Navigant Research Blog

Off-Grid Offerings Aim to Keep Utilities Ahead of New Competition

— November 9, 2017

Over the past several years, the falling costs for solar PV, energy storage systems (ESSs), and other distributed energy resources have prompted some industry observers to predict the major threats to the utility business model would be driven by increasing numbers of customers generating their own power. This prediction has proven to be premature and not a serious concern for many utilities. The costs and complexity required for customers to truly become independent of their local electricity provider remain too high. However, some utilities with largely rural and remote service territories face unique challenges to provide reliable and affordable service to their customers. Select providers around the world have begun exploring opportunities to offer off-grid energy systems directly to customers in an effort to reduce costs while establishing a new segment of their business.

Examples Around the World

In the US, Vermont-based utility Green Mountain Power claims to be the first in the country to actively help its customers go off-grid with combined solar PV and energy storage offerings. With a high percentage of rural customers, long feeder lines, mountainous terrain, and frequent blizzards, the company faces higher costs to reliably serve each customer. A key aspect of Green Mountain Power’s offering is selling its customers the Tesla Powerwall residential storage system through a well-established partnership with the EV and stationary storage provider. To reduce the energy required by these customers, the utility provides energy efficiency retrofits and home automation controls. It also supplies backup generators to ensure electricity is always available.

On the opposite side of the world, one of New Zealand’s largest electric distribution companies is facing similar challenges and has established its own off-grid program. Powerco has begun constructing several all-in-one microgrid energy systems for customers in remote parts of the country. The company’s offerings include solar PV, energy storage, and backup generators configured to meet a customer’s year-round energy needs. Powerco has partnered with US-based ESS provider SimpliPhi Power to offer its modular 3.4 kWh lithium ion battery units. The utility has determined that these off-grid energy systems are more cost-effective than having to extend the reach of the centralized grid by just 2 km, with an added benefit of reducing fossil fuel consumption and providing greater reliability for customers.

Avoiding Threats 

As explained by my Navigant colleagues in a 2016 article, threats to the utility business model have evolved into something far more pernicious in the past 3 years. Solar PV, ESSs, and other individual technologies are increasingly combined into complex hybrid energy systems driven by evolving technology platforms to meet the energy needs of end customers. These developments have resulted in previously unheard of competition in the market from cable and telecom companies, solar PV providers, home security firms, and large tech companies.

Utilities Facing Increased Competition at the Edge of the Grid

(Source: Navigant Research)

Utilities such as Green Mountain Power and Powerco recognize these threats and are attempting to get ahead of the competition posed by new energy service providers. These companies recognize that they must be innovative with their offerings to keep pace with the demands of customers and the industry’s technology-driven evolution. By encouraging customers to adopt new technologies and go off-grid on their own terms, utilities can establish a profitable extension of their business while forging stronger relationships with customers.

 

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.

 

It’s a Tie! The USITC Announces Its Section 201 Solar Trade Case Recommendations

— November 3, 2017

On October 31, 2017, the US International Trade Commission (USITC) announced the remedy recommendations that it will forward to President Trump. As we have discussed in previous blogs (here and here), this case has been shaping the future of the US solar industry. Impacts have been felt around the world since May 2017, when Suniva and SolarWorld asked the USITC to investigate.

What Did They Recommend?

The recommendations of each USITC commissioner can be found here. In summary, they recommended a system involving import quotas, import licenses, and a percentage-based ad valorem tariff of up to 35% in the first year of implementation. The commissioners rejected Suniva’s petition to set a minimum import price at $0.74/W; in percentage terms, this would be comparable to a 100% tariff. Like with Suniva’s petition, the tariff will be reduced each year and will drop to up to 32% in the fourth year of its implementation (the best case would set the tariff at 15%).

So, What Will Happen Next?

On one side, even when the highest tariffs are applied, module prices in the United States would regress to those seen about a year ago—when the industry installed 14.6 GW of capacity, doubling its previous installation record. Thus, the effects on the downstream of the solar industry should be minimal. It is unlikely that the protection given by the USITC will be enough to create a boom for solar manufacturing in the United States, but it should be enough to keep a profitable cottage industry focused on the local market with modest growth potential.

On the other side, the tariff and quota limits will stop future global price declines from being reflected in the US market. This will affect the competitiveness of solar and hence, its expansion into areas with lower irradiance.

With China hitting 50 GW of installed capacity this year (3 times the second largest market), India poised to take over the United States as the second largest market, and installations in the global sun belt (Latin America, Middle East, South East Asia, and Australia) soaring, global solar players are unlikely to be affected by the tariff. However, potential mirror tariffs might push out US companies with local manufacturing capacity, like First Solar, from the international markets.

Overall, the recommendations of the USITC commissioners favor the status quo, keeping the solar industry intact but slowing its growth.

 

Postcard from Puerto Rico

— November 1, 2017

It has been more than a month since Hurricane Maria swept through Puerto Rico. The majority of this US territory remains without reliable electricity and is facing a crisis of unprecedented proportions. The lack of power in Puerto Rico, as well as the hurricanes that struck Florida and Texas, have turned up the heat on utilities, regulators, and the federal government regarding how best to rebuild power grids for greater resilience to protect against future outages during natural disasters.

While companies such as Tesla proclaim that Puerto Rico provides the perfect opportunity to deploy solar PV plus energy storage microgrids to rebuild regional power supplies, others argue the quickest way for restoration lies with fixing the traditional hub-and-spoke centralized transmission grid. Where does the truth stand? As is often the case, somewhere between these two extremes. Though I personally would invest more heavily into microgrids, I would not restrict them to solar energy because hurricanes can both damage and limit power production. Nonetheless, wind-powered mobile microgrids were part of the immediate response, smart dual-fuel generators should also be vital parts of the microgrid solution mix.

Can Lessons from the Military Rebuild Puerto Rico?

There are some important lessons that Puerto Rico can benefit from if it listens to the US military, a key responder to the crisis in Puerto Rico.

As I noted in a recent blog, the US Department of Defense (DOD) and data centers have been wrestling with how to maintain uptime while scaling back its reliance upon diesel generation. In a new Navigant Research white paper sponsored by Schneider Electric, I argue that innovative business models, such as microgrids as a service, may be the ticket to transforming industries reluctant to embrace distributed energy resources (DER) innovations. Likewise, military bases are following similar pathways forward, eliminating capital costs and financing upgrades through energy efficiency savings. Case in point is the Marine Corps Logistics Base in Albany, Georgia, which is the DOD’s first net zero energy military base.

The military microgrid market was viewed as an early adopter before budget issues helped stall the market. While a uniquely US market in terms of adoption for stationary bases, its effect is global since the DOD has sites scattered across the globe. Forward operating bases and mobile tactical microgrids can operate as standalone systems or interconnect with traditional grids and have been featured in recent conflicts in both Afghanistan and Iraq. A new report from Navigant Research notes that momentum for DOD microgrids is picking up.

Military Technology – Civilian Implications

The DOD has played a remarkably consistent role in commercializing new technologies that provide tremendous social benefits within the larger civilian realm. The Internet, created by the Defense Advanced Research Projects Agency (DARPA) in 1969, is perhaps the most ubiquitous of the DOD’s contributions to consumer markets. Along with accelerating the commercialization of traditional manufactured products such as aircraft, the DOD has also pushed the envelope on IT. These advances have been vital to all smart grid platforms, including microgrids.

Hurricanes and related rain and wind do pose challenges to all forms of power supply, including microgrids. Yet, developing a distributed and diverse portfolio of resources is always the best bet, whether one is talking about the wholesale or retail delivery system (note that Cuba’s reliance on microgrids limits outages compared to its Caribbean neighbors). While the Trump administration favors traditional energy pathways, the DOD has forged new ground in DER. One option for Puerto Rico could be to carve out a lead role for the DOD in rebuilding its power system, showcasing lessons learned from both domestic bases and remote power bolstering national security, while at the same time delivering the humanitarian services so direly needed by the local population.

 

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