is solar PV (with energy storage coming in second place). All told, the hardware assets (biomass, CHP, diesel, energy storage, fuel cells, hydro, solar PV, and wind) will represent approximately $90 billion in cumulative investment over the next decade.

While these numbers are staggering and may make certain investors drool, the key to unlocking the value sometimes hidden in these hardware assets is more nebulous since they delve into the realms of telecommunications, finance, and software technologies—the value of which is more difficult to count and quantify.

Mobile Phones as a Microgrid Enabling Technology

In the developing world, there is an acute need for financial products to pave the way for microgrids linked to energy access initiatives. In these markets, it is the proliferation of mobile phones—and the infrastructure required to enable communications (i.e., cell phone towers)—that could also be considered MET. Mobile phones create the infrastructure to enable payment for energy services on an as used incremental basis that is driving growth in smaller scale microgrid systems.

For example, Simpa Networks is one of many innovators bringing energy access through microgrids to developing world markets via the pay-as-you-go model. It installs solar PV systems in households or small businesses and customers pay for the electricity consumed, like prepaid mobile phone plans. The payments count toward the purchase price of the solar PV system so customers will eventually own the system.

Controllers: The Magic Sauce

The other MET to be sized in my forthcoming report is microgrid controls spending. This is the linchpin software enabling technology that remains the bottleneck to full-scale commercial viability (just ask Duke Energy). The US Department of Energy (DOE) and the Institute of Electrical Energy Engineers (IEEE) are playing critical roles in taking a bit of the mystery out of what is now the magic sauce that makes a microgrid work (or not.)

Perhaps the most interesting initiative was launched by the National Renewable Energy Laboratory (NREL) in what is being described as a shootout under a controller-in-the-loop test pitting controller against controller. Stage 1 involved five vendors in a Microgrid Innovation Challenge where all five vendors competed in managing a simulated highly complex microgrid. The companies competed for 100 minutes on seven performance parameters. Next, NREL will pit two finalists in a real-world hardware environment in December 2017. The winner will be selected as the controller to be used at NREL’s microgrid testing facility.

 

Is DER Taking Off in China?

— November 7, 2017

Last month, the Chinese Photovoltaic Industry Association announced that the country had installed a whopping 24.4 GW of new capacity in the first half of 2017. That China broke its previous year’s record once again makes the announcement news in itself. What is interesting, however, is not the final figure, but how China reached it.

In the first half of 2017, ground-mounted installations (installations without any onsite electricity demand) fell 16% to 17.3 GW, while distributed PV—mostly rooftop projects—almost tripled, reaching 7.1 GW in the same period. Of the 7.1 GW, 3.0 GW of distributed PV was installed in June 2017 alone. By the end of June, China had 102 GW of PV capacity installed, of which 83% was ground-mounted and 17.4 GW was distributed.

A highly attractive incentive program drove this growth. China’s distributed PV users (rooftop plants of up to 20 MW) can access a feed-in tariff premium for 2017 of ¥0.42/kWh ($0.06/kWh) on top of the electricity price for 15 years. In addition, some provinces offer further incentives. For example, Hebei provides ¥0.15/kWh ($0.02/kWh) for the first 3 years of the plant (effective in 2015). Jiangsu Province offers ¥0.50/kWh ($0.08/kWh) for 5 years, and the City of Shaoxing gives an additional ¥1.00/kWh ($0.16/kWh).

The national incentive was left at the same level for the last 4 years while PV module prices fell about 40%, so distributed PV became economically attractive. In addition, late in 2016, China’s National Energy Administration proposed a 28%-52% cut to the distributed PV tariff, depending on the region where the system is installed. This was changed in the latest draft, which now proposes a national tariff of ¥0.30 ($0.05) per kWh on top of the electricity price that would take effect in January 2018.

The expected drop in the incentives created a rush to install distributed PV in 2017, but there are other factors in favor of the massive growth. Curtailment is a major issue faced by Chinese PV installations, and it has pushed the country to ban new ground-mounted installations in the provinces that have the most issues—like Xinjiang and Gansu, where 26% and 22% of all the potential generation is lost (at a cost to the system owner) due to curtailment, respectively. A key advantage of distributed PV installations over ground-mounted installations is the offtaker of the electricity produced onsite, as it limits the risk of curtailment.

Opportunities Beyond PV

Other distributed energy resources (DER) technologies are also poised to gain some ground, thanks to the deployment of distributed PV. In March 2017, the National Energy Board issued a draft paper with “guidelines for the promotion of energy storage technology and industry development,” creating some momentum for the country’s storage market. The local PV companies Trina Solar and Xie Xin have also shown interest in this market and have started to invest in storage to complement their product portfolios. China’s vehicle manufacturer BYD also has a long track record producing battery cells and recently launched energy storage systems for residential and commercial applications.

China’s Competitive DER Industry

The development of DER in China could easily reverberate in the rest of the world. Chinese PV OEMs already lead the world in production and are taking an important role in technology innovation in the renewable sector. If the large Chinese inverter and battery players like Huawei, Sungrow, and BYD create innovative DER products for their domestic market that can be adapted to the North American and European markets, this will be difficult to answer. Despite the import tariff, Asian-made PV modules have conquered the market. However, giving Chinese companies some control over energy assets might be too much for Western governments. Huawei, for example, has been blocked from selling to the US telecom industry. But one thing is certain: we can bet the Chinese player will try.

 

Innovators Wanted for DER Solutions: Part 3

— November 7, 2017

Coauthored by Brett Feldman

Earlier this year, Navigant Research wrote about innovations required to overcome challenges to widespread distributed energy resources (DER) adoption and integration. Next, we offered examples of some companies and products looking to address those gaps from different perspectives, with varying levels of success so far. Here, we follow up with a few more examples related to business models, customer relationships, market structures, and organizational paradigms.

Models

Edison Energy is an unregulated business unit of Edison International, the parent company of regulated utility Southern California Edison. It is branded as an advisory and services company that can design energy solutions—on both the supply and demand side—for large energy users. It is one of the major early competitors demonstrating the emerging energy as a service business model, having made rapid strides into the market by acquiring four startups—collectively, a $100 million investment (SoCore Energy, ENERActive Solutions, Delta Energy Services, and Altenex).

However, Edison Energy has also struggled to find its footing, despite the aggressive approach to acquiring new capabilities. It is now undergoing a major shake-up at the executive level, including the departure of its president in July 2017 after a strategic review by its parent company.

Relationships

The customer relationship with utilities, energy usage, and technology providers is changing. Utilities are now expected to offer a wider array of customer-facing services, offer a digital experience, and accommodate customer self-generation like solar PV. In many cases, utilities and technology providers are increasingly competing for the same customers (e.g., as a demand response program provider).

At the same time, other vendors are finding new products and services to sell to utilities to help them meet changing customer needs. Schneider Electric is one such vendor tapping into this transformation. In this case, Schneider Electric is marketing its WiserAir smart thermostat to utilities as a way to engage customers with an energy management platform before a competitor does.

Markets

Transactive energy is a hot topic in the energy industry and a concept that has great potential for DER markets. Transactive energy would allow customers with DER to trade power and grid services with each other and their utilities, leveraging blockchain technology for encrypted trading between parties. Policymakers and technology vendors have been the loudest proponents of transactive energy so far, but utilities are cautious about the value/benefits of such a market.

Utilities are also mindful of the influence of market forces on the reliability of their distribution systems and the large amount of software and grid technology that would be required to manage such a market. These are some of the primary reasons that a true transactive marketplace is still a relatively distant goal, even in California, which has been investigating DER for more than 10 years and is making progress on locational pricing for grid resources.

Organization

Many of the industry changes associated with DER have major repercussions for regulatory and utility organizational structures. These repercussions are most apparent in New York, under the Reforming the Energy Vision (REV) initiative. In 2016, the New York Public Service Commission approved structural reforms to electric utility regulations related to the alignment of utility shareholder financial interests and customer interests. Under the order, utilities have four ways of achieving earnings: (1) traditional cost-of-service earnings; (2) earnings tied to achievement of alternatives that reduce utility capital spending and provide definitive consumer benefit; (3) earnings from market-facing platform activities; and (4) transitional outcome-based performance measures. Changes to earnings, ratemaking approaches, and technology deployment will have a major influence on the affected utilities and how they are regulated.

 

Innovative Business Models Required to Drive Microgrids for Resilience

— October 17, 2017

The devastation caused by recent hurricanes in the Caribbean and southern United States has focused attention on the potential benefits of microgrids and local power generation. With widespread power outages and major damage to grid infrastructure, the opportunity to rebuild electrical systems with a more distributed and resilient architecture has never been clearer. Navigant Research’s new report Energy Storage for Microgrids highlights some the developments taking place in this emerging market along with the challenges that must be overcome to capitalize on the full potential of these technologies. The report explores innovations in business models that will be key to the growth of microgrids and distributed energy over the coming years, particularly in markets with significant financial constraints.

Protecting and Improving

Microgrids equipped with distributed energy storage, solar PV, and other forms of distributed generation can greatly enhance the resilience of the electrical system by preventing damage to a single portion of the grid from causing massive outages. This capability would be especially beneficial for islands such as Puerto Rico and the US Virgin Islands, which face frequent hurricanes capable of destroying transmission and distribution lines. In a centralized grid system, although power plants may still be operational after a storm, the energy they generate will be unable to reach customers. Microgrids with localized energy storage and generation are less susceptible to storm damage and can be brought back online more quickly, without damage in one area preventing service from being restored elsewhere. Furthermore, under normal conditions, microgrids provide numerous benefits to the grid by operating both independently and in a coordinated fashion to maximize the use of renewable energy without affecting grid stability.

Leveraging Financial Innovation to Drive Growth

Since microgrids are a relatively new technology platform, two major challenges that hold back new projects are the limited number of standardized solutions (despite some early plug-and-play offerings) and the limited financing options that reduce upfront investments and risks for customers. In the case of Puerto Rico and other islands with significant financial constraints, innovative business models will be critical for microgrids to spread.

Business model and financing innovations have been key drivers of growth in the solar PV industry over the past decade. Many of these same concepts are being applied to microgrid and distributed energy storage projects with the goal of negating the perceived risk of investing in new technologies. Some of the new models shifting risk and upfront investment away from customers include: power purchase agreements and leases with owner financing, software, energy as a service, and design, build, operate, and own models. New business models are being driven by the growing number of companies that leverage their backgrounds to provide microgrid solutions, including utility subsidiaries, energy service and technology providers, solar PV developers, and building energy management and controls providers.

Creating Opportunities

While the distributed energy industry races to help communities recover from recent disasters, it is critical that new technologies capable of reducing the effect of future storms be implemented. However, overcoming the lack of familiarity with these new systems and relatively high upfront costs will be a major challenge. The most successful companies in this industry will be those that can unlock the potential of new business and financing models to reduce the risk and upfront costs to customers. This ability to leverage private investment in infrastructure will be particularly important as countries with limited resources look to recover from massive damage while preventing similar issues in the future. In a webinar later this month, Navigant Research will explore the role of microgrids for improving resilience in another high profile area: data centers.

 

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