Navigant Research Blog

Californian and National Policies Could Shape Future Value Stacking for Distributed Natural Gas

— December 5, 2017

Distributed natural gas generation (DNGG) has significant potential for disruption in the electric sector thanks to improving generator technologies, cheap fuel, and the global trend toward decentralized systems in need of dispatchable power. Navigant Research has identified DNGG as a significant trend of the future, and various legislative and regulatory actions continue to affect this often overlooked but critical solution ecosystem. On the surface, some of these regulatory decisions appear as setbacks, and issues at the federal level remain unresolved. Yet, this key enabling technology for the Energy Cloud will continue to show growth due to underlying benefits dependent upon government subsidies. Some of the recent actions are discussed below.

California AB 36: This bill, which proposed to expand California’s fuel cell net energy metering (FC-NEM) program to include other efficient DNGG technologies, was vetoed by Governor Brown. The governor cited recent changes to the program and wanting to assess their effectiveness first. The goal of the bill was to make the FC-NEM program (with its 500 MW cap) technology agnostic and available to other technologies that meet certain emissions criteria. The decision keeps the larger cap exclusive to fuel cells. In a separate fuel cell development, new California projects have slowed in 2017 after new minimum biogas requirements were instituted in the Self-Generation Incentive Program.

California AB 1400: This bill, which prohibits recipients of microgrid funding from using those funds for diesel generators, was signed into law by Governor Brown in October. Though not exactly related to natural gas, this law continues a California lawmaking trend in aiming to limit carbon emissions—in this case as it relates to microgrids funded by the state’s Electric Program Investment Charge (EPIC) program. DNGG is not currently affected by this new law. These developments take place during a time of surging microgrid activity in California, with highlights including an active $44.7 million grant funding opportunity from the California Energy Commission and an active microgrid research roadmap.

Federal Investment Tax Credit: This credit for fuel cells, microturbines, and combined heat and power was a long-standing tax credit that expired at the end of 2016. House Bill HR 1, a tax bill, includes an extension for this credit, which if passed would provide a boost to these predominantly natural gas-fueled technologies. Note that the bill does not include this provision as of this writing. According to Navigant Research estimates for fuel cells, the credit is worth about $0.02/kWh throughout the system lifetime, which can significantly affect the economics of such systems.

Such policy developments have the potential to for significant effects on this dynamic industry. As renewables and storage receive significant governmental support, the relative merits of distributed natural gas will continue to be debated and judged. Regardless of the level of direct support of technologies like fuel cells, generator sets, and microturbines, the fundamental drivers of DNGG point toward a bright future.


Microsoft Deploys Fuel Cells into the Core of World’s First Gas Data Center

— October 12, 2017

Fuel cells have been used to power data centers for years, with players including Apple, eBay, and Equinix all making big investments in the technology. But while most fuel cells power data center facilities from the outside, Microsoft just built a pilot data center with the fuel cells installed right on the racks. This is a shift that could radically simplify future data center infrastructure and improve energy efficiency in these energy-hungry facilities. The big investments noted above notwithstanding, fuel cells have only captured a small fraction of data center market share. New types of deployments like Microsoft’s data center could help drive fuel cells toward the segment’s mainstream.

A Unique Fuel Cell Application

The unique design routes natural gas piping directly to the server racks, which could help eliminate a significant amount of electrical wiring, gear, and controls typical to data centers. A photo from Microsoft’s blog post depicts at least five devices that appear to be fuel cells positioned atop the rack. At an assumed 5 kW-10 kW per rack, the 20 racks likely represent a load of 100 kW-200 kW. The deployment is a good fit for fuel cells since they can be readily scaled in size to match load. That is, a given system can add or remove individual cells or stacks to precisely match demand, a feat not possible with more monolithic alternatives like generator sets (gensets) or microturbines.

There are some potential challenges with this configuration. Installing that much fuel cell support infrastructure (exhaust flue, gas piping, and controls, etc.) could impose significant cost on installations, and maintenance on all those systems could be more taxing than on a single multi-megawatt system installed outdoors. And gas-powered systems generally face the challenge of gas grid outages. Though these are rarer than electric grid outages, they represent a concern—especially in seismic zones like those on the US West Coast. When an outage occurs, many data centers still rely on diesel backup generators since the fuel can be stored onsite. Despite these challenges, this type of deployment shows promise, thanks to ongoing fuel cell technology improvements and the low cost of natural gas.

New Players Enter the Arena

Microsoft mentions project partners McKinstry, a design-build construction firm, and Cummins, an engine and genset manufacturer. Though the fuel cell provider is not noted, Cummins teamed up with UK-based Ceres Power Holdings PLC to develop solid oxide fuel cells for data centers under a Department of Energy (DOE) award in 2016. The award specifies a minimum efficiency of 60% and a capacity of 5 kW scalable to 100 kW. That efficiency is slightly below the 65% (lower heating value) efficiency listed by Bloom Energy, which has largely dominated data center fuel cell deployments to date—though its systems are larger. Regardless of the approach, the high efficiency and consistent energy output of fuel cells is a good match for data centers at large.

While the current design operates on natural gas, a modified future system using pure hydrogen storage could help zero-carbon data centers incorporate intermittent renewable power. That is, the intermittency of renewables like solar PV has historically limited adoption on data center sites, which form a consistent load. If, however, that PV or wind system could generate hydrogen using an electrolyzer in a power-to-gas configuration, the energy could be stored to consistently power the data center via fuel cells. These types of innovations could represent a massive opportunity. According to Yole Développement, data centers used 1.6% of global power production in 2015 and are anticipated to grow to 1.9% in 2020. By any measure, the opportunities in this space loom large.


Natural Gas Generation Displacing Diesel in India

— February 7, 2017

Recent developments indicate that natural gas power generation is set to displace growing amounts of diesel in India. Though natural gas represents just 8% of installed capacity, demand is set to more than triple in the 2012-2030 timeframe according to Indian government forecasts. While some of the extra supply will come from increased domestic production, much will come from the doubling of liquefied natural gas (LNG) import capacity through 2025. At the same time, local distribution piping is expanding its reach—one customer at a time.

Natural gas is becoming more attractive for a number of reasons. One is cost; although diesel and coal are both relatively inexpensive and heavily relied on for power, the increased natural gas supplies are expected to bring prices down. The globalization of Asian LNG markets should also bring more stability to gas prices as the fuel moves away from oil indexation to more market-based pricing in Asia. Perhaps more importantly, natural gas has significantly lower emissions than diesel and coal when used for power generation—measured via particulate emissions and greenhouse gases. Alongside renewables, natural gas is seen as a key tool in fighting air pollution in India, which has half of the world’s 20 worst polluted cities.

Diesel generators are one key cause for pollution. Diesels are chosen because they are cheap, fuel is readily available, and they can be relied on to operate when India’s relatively poor grid goes down. (According to the World Economic Forum, India ranks just above the bottom third in quality of electricity supply, though this ranking is slowly improving.) Diesel gensets are ubiquitous in India, with an estimated 90 GW of diesel generators as of 2014 and about 4% of all consumed diesel going to gensets. There is a drive for renewables to displace much of this diesel use, and they are well-positioned to do so due to falling prices of technologies like PV. But where natural gas becomes available, it may often be the preferred choice, especially where reliable power is needed after the sun stops shining.

Proactive Outreach

Diesel remains the de facto choice as a reliable and established solution for residential, commercial, and industrial customers alike. Thus, for distributed natural gas to thrive in India, proactive outreach is required. These companies have recently made headlines with moves in distributed natural gas:

  • Indraprastha Gas Ltd., a gas supplier in Delhi, recently pitched gas gensets to housing complexes and factories as a cost-saving measure. The company says natural gas generation can offer power at 12 Rs/kWh ($0.18) compared to diesel 18 Rs/kWh ($0.27). The company is also in talks to provide electricity as a service.
  • Last year, fuel cell maker Bloom Energy announced a partnership with state-owned GAIL, India’s leading natural gas company. An initial project was announced in Bangalore, presumably with many more to come.
  • Dual-fuel gensets or conversions may also be an attractive option. Genset manufacturers like Caterpillar and Cummins offer gensets or retrofit kits that allow compression-ignited diesel generators to displace half or more of their fuel with natural gas. As natural gas distribution expands, this trend is expected to spread.

As these and other value chain players find new opportunities to supply power or generation equipment, more natural gas infrastructure may follow in India. In this under-electrified growing economy that represents 17% of the world’s population, massive opportunity beckons to the prepared.


New Cummins and Tangent Joint Venture Enters the Heart of the Energy Cloud

— November 14, 2016

PipelineA joint venture has entered the Energy Cloud, pioneering new value propositions for stakeholders across the energy value chain. Dubbed edgeGEN, this offering allows energy retailers and commercial and industrial (C&I) facilities to capitalize on real-time economic opportunities on the grid.

edgeGEN consists of Cummins’ natural gas generator sets (gensets) equipped with Tangent Energy’s Tangent AMP distributed energy resource management system (DERMS). The system’s key focus is predicting (and reacting to) customer coincident peak demand, a rare occurrence that can nonetheless represent a significant portion of an electric bill. By focusing on these high-value instances, edgeGEN has the potential to provide high economic value to the grid with a small amount of fuel.

The business case for the product includes value propositions on both sides of the meter. Municipal utilities and energy retailers, the exclusive channel partners for the offering, save costs by incentivizing customers toward desired behavior like cutting demand during peak hours. C&I customers can be rewarded monetarily while in some cases also realizing the benefits of resilient power to ride through outages. Bringing it all together is a financing structure that typically requires no money down from the host facility.

Established Technology in a New Skin

Gensets remain the de facto backbone of many onsite generation systems for several reasons. They are dispatchable quickly any time of day, can have the cheapest levelized cost of energy of any distributed generation (DG) source, and can reliably deliver 1,000 times or more annual energy per square meter than solar PV. They account for 40% of the average microgrid generation capacity in Navigant Research’s Microgrid Deployment Trackermore than any other technology.

Though some argue that the dramatic cost declines in developing technologies like solar plus storage will lead to the displacement of gensets, we see this convergence as a key opportunity. As intermittent renewables grow, there will be increasing demand for fast-ramping gas generation, as noted in recent reports about California by the National Renewable Energy Laboratory (NREL) and the Union of Concerned Scientists. Additionally, according to a report funded by the German government, distributed natural gas generation must play a growing role in thermal energy storage. Both on- and off-grid, growing access to cheap natural gas is only accelerating this trend.

Offerings like edgeGEN have room to grow. Other DER and demand response can be integrated on the same platform, one that has flexibility to evolve alongside the coming growth in transactive energy. Municipal utilities and energy retailers, especially in areas with high capacity and transmission tags, should consider the value of incorporating smart gensets and complementary DER. Facility owners should consider the offering while also considering the true value of resilient power as a potential bonus. With growing renewables penetration, persistently cheap natural gas, and regulatory bodies recognizing the value of dispatchable DG, the opportunities in this space are promising.


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